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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1995
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 NO. 0-11630
CHALLENGER INTERNATIONAL, LTD.
(Exact name of registrant as specified in its charter)
BERMUDA N/A
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
REID HOUSE, 31 CHURCH STREET
HAMILTON, BERMUDA
HM 12
(Address of principal executive offices, zip code)
(441) 295-8639
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
--- ---
There were 10,999,908 shares of the registrant's Common Stock, par value $.01
per share, outstanding on April 30, 1995.
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CHALLENGER INTERNATIONAL, LTD.
INDEX
PAGE
PART 1 FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets of the Company
(unaudited) at April 30, 1995 and October 31, 1994 2
Consolidated Statements of Operations of the Company
(unaudited) for the three months and the six months
ended April 30, 1995 3
Consolidated Statements of Cash Flows of the Company
(unaudited) for the three months and six months
ended April 30, 1995 4
Notes to the Consolidated Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 6
PART 2 OTHER INFORMATION
- ------ -----------------
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 7
SIGNATURES 7
CHALLENGER INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Thousands of U.S. Dollars,
except share data)
(Unaudited)
APRIL 30 October 31
------------------ ------------------
1995 1994
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 125 $ 2,997
Accounts receivable 6,497 5,539
Inventories 8,587 6,449
Other current assets 667 99
------------------ ------------------
15,876 15,084
EXCESS OF COST OVER NET ASSETS OF COMPANY ACQUIRED 1,706 -
PROPERTY, PLANT AND EQUIPMENT - NET 8,386 7,527
INVESTMENT IN AND ADVANCES TO INTELECT, INC. 2,224 -
OTHER ASSETS 390 370
DEPOSIT FOR ACQUISITION - 923
------------------ ------------------
$ 28,582 $ 23,904
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft $ 880 $ 522
Notes payable 4,605 3,146
Accounts payable and accrued liabilities 3,370 4,146
Current maturities of long-term debt 574 873
Current installments of obligations under capital leases - -
Liability reserve 102 97
Income taxes payable 232 46
------------------ ------------------
9,763 8,830
LONG-TERM DEBT, net of current maturities 3,428 2,241
------------------ ------------------
13,191 11,071
------------------ ------------------
MINORITY INTEREST 950 930
------------------ ------------------
SHAREHOLDERS' EQUITY:
Common shares, $0.01 par value,
80,000,000 shares authorized,
10,999,908 issued and outstanding (1994 - 9,948,142) 110 106
Share premium 9,277 7,854
Retained earnings - since November 1, 1992 5,054 3,943
------------------ ------------------
14,441 11,903
------------------ ------------------
$ 28,582 $ 23,904
================== ==================
</TABLE>
2
CHALLENGER INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Thousands of U.S. Dollars, except share data)
(Unaudited)
Three Months Ended Six Months Ended
--------------------------- ---------------------------
April 30 April 30
--------------------------- ---------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
SALES AND OTHER REVENUES:
Net sales $ 8,141 $ 5,910 $ 14,084 $ 9,392
Interest and other income 12 4 79 7
----------- ----------- ----------- -----------
8,153 5,914 14,163 9,399
COSTS AND EXPENSES:
Cost of goods sold 5,177 3,788 9,569 6,206
Interest expense 162 134 329 238
Selling, general and administrative 1,431 876 2,393 1,648
----------- ----------- ----------- -----------
INCOME BEFORE TAXES 1,383 1,116 1,872 1,307
INCOME TAXES 578 345 762 345
----------- ----------- ----------- -----------
NET INCOME FOR PERIOD $ 805 $ 771 $ 1,110 $ 962
=========== =========== =========== ===========
EARNINGS PER SHARE
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE $ 0.07 $ 0.07 $ 0.10 $ 0.09
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES AND
COMMON STOCK EQUIVALENTS OUTSTANDING
(IN THOUSANDS) 11,361 11,032 11,358 11,104
=========== =========== =========== ===========
</TABLE>
3
CHALLENGER INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Thousands of U.S. Dollars)
(Unaudited)
Three Months Ended Six Months Ended
------------------------------- ------------------------------
April 30 April 30
------------------------------- ------------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income for period $ 805 $ 771 $ 1,110 $ 962
Adjustments to reconcile net income to
net cash provided by operating activities:
Discontinued operations - (24) - (24)
Provision for losses on accounts receivable 45 - 65 -
Changes in the provision for cash discount 26 - 105 -
Reserve for inventory obsolescence 32 - 6 -
Depreciation and amortization 219 149 427 299
Utilization of net loss carryforwards 359 310 473 310
Non cash interest 19 - 19 -
Changes in operating assets and liabilities:
Accounts receivable (1,461) (519) (698) (1,049)
Inventories (988) (922) (1,755) (1,937)
Other current assets (300) (2) (555) (136)
Liability reserves (17) (27) (31) (57)
Accounts payable and accrued liabilities (171) 631 (994) 600
Income taxes payable 165 - 157 -
------------- ------------- ------------- -------------
Net cash provided by (used in) operating activities (1,267) 367 (1,671) (1,032)
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit on acquisition - - 923 -
Investment in other assets (27) - (28) -
Purchase of fixed assets (506) (429) (686) (572)
Investment in Lakefield - - (1,960) -
Investment in and advances to Intelect, Inc. (1,763) - (2,224) -
Proceeds on sale of fixed assets - - 8 -
------------- ------------- ------------- -------------
Net cash used in investing activities (2,296) (429) (3,967) (572)
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under notes payable 936 (135) 993
Payments on capital lease obligations - (33) - (66)
Payment of long-term debt 494 (123) 788 (319)
Proceeds from issuances of notes payable (120) - (280) -
Proceeds from share issuances 178 6 929 75
Adjustments to minority interest (19) - (19) -
Bank overdraft 270 64 355 101
------------- ------------- ------------- -------------
Net cash provided by (used in) financing activities 1,739 (221) 2,766 1,344
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,824) (283) (2,872) (260)
CASH AND CASH EQUIVALENTS, beginning of period 1,949 1,087 2,997 1,064
============= ============= ============= =============
CASH AND CASH EQUIVALENTS, end of period $ 125 $ 804 $ 125 $ 804
============= ============= ============= =============
</TABLE>
4
CHALLENGER INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 30, 1995
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
the Company without audit in accordance with generally accepted accounting
principles for interim financial statements and with instructions to Form 10-Q
and Article 10 of Regulation S-X. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included.
The accompanying consolidated financial statements do not include certain
footnotes and financial presentations normally required under generally accepted
accounting principles and, therefore, should be read in conjunction with the
audited financial statements included in the Company's Report on Form 20-F as at
October 31, 1994.
ACQUISITIONS
On January 13, 1995 the Company invested $400,000 to acquire 16% of the
outstanding capital stock of Intelect, Inc. ("Intelect") and on March 31, 1995
the Company entered into an agreement to purchase the remaining 84% of the
capital stock of Intelect (the "Option Agreement"). The Company had advanced a
further $1,824,000 at April 30, 1995 in the form of unsecured advances. Intelect
has secured debt of approximately $6,300,000 to two customers - the Company's
advances are subordinate to the secured debt.
INVENTORIES
The components of inventories are as follows (thousands of U.S. dollars):
APRIL 30 October 31
---------------- -----------------
1995 1994
---- ----
Raw materials $ 523 $ 720
Work in progress 5,769 5,002
Finished goods 2,395 853
---------------- -----------------
8,687 6,575
Less: allowance for obsolescence 100 126
================ =================
$ 8,587 $ 6,449
================ =================
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED APRIL 30, 1995
OVERVIEW
The Company signed a Letter of Intent on May 23, 1995 to sell its firearms
and related businesses, Savage Arms, Lakefield Arms and Savage Range Systems
(collectively, "Savage"), to Mossberg Corporation ("Mossberg") of North Haven,
Connecticut for $35,000,000 in cash plus additional consideration to be
determined at closing (the "Sale"). (REFERENCE IS MADE TO EXHIBIT 10(i) UNDER
ITEM 6 HEREOF). The Closing of the Sale is anticipated to be on or about July
31, 1995, subject to the execution of a definitive sale agreement, completion of
financing, due diligence and customary filings and approvals.
In connection with the Letter of Intent, Mossberg advanced the Company
$9,000,000 at an initial interest rate of 9% which the Company anticipates
applying to complete its acquisition of Intelect, which was initiated on January
13, 1995 when the Company acquired 16% for $400,000. (REFERENCE IS MADE TO
EXHIBIT 10(ii) UNDER ITEM 6).
RESULTS OF OPERATIONS
SALES
Sales increased to $10,141,000, up from $5,910,000 for the quarter, and to
$14,084,000, up from $9,392,000, in the six months ended April 30, 1995,
compared with the previous year. These increases were due to strong demand for
Savage Arms core product (the Model 110 Rifle) and incremental sales of
Lakefield Arms products (.22 caliber rim fire rifles).
GROSS MARGINS
Gross margins amounted to 36% for the quarter consistent with the previous
year but decreased to 32% (down from 34%) for the six months due to the lower
margins on the Lakefield product line (Lakefield sales were minimal in the first
quarter).
INTEREST EXPENSE
Interest expense increased for both the quarter and six month periods over
the prior year due to higher inventory levels necessitated by higher sales
expectations (and Lakefield's new product line) and higher interest rates.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A)
Selling expenses increased 63% and 45% in the quarter and six month periods
respectively in line with higher sales (up 38% and 50% for the quarter and six
month periods) and with the increased fixed overhead of Lakefield.
LIQUIDITY AND CAPITAL RESOURCES
As described above, in connection with the intended sale of Savage to
Mossberg, Mossberg provided the Company with a loan of $9,000,000 (the "Mossberg
Note") to fund the Company's acquisition of Intelect. The Mossberg Note will be
repaid out of the proceeds of the sale of Savage at closing or over a two year
period in the event the sale does not close. Interest on the Mossberg Note
increases from an initial rate of 9% to 17% if not repaid by October 31, 1995
and is secured by the shares of Savage. This financing arrangement was made to
avoid the fees, warrants and other costs and contingencies customarily
associated with placement of external, long-term subordinated debt. In the event
that the sale to Mossberg does not close, the Company believes that the Mossberg
Note can be repaid from the cash flow of Savage over the next two years although
no assurances can be given in this regard.
The Company intends to retire the secured debt of Intelect and to provide
working capital to Intelect from the proceeds of the Mossberg Note. No
assurances can be given that these funds will be sufficient to finance
Intelect's ongoing working capital requirements. The Company expects to receive
approximately $33,000,000 in cash on the closing of the sale of Savage
representing the base price of $35,000,000 less the retirement of Savage's
preferred shares ($500,000) and legal and other costs of approximately
$1,500,000. These funds will be used to retire the Mossberg Note of $9,000,000
plus interest of approximately $450,000. In the event that the sale of Savage is
not concluded, the Company will be required to fund Intelect's working capital
needs and to retire the Mossberg Note over two years from the cash flow of
Savage. The Mossberg Note will bear interest at 17% if not repaid by October 31,
1995 and is secured by the shares of Savage. No assurances can be given that
Savage's cash flow will be sufficient to fund these cash requirements or that
the Company will be able to obtain other sources of capital. In the event that
the Company defaults on the Mossberg Note, the Company would forfeit its primary
business and principal source of revenue, net income and cashflow.
6
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 (i) Letter of Intent between the Company and Mossberg
Corporation dated May 23, 1995;
10 (ii) Promissory Note between the Company and Mossberg
Corporation dated May 31, 1995;
10 (iii) Letter Agreement between the Company and Mossberg
Corporation dated May 31, 1995;
10 (iv) Pledge Agreement between the Company and Mossberg
Corporation dated May 31, 1995;
10 (v) Pledge Agreement between Challenger Industries Inc.
and Mossberg Corporation dated May 31, 1995.
11 Calculation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
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.
CHALLENGER INTERNATIONAL, LTD.
-------------------------------------
(Registrant)
Date: May 29, 1996
-------------------
/s/ PETER G. LEIGHTON
-------------------------------------
Peter G. Leighton
President and Chief Financial Officer
7
May 23, 1995
Challenger International, Ltd.
Reid House
31 Church Street
P.O. Box HM 1437
Hamilton HMFX Bermuda
Gentlemen:
LETTER OF INTENT
We are pleased to set forth herein the current intentions of Mossberg
Corporation ("Mossberg") with respect to the proposed acquisition by Mossberg of
all of the outstanding capital stock, including all warrants, options, and other
rights to acquire capital stock (collectively, the "Savage Stock"), of
Challenger Industries, Inc., a Delaware corporation (referred to herein as
"Savage"), on the terms set forth herein. Unless the context indicates
otherwise, references to Savage are intended to refer to Savage and its
subsidiaries, which it is our understanding will include Savage Arms, Inc.,
Lakefield Arms Limited, Passive Bullet Traps, Ltd., and Passive Bullet Traps,
Inc., d/b/a/ Savage Range Systems.
1. Purchase Price. In consideration for the assignment to Mossberg of
all of the outstanding Savage Stock, Mossberg will pay $35,000,000 (the "Base
Purchase Price") to Challenger International, Ltd. ("Challenger International"),
plus or minus the Adjusted Consideration, as set forth herein. Prior to the
closing of the sale of the Savage Stock (the "Closing"), Challenger
International will be responsible for: (i) acquiring any Savage Stock that is
not currently owned by Challenger International; and (ii) consummating a
tax-free reorganization pursuant to which Passive Bullet Traps, Ltd., an Isle of
Man corporation, which Challenger International has advised Mossberg owns the
intellectual property rights related to the passive bullet traps manufactured
and distributed by Challenger International and its subsidiaries, becomes a
wholly-owned subsidiary of Savage. The Base Purchase Price will be payable at
the Closing by wire transfer, plus, if the Closing occurs after July 31, 1995
and the delay in the Closing is not caused by an act or omission on the part of
Challenger International, interest on the Base Purchase Price equal to the prime
rate of Bank of Boston for the period from July 31, 1995 through the date of the
Closing. A portion of the Base Purchase
-2-
Price shall also be used at the closing to repay in full the Interim Note, plus
accrued interest, referred to below.
Challenger International shall cause KPMG Peat Marwick LLP to conduct
an audit of the consolidated financial statements of Savage as at July 31, 1995
(the "Closing Financial Statements") and to deliver an auditor's report to
Mossberg and Challenger International no later than September 10, 1995. If the
consolidated total shareholder's equity of Savage, as reflected in the Closing
Financial Statements, is greater than $10,500,000, then the amount by which the
total shareholder's equity exceeds $10,500,000 (the "Additional Consideration")
shall be paid by Mossberg to Challenger International in two installments, as
follows: (i) fifty percent (50%) of the Additional Consideration by wire
transfer on the later of twenty (20) days after delivery of the auditor's report
or September 30, 1995; and (ii) fifty percent (50%) of the Additional
Consideration by wire transfer on October 31, 1995. If the consolidated total
shareholder's equity of Savage, as reflected in the Closing Financial
Statements, is less than $10,500,000, then the amount by which the total
shareholder's equity is less than $10,500,000 (the "Subtracted Consideration")
shall be paid by Challenger International to Mossberg in two installments, as
follows: (i) fifty percent (50%) of the Subtracted Consideration by wire
transfer on the later of twenty (20) days after delivery of the auditor's report
or September 30, 1995; and (ii) fifty percent (50%) of the Subtracted
Consideration by wire transfer on October 31, 1995. The "Additional
Consideration" and the "Subtracted Consideration" are each sometimes referred to
herein as the "Adjusted Consideration."
2. Conditions to the Purchase. The acquisition of Savage by Mossberg
will be undertaken pursuant to a written agreement in form and substance
mutually acceptable to Challenger International and Mossberg (the "Definitive
Agreement"). Mossberg's execution of the Definitive Agreement shall be
conditioned on Challenger International's delivery to Mossberg of Savage's
business plan, budget, and interim consolidated financial statements, through
the latest available date. The Definitive Agreement will contain
representations, warranties, covenants, conditions, and indemnities customary
for transactions of this kind, including without limitation: (i) warranties
regarding the capitalization, financial statements, liabilities, taxes,
litigation, employee obligations, environmental obligations, compliance with
ERISA, and material agreements, of Savage; (ii) confirmation that no approval of
the transaction is needed by the stockholders of Challenger International; and
(iii) indemnity of Mossberg by Challenger International for any known or unknown
liabilities of Savage that are not set forth in their financial statements
delivered to Mossberg or otherwise disclosed in writing to Mossberg
(collectively, "Indemnified Liabilities"), provided however, that
-3-
(a) in no event will Challenger International be responsible to Mossberg for (I)
Indemnification Payments in excess of $5,000,000 in the aggregate (exclusive of
any claim for federal, state, or local taxes and any claim based on fraud,
intentional harm or similar basis), or (II) the first $50,000 of Indemnification
Payments, and thereafter, the first $5,000 of Indemnification Payments for each
occurrence, and (b) the amount of any Indemnification Payments incurred by
Mossberg shall be net of any insurance proceeds received by Mossberg. The
indemnification obligation referred to in subclause (iii) above shall expire,
unless Challenger has received notice of such claim: (w) on the date that is
three years from the date of the Closing with respect to any federal, state or
local tax claims; (x) on the date that is two years from the date of the Closing
with respect to any litigation or adversary proceeding initiated by third
parties, including product liability claims; (y) on December 31, 1995 with
respect to representations or warranties that relate to the financial statements
of Savage; and (z) on December 31, 1996 with respect to any other Indemnified
Liability. As used herein, the term "Indemnification Payments" means payments
for losses, claims, damages, costs, and expenses (including, without limitation,
reasonable attorney's fees) incurred by Mossberg for any Indemnified
Liabilities.
The Definitive Agreement will set forth conditions to the Closing,
including that: (i) any required third party, regulatory, or governmental
consents or approvals shall have been obtained; (ii) employee relations,
customer concentration levels, distributor relationships, and other matters
regarding production and distribution capabilities of Savage shall have been
reviewed by Mossberg and determined to be satisfactory; (iii) no material
adverse change shall have occurred in the business, financial condition, or
prospects of Savage since October 31, 1994; and (iv) the Closing occur on or
before August 11, 1995. In addition to the specific conditions set forth above,
consummation of the contemplated transaction will be contingent upon: (i)
Mossberg's completion, by June 15, 1995, of a due diligence investigation of the
business, operations, properties, and liabilities of Savage that results in
Mossberg being satisfied as to such matters, including specifically Mossberg's
satisfaction with the achievability of the business plan and projections
furnished by Challenger International and Savage to Mossberg in conjunction with
the acquisition process; and (ii) Mossberg's delivery to Challenger
International, by June 30, 1995, of a commitment letter issued by the Bank of
Boston or a financial institution of similar standing to extend a credit
facility to Mossberg in an amount of at least $50,000,000, an amount which
Mossberg currently believes necessary to complete the transactions contemplated
by this letter and to provide sufficient on-going working capital financing.
-4-
3. Employment Agreements. In addition to the other conditions to the
contemplated transaction, the Definitive Agreement shall provide for the
execution of a mutually satisfactory employment agreement between Mossberg and
Ronald Coburn.
4. Timing of Purchase; Conduct of Business. The parties will use their
best efforts to execute a Definitive Agreement by June 15, 1995 and to close the
transaction by July 31, 1995. During the time between the date of this letter
and the Closing of the transaction (the "Interim Time"), the business of Savage
shall be conducted in the ordinary course consistent with its prior operations,
and Savage shall use reasonable efforts to maintain its relationships and good
will with its suppliers, customers, and others with which it has business
relationships. In addition, during the Interim Time: (a) Savage shall limit the
amount of other indebtedness incurred to an amount necessary to maintain
adequate levels of working capital in a manner and amount consistent with past
practices; (b) Savage will permit Mossberg, Bank of Boston, and their authorized
representatives to have access to and examine the properties, assets, and
financial and corporate records of Savage, and to contact, in consultation with,
and with advance agreement from, Savage, customers of Savage for the purpose of
conducting their due diligence review of Savage; and (c) Savage shall not pay
any dividends or distributions, or transfer any assets or rights, to its
stockholders or their affiliates. For the purposes of the preceding subclause
(c), Savage's redemption of shares held by Cerrito Partners and its affiliates
will not be considered such a dividend, distribution, or transfer of assets or
rights.
5. Exclusivity. During the Interim Time (or, if no Definitive
Agreement is executed on or before June 15, 1995, until June 15, 1995) neither
Challenger International, Savage nor any of their representatives will directly
or indirectly: (a) solicit, initiate discussions, or engage in discussions or
negotiations with any person relating to the possible acquisition of Savage or
any material asset of Savage (whether such contacts are initiated by Challenger
International, Savage, or any of their representatives or otherwise); (b)
provide or cause to provide any information to any person, relating to the
possible acquisition of Savage; or (c) enter into a transaction with any person
or persons concerning the possible acquisition of Savage. You acknowledge and
agree that Savage's business is unique, and that Mossberg shall have, in
addition to all other legal remedies that may be available to it, the right to
seek enforcement of the provisions of this paragraph by an injunction or other
equitable relief.
6. Interim Loan. If the terms set forth herein for the purchase of the
Savage Stock by Mossberg are acceptable to you,
-5-
Mossberg will lend to you $9,000,000, subject to obtaining from Mossberg's
principal lender, Bank of Boston, consent to Mossberg's making such loan. Bank
of Boston has advised Mossberg that Bank of Boston will be in a position to
determine whether to give such consent by May 31, 1995, before which time Bank
of Boston would review the various information and documents provided by Savage
to Mossberg and seek internal credit approvals, for the purpose of determining
whether to give such consent. The terms of the loan will include the following:
(a) Challenger International and Savage will be jointly and severally obligated
upon the loan; (b) the loan will be evidenced by a promissory note (the "Interim
Note") that will be payable on the date of the Closing or, if no Closing occurs,
in two equal installments of principal, plus accrued interest, on October 31,
1995 and October 31, 1996; (c) the Interim Note will bear interest prior to July
31, 1995 at the prime rate ("Prime Rate") of Bank of Boston as of the date of
issuance, and will bear interest at the rate of 2% above the Prime Rate per
annum during August, 1995, 4% above the Prime Rate during September, 1995, and
8% above the Prime Rate thereafter until the Interim Note is paid in full; and
(d) the Interim Note will be secured by a pledge of the outstanding capital
stock of Savage. The Interim Note and any related pledge agreements and other
documents will be in form and substance acceptable to Challenger International
and Mossberg.
7. Preemptive Fee. If Mossberg lends $9,000,000 to Challenger
International as contemplated herein, and if within the 12 months after the date
hereof an agreement or transaction is executed by or consented to by Challenger
International or Savage or any of their subsidiaries pursuant to which all or
substantially all of the assets or capital stock of Savage (or control thereof)
are thereafter actually sold or transferred (whether directly, upon exercise of
an option, upon conversion of a security, or otherwise) for a price, including
any non-competition payments and other consideration to be paid in connection
therewith, that is based upon or would result in a value (the "Savage
Valuation") of Savage in its entirety of more than the $39,000,000 for Savage
(e.g., if 40% of the capital stock or assets of Savage is to be sold for more
than $l5,600,000), then, so long as the transaction contemplated herein was not
consummated due to the failure of Challenger to proceed as set forth in this
letter, and Mossberg was willing, ready, and able to perform as set forth
herein, Challenger International, Savage, and their subsidiaries shall be
jointly and severally obligated to pay to Mossberg a fee equal to 20% of the
amount by which the Savage Valuation exceeds $39,000,000 or $2 million,
whichever is greater (collectively, "Break-Up Fees"), and the payment of the
Break-Up Fees shall represent Mossberg's sole remedy (absent fraud or similar
conduct by Challenger International) for Challenger's failure to consummate the
transaction contemplated herein. If a Definitive Agreement is
-6-
executed, it will include a provision for a fee equivalent to that set forth in
the preceding sentence (which would be payable if the definitive Agreement were
terminated as a result of a breach by Challenger and a transaction referred to
above occurred within the next 12 months).
8. Confidentiality. The parties to this letter acknowledge that they
have each executed Confidentiality Agreements, dated May 17, 1995.
9. Brokers' or Finders' Fees. Mossberg will indemnify and hold
Challenger International harmless from any claim for brokerage or finders' fees
or expenses arising out of the transactions contemplated hereunder by any person
claiming to have been engaged by Mossberg. Challenger International will
indemnify and hold Mossberg harmless from any claim for such fees or expenses
arising out of the transactions contemplated hereunder by any person claiming to
have been engaged by Savage or Challenger International.
10. Non-Binding Nature. This letter is a letter of intent only and no
legal obligations are created hereby except with respect to the provisions of
paragraphs 5, 6, 7, and 9 hereof. If the Definitive Agreement and related
definitive documentation are not executed or delivered for any reason, no party
to this letter of intent shall have any liability to any other party hereto
based upon, arising from or relating to the provisions hereof other than those
set forth in paragraphs 5, 6, 7, and 9 hereof.
[The rest of this page has intentionally been left blank.]
-7-
If the foregoing sets forth terms upon which you desire to proceed further,
please sign below (and such acceptance by you will confirm your agreement to be
bound by the terms of paragraphs 5, 6, 7 and 9 above). Upon your acceptance of
the terms set forth herein, we will instruct our counsel to commence preparation
of a Definitive Agreement and we will continue, and we will request Bank of
Boston to commence, the review of any information and documents that you make
available to us for the purposes of this transaction.
Very truly yours,
MOSSBERG CORPORATION
By /s/ William H. Schoner
--------------------------
William H. Schoner
Its Vice President Finance
Reviewed and Agreed to:
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter Leighton
----------------------------
Peter Leighton
Its President and Managing Director
PROMISSORY NOTE
$9,000,000 May 31, 1995
FOR VALUE RECEIVED, the undersigned, Challenger International, Ltd., a
Bermuda corporation, Challenger Industries, Inc., a Delaware corporation,
Lakefield Arms Limited, an Ontario, Canada corporation, Passive Bullet Traps,
Ltd., an Isle of Man corporation, and Passive Bullet Traps, Inc., d/b/a/ Savage
Range Systems, a Texas corporation, (collectively, "Maker"), do hereby, jointly
and severally, promise to pay to the order of O. F. Mossberg & Sons,
Incorporated and Maverick Arms, Inc. (collectively, "Lender"), at its office at
7 Grasso Avenue, North Haven, Connecticut 06473, or at such other place as the
holder hereof (including Lender, hereinafter referred to as "Holder") may
designate, the principal sum of NINE MILLION AND NO/100 DOLLARS ($9,000,000),
together with interest on the unpaid balance of this Note beginning as of the
date hereof, before or after maturity or judgment, computed at the per annum
rates provided in the next paragraph herein, which rates shall be computed on
the basis of a Three Hundred Sixty (360) day year and actual days elapsed, and
together with all taxes levied or assessed on this Note or the debt evidenced
hereby against the Holder, and together with all costs, expenses and attorneys'
and other professional fees incurred in any action to collect this Note or to
enforce, defend, protect, preserve, foreclose or realize upon any lien, security
interest or other collateral securing this Note or to enforce, foreclose,
defend, preserve, protect or sustain any such lien or security interest or
guaranty or other agreement or in any litigation or controversy arising from or
connected with any of the foregoing.
The outstanding balance of this Note shall bear interest at a rate
equal to: (i) nine percentage points (9%) per annum, beginning on the date
hereof and continuing through and including July 31, 1995; (ii) eleven
percentage points (11%) per annum, beginning on August 1, 1995 and continuing
through and including August 31, 1995; (iii) thirteen percentage points (13%)
per annum, beginning on September 1, 1995 and continuing through and including
September 31, 1995; and (iv) seventeen percentage points (17%) per annum,
beginning on October 1, 1995 and continuing thereafter until this Note is paid
in full. Interest shall be compounded, and be payable in arrears, on the Payment
Dates (as hereinafter defined).
Principal, all accrued interest and any other sums due under this Note
shall be due and payable on the date of the Closing, as defined in a letter of
intent, dated May 23, 1995, between Lender and Challenger International, Ltd. If
the Closing does not occur on or before October 31, 1996, then principal, all
accrued interest and any other sums due under this Note shall be due and payable
as follows: (i) one (l) installment of $4,500,000, plus all accrued
-2-
interest on October 31, 1995; and (ii) one (1) installment of $4,500,000,
together with all accrued interest and any other sums due under this Note, on
October 31, 1996. The Closing Date, October 31, 1995 and October 31, 1996, are
referred to herein as the "Payment Dates."
Maker may prepay the indebtedness under this Note in whole or in part
at any time and from time to time without the imposition of any prepayment fee.
Unless applicable law provides otherwise, all payments and prepayments
received by Holder under this Note shall, at the option of the Holder, be
applied by the Holder in the following order:
(a) to the then outstanding charges and expenses incurred by
the Holder in enforcing any security granted to the Holder in connection with
this Note;
(b) to any unpaid and accrued interest on this Note; and then
(c) to the outstanding principal indebtedness of the Maker
under this Note in favor of the Holder.
Any and all prepayments of principal shall be credited to the unpaid
principal of this Note in the inverse order of maturity, and shall not affect
the obligation to pay the regular installments required hereunder until the
entire indebtedness has been paid.
Maker agrees that: (i) if any installment of interest or principal or
any other sum due under this Note shall not be paid when it is due and payable;
or (ii) upon the occurrence of any Default Event, as defined in a Letter
Agreement executed by and among the Maker and the Lender dated the date hereof
(the "Letter Agreement"), or (iii) upon the occurrence of any Event of Default,
as defined in a Pledge Agreement, dated the date hereof, between the Lender and
Challenger International, Ltd., or in a Pledge Agreement, dated the date hereof,
between the Lender and Challenger Industries, Inc. (collectively, the "Pledge
Agreements"), then, upon the happening of any such event, the entire
indebtedness with accrued interest thereon due under this Note shall, at the
option of the Holder, accelerate and become immediately due and payable without
notice. Failure to exercise such option shall not constitute a waiver of the
right to exercise the same in the event of any subsequent event of default.
Maker agrees that no delay or failure on the part of the holder in
exercising any power, privilege, remedy, option or right hereunder shall operate
as a waiver thereof or of any other power,
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privilege, remedy or right; nor shall any single or partial exercise of any
power, privilege, remedy, option or right hereunder preclude any other or future
exercise thereof or the exercise of any other power, privilege, remedy, option
or right. The rights and remedies expressed herein are cumulative, and may be
enforced successively, alternatively, or concurrently and are not exclusive of
any rights or remedies which holder may or would otherwise have under the
provisions of all applicable laws, and under the provisions of all agreements
between Maker and the Lender or between any endorser or guarantor and the
Lender.
Notwithstanding any provisions of this Note, it is the understanding
and agreement of the Maker and Holder (and any guarantors of Maker's
liabilities, if any) that the maximum rate of interest to be paid by the Maker
(or guarantors of Maker's liabilities) to the Holder shall not exceed the
highest or the maximum rate of interest permissible to be charged by a
commercial lender such as Lender to a commercial borrower such as Maker under
the laws of the State of Connecticut or any other applicable law. Any amount
paid in excess of such rate shall be considered to have been payments in
reduction of principal.
THE MAKER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION AND WAIVES ITS RIGHTS TO NOTICE AND HEARING UNDER CHAPTER
903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE
OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER MAY DESIRE TO
USE, AND FURTHER WAIVES ITS RIGHTS TO REQUEST THAT HOLDER POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT THE MAKER OR ANY ENDORSERS, GUARANTORS OR SURETIES OF
THE MAKER'S INDEBTEDNESS HEREUNDER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY HOLDER. The Maker further, waives
diligence, demand, presentment for payment, notice of nonpayment, protest and
notice of protest, and notice of any renewals or extensions of this Note, and
all rights under any statute of limitations. THE MAKER ACKNOWLEDGES THAT IT
MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS. THE MAKER
FURTHER ACKNOWLEDGES THAT LENDER HAS NOT AGREED WITH OR REPRESENTED TO MAKER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
This Note and all covenants, agreements and provisions set forth in
this Note shall inure to the benefit of Holder and its successors and assigns,
including, without limitation, Mossberg Corporation or Bank of Boston
Connecticut and any subsequent senior lender of Lender.
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This Note shall be governed by the laws of the State of Connecticut
(but not its conflicts of law provisions).
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
CHALLENGER INDUSTRIES, INC.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
LAKEFIELD ARMS LIMITED
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
PASSIVE BULLET TRAPS, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its Director
PASSIVE BULLET TRAPS, INC.
d/b/a SAVAGE RANGE SYSTEMS
By /s/ Herman Frietsch
---------------------------
Herman Frietsch
Its Chairman
The undersigned, O. F. Mossberg & Sons, Incorporated and Maverick Arms,
Inc., do hereby endorse that certain $9,000,000.00 promissory note payable to
the undersigned by Challenger International, Ltd; Challenger Industries, Inc.,
Lakefield Arms Limited, Passive Bullet Traps, Ltd. and Passive Bullet Traps,
Inc. d/b/a Savage Range Systems as of this 31st day of May, 1995 as follows:
Pay to the order of Bank of Boston Connecticut.
O. F. MOSSBERG & SONS, INCORPORATED
By: /s/ William H. Schoner
-----------------------------
William H. Schoner
Its Vice President
MAVERICK ARMS, INC.
By: /s/ William H. Schoner
-----------------------------
William H. Schoner
Its Vice President
May 31, 1995
O. F. Mossberg & Sons, Incorporated
Maverick Arms, Inc.
7 Grasso Avenue
North Haven, Connecticut 06473
Gentlemen:
Contemporaneously herewith, O. F. Mossberg & Sons, Incorporated and
Maverick Arms, Inc. (collectively, "Mossberg") is making a $9,000,000 loan (the
"Loan") to Challenger International, Ltd , Challenger Industries, Inc.,
Lakefield Arms Limited, Passive Bullet Traps, Ltd., and Passive Bullet Traps,
Inc., d/b/a/ Savage Range Systems (collectively, the "Borrowers"). The Loan is
evidenced by a Promissory Note dated of even date herewith (the "Note"). The
Note is secured by the pledge of the capital stock of certain of the Borrowers
pursuant to Pledge Agreements dated the date hereof, between Mossberg and
Challenger International, Ltd. and between Mossberg and Challenger Industries,
Inc. (collectively, the "Pledge Agreements"). As a condition to making the Loan,
Mossberg has required the Borrowers and Savage Arms, Inc. ("Savage") to enter
into this Letter Agreement.
This is to confirm our agreement and understanding that the occurrence
of any Default Event shall result in a default under and the acceleration of the
Note and constitute an Event of Default under the Pledge Agreements. The
following events shall constitute Default Events:
1. Fundamental Chanqes. Any Borrower or Savage enters into any merger,
consolidation, reorganization or amalgamation transaction, or liquidates, winds
up or dissolves itself (or suffers any liquidation or dissolution), or makes any
material change in its present method of conducting business.
2. Sale of Assets. Any Borrower or Savage conveys, sells, leases,
assigns, transfers or otherwise disposes of any substantial portion of its
property, business or assets (including, without
-2-
limitation, receivables and leasehold interests), whether now owned or hereafter
acquired, except for the sale or other disposition of any property or inventory
in the ordinary course of business.
3. Dividends. Any Borrower or Savage declares or pays any dividend on,
or makes any payment on account of, or sets apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of the capital stock of any Borrower or
Savage or any warrants or options to purchase any such capital stock, whether
now or hereafter outstanding, or makes any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of any Borrower or Savage; provided that Savage may pay up to
$1,000,000 on or before the Closing Date, as defined in a Letter of Intent,
dated May 23, 1995, between Mossberg Corporation and Challenger International,
Ltd., to redeem Savage shares of Series B and Series C Preferred Stock held by
Cerrito Partners.
4. Transactions with Affiliates. Any Borrower or Savage enters into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate, other
than transactions that are in the ordinary course of the Borrower's or Savage's
business and are upon fair and reasonable terms no less favorable to the
Borrower or Savage, as the case may be, than it would obtain in a comparable
arm's length transaction with a Person, as defined in the Pledge Agreements, not
an Affiliate (an "Affiliate Transaction"). Notwithstanding the foregoing
sentence, the Borrower and Savage may enter into one or more Affiliate
Transactions, provided that the aggregate consideration (including the value of
all noncash consideration) to be paid or received by all of the Borrowers and
Savage pursuant to all Affiliate Transactions does not exceed $500,000 in any
calendar year, or $125,000 in any calendar quarter. As used herein, the term
"Affiliate" shall mean, with respect to any Person (the "Primary Person"), (a)
any Person which, directly or indirectly, is in control of, is controlled by, or
is under common control with, the Primary Person, or (b) any Person who is a
director or officer (i) of the Primary Person, (ii) of any subsidiary of the
Primary Person, or (iii) of any Person described in clause (a) above. For
purposes of this definition, control of a Person shall mean the power, directly
or indirectly, (i) to vote 25% or more of the securities having ordinary voting
power for the election of directors of such Person, or (ii) to direct or cause
the direction of the management and policies of such Person whether by contact
or otherwise.
5. Amendment to Charter or By-laws. Any Borrower or Savage amends its
charter documents or by-laws or other governing documents.
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6. Issuance of Stock. Any Borrower or Savage issues any capital stock
or other equity securities of any nature or issues any other securities or
options that are convertible into or that grant the right to purchase or
exchange such other securities or options for any stock or other equity
securities of any nature of Borrower or Savage, provided however, that
Challenger International, Ltd. shall be entitled to issue capital stock or other
equity securities of any nature, or issue any other securities or options that
are convertible into or that grant the right to purchase or exchange such other
securities or options for any stock or other equity securities of any nature of
Challenger International, Ltd., so long as such capital stock, other equity
securities, other securities or options that are convertible into or that grant
the right to purchase or exchange such other securities or options for any stock
or other equity securities of any nature of Challenger International, Ltd. are
not convertible into, or do not grant the right to purchase or exchange such
capital stock or equity securities for, any stock or other equity securities of
any nature of Savage or any Borrower, other than Challenger International, Ltd.
7. Sale of Savaqe Stock. Challenger Industries, Inc. sells, assigns,
pledges, transfers, exchanges, or otherwise disposes of, or grants any option
with respect to any capital stock of Savage.
8. Notice. The Borrowers and Savage agree to promptly give notice to
Mossberg upon the occurrence of a Default Event. Such notice to Mossberg shall
be given in the manner and be effective as set forth in paragraph 18 of the
Pledge Agreements. Failure of the Borrowers or Savage to give notice to Mossberg
upon the occurrence of a Default Event shall constitute a Default Event.
9. Use of Proceeds. The Borrowers use the proceeds of the Loan for any
purpose other than to consummate (i) the acquisition by Challenger
International, Ltd. of 100% of the capital stock of Intelect, Inc., a Hawaiian
corporation, and (ii) transactions directly related to such acquisition.
10. Lakefield Arms Limited. The withdrawal by Lakefield Arms Limited of
its consent to the pledge of its stock by Challenger Industries, Inc. to
Mossberg pursuant to the applicable Pledge Agreement, or the failure of
Lakefield Arms Limited to give Mossberg any subsequent consent that will enable
Mossberg, after an Event of Default, as defined in such Pledge Agreement, to
realize on the Collateral, as defined in such Pledge Agreement.
This Agreement and all agreements and provisions set forth in this
Agreement shall inure to the benefit of Mossberg and its successors and assigns,
including, without limitation, Mossberg
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Corporation or Bank of Boston Connecticut and any subsequent senior lender of
Mossberg.
This Agreement, together with the Note and the Pledge Agreements, set
forth the entire agreement among the parties and it may not be amended except in
writing. This Agreement shall be governed by the laws of the State of
Connecticut (but not its conflicts of law provisions).
If the foregoing is acceptable to you, please sign this letter below.
Very truly yours,
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
CHALLENGER INDUSTRIES, INC.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
LAKEFIELD ARMS LIMITED
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
PASSIVE BULLET TRAPS, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its Director
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PASSIVE BULLET TRAPS, INC.
d/b/a SAVAGE RANGE SYSTEMS
By /s/ Herman Frietsch
---------------------------
Herman Frietsch
Its Chairman
SAVAGE ARMS INC.
By /s/ Ronald Coburn
---------------------------
Ronald Coburn
Its President
Agreed and accepted this
31st day of May, 1995.
O. F. MOSSBERG & SONS, INCORPORATED
By /s/ William H. Schoner
-----------------------------
William H. Schoner
Its Vice President
MAVERICK ARMS, INC.
By /s/ William H. Schoner
-----------------------------
William H. Schoner
Its Vice President
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of May 31, 1995, made by Challenger
International, Ltd., a Bermuda corporation (the "Pledgor"), in favor of O. F.
Mossberg & Sons, Incorporated, a Connecticut corporation, and Maverick Arms,
Inc., a Texas corporation (collectively, the "Pledgee").
W I T N E S S E T H:
WHEREAS, the Pledgee has made a $9,000,000 loan (the "Loan") to the
Pledgor, Challenger Industries, Inc., Lakefield Arms Limited, Passive Bullet
Traps, Ltd., and Passive Bullet Traps, Inc., d/b/a/ Savage Range Systems
(collectively, the "Borrowers"), as evidenced by a Promissory Note, in such
amount, dated of even date herewith (the "Note"); and
WHEREAS, as an inducement to and in consideration of the Pledgee making
the Loan, the Pledgor has agreed to, among other things, execute and deliver
this Pledge Agreement to the Pledgee.
NOW, THEREFORE, in consideration of the premises and to induce the
Pledgee to make the Loan, the Pledgor hereby agrees with the Pledgee as follows:
(1) Defined Terms. Unless otherwise defined herein, terms defined in
the preamble hereof and the recitals hereto shall have their defined meanings
when used herein and the following terms shall have the following meanings:
"Code": the Uniform Commercial Code from time to time in effect in the
State of Connecticut.
"Collateral": the Pledged Stock and all Proceeds.
"Event of Default": shall mean any of the following:
(a) The failure of any Borrower to pay any principal or interest
of the Note in accordance with the terms thereof; or
(b) Any representation or warranty made or deemed made by the
Pledgor in this Pledge Agreement or by the Pledgor or any Borrower in
any certificate, document or financial or other statement furnished at
any time under or in connection with this Pledge Agreement or the Note
shall prove to have been incorrect in any material respect on or as of
the date made or deemed made; or
(c) The Pledgor shall default in the observance or performance of
any agreement or covenant contained in this Pledge Agreement; or
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(d) Any of the Borrowers or Savage Arms, Inc. ("Savage") shall (a)
default in any payment of principal of or interest on any Indebtedness
(other than the Note) which has an aggregate principal amount in excess
of $250,000 or in the payment of any Guarantee Obligation under which
the maximum liability of any Borrower exceeds $250,000; or (b) fail to
comply with any financial covenant made in connection with any such
Indebtedness or Guarantee Obligation applicable to any of the first
three fiscal quarters of each fiscal year for a period in excess of 60
days after the end of each such quarter, unless such failure to comply
is not otherwise waived in writing within such 60-day period; or (c)
fail to comply with any financial covenant made in connection with any
such Indebtedness or Guarantee Obligation applicable to any fiscal year
for a period in excess of 90 days after the end of such fiscal year,
unless such failure to so comply is not otherwise waived in writing
within such 90-day period; or (d) fail to cure, or obtain a waiver in
writing of, any default (other than a payment or financial covenant
default) with respect to any other covenant or agreement made in
connection with any such Indebtedness or Guaranty Obligation within 30
days after having knowledge of such default; or (e) default in the
observance or performance of any agreement or condition relating to any
such Indebtedness or Guarantee Obligation or contained in any
instrument or agreement evidencing, securing or relating thereto, or
any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, with the giving of
notice if required, such Indebtedness to become due prior to its stated
maturity or such Guarantee Obligation to become payable; or
(e) (i) Any of the Borrowers or Savage shall commence any case,
proceedings or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or any
Borrower or Savage or any of their subsidiaries shall make a general
assignment for the benefit of their creditors; or (ii) there shall be
commenced against any of the Borrowers or Savage any case, proceeding
or other action or a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a
period of 60 days; or (iii) there shall be commenced against any of the
Borrowers or Savage any case, proceeding or other action seeking
issuance of a warrant of
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attachment, execution, distraint or similar process against all or any
substantial part of its asset which results in the entry of an order
for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof;
or (iv) any Borrower or Savage shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in any of
the acts set forth in clause (i), (ii) or (iii) above; or (v) any
Borrower or Savage shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; or
(f) One or more judgments or decrees shall be entered against any
of the Borrowers or Savage involving in the aggregate a liability (not
paid or fully covered by insurance) of $250,000 or more and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within sixty (60) days from the entry thereof; or
(g) The occurrence of a Default Event under the Letter Agreement.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations (the "primary obligations") of any other
third Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any
such primary obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (A) for the purchase
or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (iv)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided; however, that the
term Guarantee Obligation shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The
amount of any Guarantee Obligation of any guaranteeing person shall be
deemed to be the lower of (x) an amount equal to the stated or
determinable amount of the primary obligation in
-4-
respect of which such Guarantee Obligation is made and (y) the maximum
amount for which such guaranteeing person may be liable pursuant to the
terms of the instrument embodying such Guarantee Obligation, unless
such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in
which case the amount of such Guarantee Obligation shall be such
guaranteeing persons maximum reasonably anticipated liability in
respect thereof as determined by such guaranteeing person in good
faith.
"Indebtedness": of any Person at any date, (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with
customary practices) or which is evidenced by a note, bond, debenture
or similar instrument, and (b) all liabilities secured by any Lien on
any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.
"Issuers": Challenger Industries, Inc. and Passive Bullet Traps, Ltd.
(individually, an Issuer).
"Letter Agreement": means a Letter Agreement, dated the date hereof,
among the Borrowers, Savage and the Pledgee.
"Lien": Any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, and the filing of
any financing statement under the Code or comparable law of any
jurisdiction in respect of any of the foregoing).
"Obligations": the unpaid principal of and interest on (including
interest accruing on or after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like
proceeding, relating to the Pledgor, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding)
the Note and all other obligations and liabilities of the Pledgor to
the Pledgee, whether direct or indirect, absolute or contingent, due or
to become due, or now existing or hereafter incurred, which may arise
solely under, out of, or in connection with, the Note, this Pledge
Agreement, the Letter Agreement or the Pledge Agreement, dated the date
hereof, between the Pledgee and Challenger Industries, Inc. (the
"Challenger Industries Pledge Agreement"), whether on account of
principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses
-5-
(including, without limitation, all fees and disbursements of counsel
to the Pledgee that are required to be paid by the Pledgor pursuant to
the terms of the Note, this Pledge Agreement, the Letter Agreement or
the Challenger Industries Pledge Agreement) or otherwise.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Pledqe Agreement": this Pledge Agreement, as amended, supplemented or
otherwise modified from time to time.
"Pledqed Stock": the shares of capital stock of each Issuer listed on
Schedule I hereto, together with all stock certificates, options or
rights of any nature whatsoever that may be issued or granted by each
Issuer to the Pledgor while this Pledge Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in Section 9-306(1)
of the Code on the date hereof and, in any event, shall include,
without limitation, all dividends or other income from the Pledged
Stock, collections thereon or distributions with respect thereto.
(2) Pledge; Grant of Security Interest. The Pledgor hereby delivers to
the Pledgee, all the Pledged Stock issued and outstanding on the date hereof and
hereby grants to Pledgee, a first security interest in the Collateral, as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
(3) Delivery of Pledged Stock, Power of Attorney. Simultaneously
herewith, the Pledgor has delivered to the Pledgee all certificates evidencing
the Pledged Stock, accompanied by stock powers and other proper instruments of
assignment duly executed in blank, and the Pledgor agrees to deliver the
certificates evidencing all hereafter acquired Collateral, together with stock
powers and other proper instruments of assignment, duly executed in blank with
signatures properly executed thereon, for the use, benefit, security and
protection of the Pledgee as set forth herein, and upon and subject to the terms
and conditions hereof. The Pledgor hereby irrevocably grants the Pledgee a power
of attorney, coupled with an interest, with respect to the Collateral, with a
power, after an Event of Default, to transfer the Collateral, to execute in
Pledgor's name instruments of conveyance or transfer with respect to all or any
of the Collateral and to take such other action to enforce any of Pledgee's
rights hereunder or with respect to any of the Collateral. Pledgor hereby
-6-
irrevocably grants the Pledgee a proxy with respect to the Collateral for all
purposes consistent with this Pledge Agreement.
(4) Representations and Warranties. The Pledgor represents and warrants
to the Pledgee that:
(a) the shares of Pledged Stock listed on Schedule I constitute
all the issued and outstanding shares of all classes of the capital stock of
each Issuer;
(b) all the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable;
(c) the Pledgor is the record and beneficial owner of, and has
good and marketable title to, the Pledged Stock, free of any and all Liens or
options in favor of, or claims of, any other Person, except the Lien created by
this Pledge Agreement;
(d) the Pledgor has full power, authority and legal right to
execute, deliver and perform the obligations under this Pledge Agreement, and to
pledge, assign and grant a security interest in all of the Collateral pursuant
to this Pledge Agreement;
(e) no consent or approval or the taking of any other action in
respect of any party or of any public authority is required as a condition to
the validity or enforceability of this Pledge Agreement;
(f) there are no restrictions upon the voting rights or the
transfer of the Pledged Stock other than as required by law;
(g) the execution, delivery and performance hereof, and the
pledge and assignment of and granting of a security interest in the Collateral
hereunder, have been duly authorized by all necessary corporate or other action
of the Pledgor and do not contravene any law, rule or regulation or any
provision of the Pledgor's charter documents or by-laws or other governing
documents or of any judgment, decree or order of any tribunal or of any
agreement or instrument to which the Pledgor is a party or by which the Pledgor
or any of the Pledgor's property is bound or affected or constitute a default
thereunder; and
(h) upon delivery to the Pledgee of the Pledged Stock, the Lien
granted pursuant to this Pledge Agreement will constitute a valid, perfected
first priority Lien on the Collateral, enforceable as such against all creditors
of the Pledgor and any Person purporting to purchase any Collateral from the
Pledgor.
(5) Covenants. The Pledgor covenants and agrees with the Pledgee that,
from and after the date of this Pledge Agreement until the Obligations are paid
in full:
-7-
(a) If the Pledgor shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization),
options or rights, whether in addition to, in substitution of, as a conversion
of, or in exchange for any of the Pledged Stock, or otherwise in respect
thereof, the Pledgor shall accept the same as agent of the Pledgee, hold the
same in trust for the Pledgee and deliver the same forthwith to the Pledgee in
the exact form received, duly endorsed by the Pledgor to the Pledgee, if
required, together with an undated stock power, proxy and power of attorney
covering such certificate duly executed in blank by the Pledgor to be held by
the Pledgee, subject to the terms hereof, as additional collateral security for
the Obligations. Any sums paid upon or in respect of the Pledged Stock upon the
liquidation or dissolution of any Issuer shall be paid over to the Pledgee to be
held by it hereunder as additional collateral security for the Obligations, and
in case any distribution of capital shall be made on or in respect of the
Collateral or any property shall be distributed upon or with respect to the
Collateral pursuant to the recapitalization or reclassification of the capital
of any Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Pledgee to be held by it hereunder as
additional collateral security for the Obligations. If any sums of money or
property so paid or distributed in respect of the Pledged Stock shall be
received by the Pledgor, the Pledgor shall, until such money or property is paid
or delivered to the Pledgee, hold such money or property in trust for the
Pledgee, segregated from other funds of the Pledgor, as additional collateral
security for the Obligations.
(b) Without the prior written consent of the Pledgee, the Pledgor
will not (a) vote to enable, or take any other action to permit, any Issuer to
issue any stock or other equity securities of any nature or to issue any other
securities or options convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of such Issuer,
(b) sell, assign, pledge, transfer, exchange, or otherwise dispose of, or grant
any option with respect to, the Collateral, or (c) create, incur or permit to
exist any Lien or option in favor of, or any claim of any Person with respect
to, any of the Collateral, or any interest therein, except for the Lien provided
for by this Pledge Agreement. The Pledgor will defend the right, title and
interest of the Pledgee in and to the Collateral against the claims and demands
of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of
the Pledgee, and at the sole expense of the Pledgor, the Pledgor will promptly
and duly execute and deliver such further
-8-
instruments and documents and take such further actions as the Pledgee may
reasonably request for the purposes of obtaining or preserving the full benefits
of this Pledge Agreement and of the rights and powers herein granted. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any promissory note, other instrument or chattel paper, such
note, instrument or chattel paper (in each case, as defined in the Code) shall
be immediately delivered to the Pledgee, duly endorsed in a manner satisfactory
to the Pledgee, to be held as Collateral pursuant to this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Pledgee harmless
from, any and all liabilities with respect to, or resulting from any delay in
paying, any and all stamps, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Pledge Agreement.
(e) The Pledgor shall promptly give notice to the Pledgee upon the
occurrence of an Event of Default.
(f) The Pledgor will not (i) move the location of its chief
executive office/chief place of business out of the islands of Bermuda, or (ii)
change its name, identity or corporate structure to such an extent that any
financing statement filed by the Pledgee in connection with this Agreement would
become seriously misleading, unless it shall have given the Pledgor at least 30
days prior written notice thereof.
(6) Cash Dividends; Voting Rights. The Pledgor shall not be permitted
to receive any dividends, cash or otherwise, paid by each Issuer; the Pledgee
shall have the right to receive any and all dividends paid in respect of the
Pledged Stock and make application thereof to the Obligations in such order as
the Pledgee may determine. Unless an Event of Default shall have occurred, the
Pledgor shall be permitted to exercise all voting and corporate rights with
respect to the Pledged Stock, provided, however, that no vote shall be cast or
corporate right exercised or other action taken which, in the Pledgee's
judgment, would impair the Collateral or which would be inconsistent with or
result in any violation of any provision of this Pledge Agreement or a Default
Event, as defined in the Letter Agreement.
(7) Riqhts of the Pledgee. (a) If an Event of Default shall occur, all
shares of the Pledged Stock may, at Pledgee's sole option, be registered in the
name of the Pledgee or its nominee, and the Pledgee or its nominee may, at its
sole option, exercise (A) all voting, corporate and other rights pertaining to
such shares of the Pledged Stock at any meeting of shareholders of each Issuer
or otherwise and/or (B) any and all rights of conversion, exchange, subscription
and any other rights, privileges or options
-9-
pertaining to such shares of the Pledged Stock as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of such
Issuer, or upon the exercise by the Pledgor or the Pledgee of any right,
privilege or option pertaining to such shares of the Pledged Stock, and in
connection therewith, the right to deposit and deliver any and all of the
Pledged Stock with any committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine), all
without liability except to account for property actually received by it, but
the Pledgee shall have no duty to the Pledgor to exercise any such right,
privilege or option and shall not be responsible for any failure to do so or
delay in so doing.
(b) The rights of the Pledgee hereunder shall not be conditioned
or contingent upon the pursuit by the Pledgee of any right or remedy against the
Pledgor or against any other Person which may be or become liable in respect of
all or any part of the Obligations or against any collateral security therefor,
guarantee thereof or right of offset with respect thereto. The Pledgee shall not
be liable for any failure to demand, collect or realize upon all or any part of
the Collateral or for any delay in doing so, nor shall the Pledgee be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Pledgor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.
(8) Remedies. If an Event of Default shall occur, the Pledgee may
exercise, in addition to all other rights and remedies granted in this Pledge
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, the Pledgee, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Pledgor, each Issuer or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived) may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give option
or options to purchase or otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Pledgee shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
the Collateral so sold, free of any right or equity of
-10-
redemption in the Pledgor, which right or equity is hereby waived or released.
The Pledgee shall apply any Proceeds from time to time held by it and the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred in respect thereof or incidental to the care or safekeeping of any of
the Collateral or in any way relating to the Collateral or the rights of the
Pledgee hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel to the Pledgee, to the payment in whole or in part of
the Obligations, in such order as the Pledgee may elect, and only after such
application and after the payment by the Pledgee of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Pledgee account for the surplus, if any, to the Pledgor. To the
extent permitted by applicable law, the Pledgor waives all claims, damages and
demands it may acquire against the Pledgee arising out of the exercise by them
of any rights hereunder. If any notice of a proposed sale or other disposition
of Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least ten (10) days before such sale or other
disposition. The Pledgor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of Collateral are insufficient to pay the
Obligations and the fees and disbursements of any attorneys employed by the
Pledgee to collect such deficiency.
(9) Private Sales. The Pledgor recognizes that the Pledgee may be
unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act") and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable than if
such sale were a public sale and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner. The Pledgee shall be under no obligation to delay a sale of
any of the Pledged Stock for the period of time necessary to permit any Issuer
to register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Issuer would agree to do so. The
Pledgor further agrees to use its best efforts to do or cause to be done all
such other acts as may be necessary to make such sale or sales of all or any
portion of the Pledged Stock pursuant to this paragraph 9 valid and binding and
in compliance with any and all other applicable requirements of law.
-11-
(10) Term. This Agreement, including the pledges granted hereunder,
shall terminate upon the final payment in full of the Obligations, provided that
the Pledgee shall not thereafter be required to remit to the Pledgor or any of
its assignees or successors any portion of the Note proceeds. Upon termination
of this Agreement, any Collateral still pledged hereunder (and not yet disposed
of) shall be promptly delivered to the Pledgor together with all stock powers,
powers of attorney and proxies.
(11) Amendments. etc. with respect to the Obligations. The Pledgor
shall remain obligated hereunder, and the Collateral shall remain subject to the
Lien granted hereby, notwithstanding that, without any reservation of rights
against the Pledgor, and without notice to or further assent by the Pledgor, any
demand for payment of any of the Obligations made by the Pledgee may be
rescinded by the Pledgee, and any of the Obligations continued, and the
Obligations, or the liability of any Issuer or any other Person upon or for any
part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered, or released by the Pledgee, and the Note and any other documents
executed and delivered in connection therewith may be amended, modified,
supplemented or terminated, in whole or part, as the Pledgee may deem advisable
from time to time, and any guarantee, right of offset or other collateral
security at any time held by the Pledgee for the payment of the Obligations may
be sold, exchanged, waived, surrendered or released. The Pledgee shall not have
any obligation to protect, secure, perfect or insure any other Lien at any time
held by it as security for the Obligations or any property subject thereto. The
Pledgor waives any and all notice of the creation, renewal, extension or accrual
of any of the Obligations and notice of or proof of reliance by the Pledgee upon
this Pledge Agreement; the Obligations, and any of them, shall conclusively be
deemed to have been created, contracted or incurred in reliance upon this Pledge
Agreement; and all dealings between any Issuer and the Pledgor, on the one hand,
and the Pledgee, on the other, shall likewise be conclusively presumed to have
been had or consummated in reliance upon this Pledge Agreement. The Pledgor
waives diligence, presentment, protest, demand for payment and notice of default
or nonpayment to or upon any Issuer or the Pledgor with respect to the
Obligations.
(12) Limitation on Duties Regarding Collateral. The Pledgee's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,shall
be to deal with it in the same manner as the Pledgee deals with similar
securities and property for its own account. The Pledgee and its directors,
officers, employees or agents shall not be liable for failure to demand, collect
or realize upon any of the Collateral or for any delay in
-12-
doing so or shall be under any obligations to sell or otherwise dispose of any
Collateral upon the request of the Pledgor or otherwise.
(13) Severability. Any provisions of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(14) Paragraph Headings. The paragraph headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
(15) No Waiver; Cumulative Remedies. The Pledgee shall not by any act
(except by a written instrument pursuant to paragraph 15 hereof) be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Event of
Default or in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of the Pledgee, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Pledgee of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Pledgee would otherwise have on any future occasion. The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any other rights or remedies provided by law.
(16) Waivers and Amendments. Successors and Assigns. None of the terms
or provisions of this Pledge Agreement may be amended, supplemented or otherwise
modified except by a written instrument executed by the Pledgor and the Pledgee.
This Pledge Agreement shall be binding upon the successors and assigns of the
Pledgor and shall inure to the benefit of the Pledgee and its successors and
assigns, including, without limitation, Bank of Boston Connecticut and any
subsequent senior lenders of the Pledgee.
(17) Marshalling. Pledgee shall not be required to marshal any present
or future collateral security for (including, but not limited to, this Pledge
Agreement and the Collateral), or other assurances of payment of, the
Obligations, the Loan or any of them, or to resort to such collateral security
or other assurances of payment in any particular order. To the extent that the
Pledgor lawfully may, the Pledgor hereby agrees that the Pledgor will not invoke
any law relating to the marshalling of collateral that might
-13-
cause delay in or impede the enforcement of Pledgee's rights under this Pledge
Agreement or under any other instrument evidencing any of the Obligations or
under which any of the Obligations is outstanding or by which any of the
Obligations is secured or payment thereof is otherwise assured, and to the
extent that it lawfully may, the Pledgor hereby irrevocably waives the benefits
of all such laws.
(18) Notices. Notices by the Pledgee to the Pledgor or any Issuer may
be given by hand, by mail, by telex or by facsimile transmission, addressed or
transmitted to the Pledgor, or in the case of any Issuer, in care of the
Pledgor, at the Pledgor's address or transmission number set forth below and
shall be effective (a) when delivered by hand, (b) in the case of mail, three
days after deposit in the postal system, first class postage pre-paid and (c) in
the case of telecopy notice, when sent. The Pledgor or any Issuer may change
their respective addresses and transmission numbers by written notice to the
Pledgee.
The Pledgor: Challenger International, Ltd.
Reid House
31 Church Street
P.O. Box HM 1437
Hamilton HM FX
BERMUDA
Attention: President and Managing Director
Telecopy: (809) 292-5560
With a copy to: Philip P. Rossetti, Esquire
Hale and Dorr
60 State Street
Boston, MA 02109
Telecopy: (617) 526-5000
The Pledgee: O. F. Mossberg & Sons, Incorporated
Maverick Arms, Inc.
7 Grasso Avenue
North Haven, CT 06473
Attention: Vice President and General
Counsel
Telecopy: (203) 230-5423
With a copy to: Stanford N. Goldman, Jr., Esquire
Schatz & Schatz, Ribicoff & Kotkin
90 State House Square
Hartford, CT 06103
Telecopy: (203) 246-1225
(19) Expenses. The Pledgor will upon demand pay to the Pledgee the
amount of any and all expenses, including the reasonable fees and expenses of
counsel and of any experts and agents, which the
-14-
Pledgee may incur in connection with (a) the custody, preservation or sale of,
collection from or other realization upon any of the Collateral, (b) the
exercise or enforcement of any of the rights of the Pledgee hereunder, or (c)
the failure by the Pledgor to perform or observe any of the provisions hereof.
(20) Irrevocable Authorization and Instruction to Issuers. The Pledgor
hereby authorizes and instructs each Issuer to comply with any instruction
received by such Issuer from the Pledgee in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Pledge Agreement, without any other or further instructions from the
Pledgor, and the Pledgor agrees that each Issuer shall be fully protected in so
complying.
(21) Integration. This Pledge Agreement represents the agreement of the
Pledgor with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Pledgee relative to subject
matter hereof not expressly set forth or referred to herein, in the Note or in
the Letter Agreement.
(22) GOVERNING LAW. THIS PLEDGE AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PLEDGOR UNDER THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CONNECTICUT (BUT NOT ITS CONFLICTS OF LAW PROVISIONS). The Pledgor hereby
consents to service of process, and to be sued, in the State of Connecticut and
consents to the jurisdiction of the courts of the State of Connecticut and the
United States District Court for the District of Connecticut, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising hereunder or out
of any of the Obligations or with respect to the transactions contemplated
hereby, and expressly waives any and all objections Pledgor may have to venue in
any such courts.
-15-
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement
to be duly executed and delivered as of the date first above written.
CHALLENGER INTERNATIONAL, LTD.
[SEAL]
By /s/ Peter G. Leighton
---------------------------
Its President and Director
By /s/ Simon Scupham
---------------------------
Its Director
O. F. MOSSBERG & SONS, INCORPORATED
By: /s/ William H. Schoner
-----------------------------
Its Vice President
MAVERICK ARMS, INC.
By: /s/ William H. Schoner
-----------------------------
Its Vice President
-16-
STATE OF )
) ss.
COUNTY OF )
Before me, the undersigned, this____ day of May, 1995, personally
appeared ___________________ and __________________, known to me to be
the_____________and _______________ of Challenger International, Ltd., and that
they as such officers, signers and sealers of the foregoing instrument,
acknowledged the execution of the same to be their free act and deed
individually and as such officers, and the free act and deed of said
corporation.
In Witness Whereof, I hereunto set my hand.
---------------------------- [SEAL]
Notary Public
My Commission Expires:
STATE OF )
) ss.
COUNTY OF )
Before me, the undersigned, this____ day of May, 1995, personally
appeared ___________________, known to me to be the_____________ of O. F.
Mossberg & Sons, Incorporated, and that he as such officer, signer and sealer of
the foregoing instrument, acknowledged the execution of the same to be his free
act and deed individually and as such officer, and the free act and deed of said
corporation.
In Witness Whereof, I hereunto set my hand.
----------------------------
Notary Public
My Commission Expires:
Commissioner of the Superior Court
-17-
STATE OF CONNECTICUT)
)ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 31st day of May, 1995, personally
appeared William H. Schoner, known to me to be the Vice President of Maverick
Arms, Inc., and that he as such officer, signer and sealer of the foregoing
instrument, acknowledged the execution of the same to be his free act and deed
individually and as such officer, and the free act and deed of said corporation.
In Witness Whereof, I hereunto set my hand.
-------------------------------------
Commissioner of the Superior Court
SCHEDULE I
Corporation Shares Certificate Number
- ----------- ------ ------------------
Challenger Industries, Inc. 2,999 1
Challenger Industries, Inc. 1,000 2
Passive Bullet Traps, Ltd. -- --
Passive Bullet Traps, Ltd. -- --
Passive Bullet Traps, Ltd. -- --
.
STOCK TRANSFER POWER
KNOW ALL MEN BY THESE PRESENTS, FOR VALUE RECEIVED, Challenger
International, Ltd., hereby sells, assigns and transfers unto___________________
(____) shares of the common stock of Challenger Industries, Inc. (the
"Corporation") standing in __________________________ name on the books of the
Corporation represented by Certificate No.________ herewith, and does hereby
irrevocably constitute and appoint _____________ attorney to transfer said
stock, or any part thereof, on the books of the Corporation with full power of
substitution.
IN WITNESS WHEREOF, Challenger International, Ltd., has executed this
Stock Transfer Power this ____ day of ________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
STOCK TRANSFER POWER
KNOW ALL MEN BY THESE PRESENTS, FOR VALUE RECEIVED, Challenger
International, Ltd., hereby sells, assigns and transfers unto___________________
(____) shares of the preferred stock of Challenger Industries, Inc. (the
"Corporation") standing in __________________________ name on the books of the
Corporation represented by Certificate No.________ herewith, and does hereby
irrevocably constitute and appoint _____________ attorney to transfer said
stock, or any part thereof, on the books of the Corporation with full power of
substitution.
IN WITNESS WHEREOF, Challenger International, Ltd., has executed this
Stock Transfer Power this ____ day of ________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
STOCK TRANSFER POWER
KNOW ALL MEN BY THESE PRESENTS, FOR VALUE RECEIVED, Challenger
International, Ltd., hereby sells, assigns and transfers unto___________________
(____) shares of the capital stock of Passive Bullet Traps, Inc. (the
"Corporation") standing in __________________________ name on the books of the
Corporation represented by Certificate No.________ herewith, and does hereby
irrevocably constitute and appoint _____________ attorney to transfer said
stock, or any part thereof, on the books of the Corporation with full power of
substitution.
IN WITNESS WHEREOF, Challenger International, Ltd., has executed this
Stock Transfer Power this ____ day of ________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
STOCK TRANSFER POWER
KNOW ALL MEN BY THESE PRESENTS, FOR VALUE RECEIVED, Challenger
International, Ltd., hereby sells, assigns and transfers unto___________________
(____) shares of the capital stock of Passive Bullet Traps, Inc. (the
"Corporation") standing in __________________________ name on the books of the
Corporation represented by Certificate No.________ herewith, and does hereby
irrevocably constitute and appoint _____________ attorney to transfer said
stock, or any part thereof, on the books of the Corporation with full power of
substitution.
IN WITNESS WHEREOF, Challenger International, Ltd., has executed this
Stock Transfer Power this ____ day of ________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
STOCK TRANSFER POWER
KNOW ALL MEN BY THESE PRESENTS, FOR VALUE RECEIVED, Challenger
International, Ltd., hereby sells, assigns and transfers unto___________________
(____) shares of the capital stock of Passive Bullet Traps, Inc. (the
"Corporation") standing in __________________________ name on the books of the
Corporation represented by Certificate No.________ herewith, and does hereby
irrevocably constitute and appoint _____________ attorney to transfer said
stock, or any part thereof, on the books of the Corporation with full power of
substitution.
IN WITNESS WHEREOF, Challenger International, Ltd., has executed this
Stock Transfer Power this ____ day of ________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
PROXY
The undersigned hereby appoints _________________ as the proxy of the
undersigned, with full power of substitution, to vote all of the shares of
common stock of Challenger Industries, Inc. which the undersigned is entitled to
vote at any meeting, or in any consent, of the stockholders of Challenger
International, Ltd. which may be held or sought at any time after the date
hereof and prior to _____________________. This proxy is coupled with an
interest and is irrevocable and confers upon the proxy all of the powers that
the undersigned would possess if personally present.
This proxy shall take effect and be effective at such time or times as
are set forth or provided for in the Pledge Agreement of even date herewith
between the undersigned and the Proxy.
Dated this _____ day of_________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
PROXY
The undersigned hereby appoints ____________ as the proxy of the
undersigned, with full power of substitution, to vote all of the shares of
preferred stock of Challenger Industries, Inc. which the undersigned is entitled
to vote at any meeting, or in any consent, of the stockholders of Challenger
International, Ltd. which may be held or sought at any time after the date
hereof and prior to_________________. This proxy is coupled with an interest and
is irrevocable and confers upon the proxy all of the powers that the undersigned
would possess if personally present.
This proxy shall take effect and be effective at such time or times as
are set forth or provided for in the Pledge Agreement of even date herewith
between the undersigned and the Proxy.
Dated this _____ day of_________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
PROXY
The undersigned hereby appoints_________________ as the proxy of the
undersigned, with full power of substitution, to vote all of the shares of
capital stock of Passive Bullet Traps, Ltd. which the undersigned is entitled to
vote at any meeting, or in any consent, of the stockholders of Challenger
International, Ltd. which may be held or sought at any time after the date
hereof and prior to _______________. This proxy is coupled with an interest and
is irrevocable and confers upon the proxy all of the powers that the undersigned
would possess if personally present.
This proxy shall take effect and be effective at such time or times as
are set forth or provided for in the Pledge Agreement of even date herewith
between the undersigned and the Proxy.
Dated this _____ day of_________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
PROXY
The undersigned hereby appoints _______________ , as the proxy of the
undersigned, with full power of substitution, to vote all of the shares of
capital stock of Passive Bullet Traps, Ltd. which the undersigned is entitled to
vote at any meeting, or in any consent, of the stockholders of Challenger
International, Ltd. which may be held or sought at any time after the date
hereof and prior to ___________________. This proxy is coupled with an interest
and is irrevocable and confers upon the proxy all of the powers that the
undersigned would possess if personally present.
This proxy shall take effect and be effective at such time or times as
are set forth or provided for in the Pledge Agreement of even date herewith
between the undersigned and the Proxy.
Dated this _____ day of_________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
PROXY
The undersigned hereby appoints _______________ as the proxy of the
undersigned, with full power of substitution, to vote all of the shares of
capital stock of Passive Bullet Traps, Ltd. which the undersigned is entitled to
vote at any meeting, or in any consent, of the stockholders of Challenger
International, Ltd. which may be held or sought at any time after the date
hereof and prior to _________________. This proxy is coupled with an interest
and is irrevocable and confers upon the proxy all of the powers that the
undersigned would possess if personally present.
This proxy shall take effect and be effective at such time or times as
are set forth or provided for in the Pledge Agreement of even date herewith
between the undersigned and the Proxy.
Dated this _____ day of_________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
POWER OF ATTORNEY
The undersigned, Challenger International, Ltd., does hereby appoint
_______________ , of ______________ as the attorney-in-fact of the undersigned
to act in its name, place and stead in any way which it itself could do, of it
were personally present, with respect to any and all shares of capital stock of
Passive Bullet Traps, Ltd. now or hereafter owned by the undersigned and with
respect to any dividends and distributions thereof, including without
limitation, all right and power to vote, encumber, transfer or assign all or any
part of such stock. This power of attorney is coupled with an interest and shall
be irrevocable.
Dated this _____ day of_________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
STATE OF CONNECTICUT)
)ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 31st day of May, 1995, personally
appeared Peter Leighton, known to me to be the President and Managing Director
of Challenger International, Ltd., and that he as such officer, signer and
sealer of the foregoing instrument, acknowledged the execution of the same to be
his free act and deed individually and as such officer, and the free act and
deed of said corporation.
In Witness Whereof, I hereunto set my hand.
----------------------------------
Commissioner of the Superior Court
POWER OF ATTORNEY
The undersigned, Challenger International, Ltd., does hereby appoint
_______________ , of ______________ as the attorney-in-fact of the undersigned
to act in its name, place and stead in any way which it itself could do, of it
were personally present, with respect to any and all shares of capital stock of
Passive Bullet Traps, Ltd. now or hereafter owned by the undersigned and with
respect to any dividends and distributions thereof, including without
limitation, all right and power to vote, encumber, transfer or assign all or any
part of such stock. This power of attorney is coupled with an interest and shall
be irrevocable.
Dated this _____ day of_________________.
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President and Managing
Director
STATE OF CONNECTICUT)
)ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 31st day of May, 1995, personally
appeared Peter Leighton, known to me to be the President and Managing Director
of Challenger International, Ltd., and that he as such officer, signer and
sealer of the foregoing instrument, acknowledged the execution of the same to be
his free act and deed individually and as such officer, and the free act and
deed of said corporation.
In Witness Whereof, I hereunto set my hand.
----------------------------------
Commissioner of the Superior Court
POWER OF ATTORNEY
The undersigned, Challenger International, Ltd., does hereby appoint
_______________ , of ______________ as the attorney-in-fact of the undersigned
to act in its name, place and stead in any way which it itself could do, of it
were personally present, with respect to any and all shares of common stock of
____________________ now or hereafter owned by the undersigned and with
respect to any dividends and distributions thereof, including without
limitation, all right and power to vote, encumber, transfer or assign all or any
part of such stock. This power of attorney is coupled with an interest and shall
be irrevocable.
Dated this _____ day of May, 1995
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Its President and Managing
Director
ISLANDS OF BERMUDA)
)ss.
CITY OF HAMILTON )
Before me, the undersigned, this 3Oth day of May, 1995, personally appeared
Peter G. Leighton, known to me to be the President of Challenger International,
Ltd., and that he as such officer, signer and sealer of the foregoing
instrument, acknowledged the execution of the same to be his free act and deed
individually and as such officer, and the free act and deed of said corporation.
In Witness Whereof, I hereunto set my hand.
By /s/ Peter Smith
----------------------------
Notary Public
My Commission Expires: on my death
Commissioner of the Superior Court
[SEAL]
POWER OF ATTORNEY
The undersigned, Challenger International, Ltd., does hereby appoint
_______________ , of ______________ as the attorney-in-fact of the undersigned
to act in its name, place and stead in any way which it itself could do, of it
were personally present, with respect to any and all shares of common stock of
____________________ now or hereafter owned by the undersigned and with
respect to any dividends and distributions thereof, including without
limitation, all right and power to vote, encumber, transfer or assign all or any
part of such stock. This power of attorney is coupled with an interest and shall
be irrevocable.
Dated this _____ day of May, 1995
CHALLENGER INTERNATIONAL, LTD.
By /s/ Peter G. Leighton
---------------------------
Its President and Managing
Director
ISLANDS OF BERMUDA)
)ss.
CITY OF HAMILTON )
Before me, the undersigned, this 3Oth day of May, 1995, personally appeared
Peter G. Leighton, known to me to be the President of Challenger International,
Ltd., and that he as such officer, signer and sealer of the foregoing
instrument, acknowledged the execution of the same to be his free act and deed
individually and as such officer, and the free act and deed of said corporation.
In Witness Whereof, I hereunto set my hand.
By /s/ Peter Smith
----------------------------
Notary Public
My Commission Expires: on my death
Commissioner of the Superior Court
[SEAL]
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of May 31, 1995, made by Challenger
Industries Inc., a Delaware corporation (the "Pledgor"), in favor of O. F.
Mossberg & Sons, Incorporated, a Connecticut corporation, and Maverick Arms,
Inc., a Texas corporation (collectively, the "Pledgee").
W I T N E S S E T H:
WHEREAS, the Pledgee has made a $9,000,000 loan (the "Loan") to the
Pledgor, Challenger International Ltd., Lakefield Arms Limited, Passive Bullet
Traps, Ltd., and Passive Bullet Traps, Inc., d/b/a/ Savage Range Systems
(collectively, the "Borrowers"), as evidenced by a Promissory Note, in such
amount, dated of even date herewith (the "Note"); and
WHEREAS, as an inducement to and in consideration of the Pledgee making
the Loan, the Pledgor has agreed to, among other things, execute and deliver
this Pledge Agreement to the Pledgee.
NOW, THEREFORE, in consideration of the premises and to induce the
Pledgee to make the Loan, the Pledgor hereby agrees with the Pledgee as follows:
(1) Defined Terms. Unless otherwise defined herein, terms defined in
the preamble hereof and the recitals hereto shall have their defined meanings
when used herein and the following terms shall have the following meanings:
"Code": the Uniform Commercial Code from time to time in effect in the
State of Connecticut.
"Collateral": the Pledged Stock and all Proceeds.
"Event of Default": shall mean any of the following:
(a) The failure of any Borrower to pay any principal or interest
of the Note in accordance with the terms thereof; or
(b) Any representation or warranty made or deemed made by the
Pledgor in this Pledge Agreement or by the Pledgor or any Borrower in
any certificate, document or financial or other statement furnished at
any time under or in connection with this Pledge Agreement or the Note
shall prove to have been incorrect in any material respect on or as of
the date made or deemed made; or
(c) The Pledgor shall default in the observance or performance of
any agreement or covenant contained in this Pledge Agreement; or
-2-
(d) Any of the Borrowers or Savage Arms, Inc. ("Savage") shall (a)
default in any payment of principal of or interest on any Indebtedness
(other than the Note) which has an aggregate principal amount in excess
of $250,000 or in the payment of any Guarantee Obligation under which
the maximum liability of any Borrower exceeds $250,000; or (b) fail to
comply with any financial covenant made in connection with any such
Indebtedness or Guarantee Obligation applicable to any of the first
three fiscal quarters of each fiscal year for a period in excess of 60
days after the end of each such quarter, unless such failure to comply
is not otherwise waived in writing within such 60-day period; or (c)
fail to comply with any financial covenant made in connection with any
such Indebtedness or Guarantee Obligation applicable to any fiscal year
for a period in excess of 90 days after the end of such fiscal year,
unless such failure to so comply is not otherwise waived in writing
within such 90-day period; or (d) fail to cure, or obtain a waiver in
writing of, any default (other than a payment or financial covenant
default) with respect to any other covenant or agreement made in
connection with any such Indebtedness or Guaranty Obligation within 30
days after having knowledge of such default; or (e) default in the
observance or performance of any agreement or condition relating to any
such Indebtedness or Guarantee Obligation or contained in any
instrument or agreement evidencing, securing or relating thereto, or
any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, with the giving of
notice if required, such Indebtedness to become due prior to its stated
maturity or such Guarantee Obligation to become payable; or
(e) (i) Any of the Borrowers or Savage shall commence any case,
proceedings or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or any
Borrower or Savage or any of their subsidiaries shall make a general
assignment for the benefit of their creditors; or (ii) there shall be
commenced against any of the Borrowers or Savage any case, proceeding
or other action or a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a
period of 60 days; or (iii) there shall be commenced against any of the
Borrowers or Savage any case, proceeding or other action seeking
issuance of a warrant of
-3-
attachment, execution, distraint or similar process against all or any
substantial part of its asset which results in the entry of an order
for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof;
or (iv) any Borrower or Savage shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in any of
the acts set forth in clause (i), (ii) or (iii) above; or (v) any
Borrower or Savage shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; or
(f) One or more judgments or decrees shall be entered against any
of the Borrowers or Savage involving in the aggregate a liability (not
paid or fully covered by insurance) of $250,000 or more and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within sixty (60) days from the entry thereof; or
(g) The occurrence of a Default Event under the Letter Agreement.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations (the "primary obligations") of any other
third Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any
such primary obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (A) for the purchase
or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (iv)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided; however, that the
term Guarantee Obligation shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The
amount of any Guarantee Obligation of any guaranteeing person shall be
deemed to be the lower of (x) an amount equal to the stated or
determinable amount of the primary obligation in
-4-
respect of which such Guarantee Obligation is made and (y) the maximum
amount for which such guaranteeing person may be liable pursuant to the
terms of the instrument embodying such Guarantee Obligation, unless
such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in
which case the amount of such Guarantee Obligation shall be such
guaranteeing persons maximum reasonably anticipated liability in
respect thereof as determined by such guaranteeing person in good
faith.
"Indebtedness": of any Person at any date, (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with
customary practices) or which is evidenced by a note, bond, debenture
or similar instrument, and (b) all liabilities secured by any Lien on
any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.
"Issuers": Lakefield Arms Limited and Passive Bullet Traps, Inc.
(individually, an Issuer).
"Letter Agreement": means a Letter Agreement, dated the date hereof,
among the Borrowers, Savage and the Pledgee.
"Lien": Any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, and the filing of
any financing statement under the Code or comparable law of any
jurisdiction in respect of any of the foregoing).
"Obligations": the unpaid principal of and interest on (including
interest accruing on or after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like
proceeding, relating to the Pledgor, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding)
the Note and all other obligations and liabilities of the Pledgor to
the Pledgee, whether direct or indirect, absolute or contingent, due or
to become due, or now existing or hereafter incurred, which may arise
solely under, out of, or in connection with, the Note, this Pledge
Agreement, the Letter Agreement or the Pledge Agreement, dated the date
hereof, between the Pledgee and Challenger International Inc. (the
"Challenger International Pledge Agreement"), whether on account of
principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses
-5-
(including, without limitation, all fees and disbursements of counsel
to the Pledgee that are required to be paid by the Pledgor pursuant to
the terms of the Note, this Pledge Agreement, the Letter Agreement or
the Challenger International Pledge Agreement) or otherwise.
"Person": an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Pledqe Agreement": this Pledge Agreement, as amended, supplemented or
otherwise modified from time to time.
"Pledqed Stock": the shares of capital stock of each Issuer listed on
Schedule I hereto, together with all stock certificates, options or
rights of any nature whatsoever that may be issued or granted by each
Issuer to the Pledgor while this Pledge Agreement is in effect.
"Proceeds": all "proceeds" as such term is defined in Section 9-306(1)
of the Code on the date hereof and, in any event, shall include,
without limitation, all dividends or other income from the Pledged
Stock, collections thereon or distributions with respect thereto.
(2) Pledge; Grant of Security Interest. The Pledgor hereby delivers to
the Pledgee, all the Pledged Stock issued and outstanding on the date hereof and
hereby grants to Pledgee, a first security interest in the Collateral, as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
(3) Delivery of Pledged Stock, Power of Attorney. Simultaneously
herewith, the Pledgor has delivered to the Pledgee all certificates evidencing
the Pledged Stock, accompanied by stock powers and other proper instruments of
assignment duly executed in blank, and the Pledgor agrees to deliver the
certificates evidencing all hereafter acquired Collateral, together with stock
powers and other proper instruments of assignment, duly executed in blank with
signatures properly executed thereon, for the use, benefit, security and
protection of the Pledgee as set forth herein, and upon and subject to the terms
and conditions hereof. The Pledgor hereby irrevocably grants the Pledgee a power
of attorney, coupled with an interest, with respect to the Collateral, with a
power, after an Event of Default, to transfer the Collateral, to execute in
Pledgor's name instruments of conveyance or transfer with respect to all or any
of the Collateral and to take such other action to enforce any of Pledgee's
rights hereunder or with respect to any of the Collateral. Pledgor hereby
-6-
irrevocably grants the Pledgee a proxy with respect to the Collateral for all
purposes consistent with this Pledge Agreement.
(4) Representations and Warranties. The Pledgor represents and warrants
to the Pledgee that:
(a) the shares of Pledged Stock listed on Schedule I constitute
all the issued and outstanding shares of all classes of the capital stock of
each Issuer;
(b) all the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable;
(c) the Pledgor is the record and beneficial owner of, and has
good and marketable title to, the Pledged Stock, free of any and all Liens or
options in favor of, or claims of, any other Person, except the Lien created by
this Pledge Agreement;
(d) the Pledgor has full power, authority and legal right to
execute, deliver and perform the obligations under this Pledge Agreement, and to
pledge, assign and grant a security interest in all of the Collateral pursuant
to this Pledge Agreement;
(e) no consent or approval or the taking of any other action in
respect of any party or of any public authority is required as a condition to
the validity or enforceability of this Pledge Agreement;
(f) there are no restrictions upon the voting rights or the
transfer of the Pledged Stock other than as required by law;
(g) the execution, delivery and performance hereof, and the
pledge and assignment of and granting of a security interest in the Collateral
hereunder, have been duly authorized by all necessary corporate or other action
of the Pledgor and do not contravene any law, rule or regulation or any
provision of the Pledgor's charter documents or by-laws or other governing
documents or of any judgment, decree or order of any tribunal or of any
agreement or instrument to which the Pledgor is a party or by which the Pledgor
or any of the Pledgor's property is bound or affected or constitute a default
thereunder; and
(h) upon delivery to the Pledgee of the Pledged Stock, the Lien
granted pursuant to this Pledge Agreement will constitute a valid, perfected
first priority Lien on the Collateral, enforceable as such against all creditors
of the Pledgor and any Person purporting to purchase any Collateral from the
Pledgor.
(5) Covenants. The Pledgor covenants and agrees with the Pledgee that,
from and after the date of this Pledge Agreement until the Obligations are paid
in full:
-7-
(a) If the Pledgor shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate issued in connection with any reorganization),
options or rights, whether in addition to, in substitution of, as a conversion
of, or in exchange for any of the Pledged Stock, or otherwise in respect
thereof, the Pledgor shall accept the same as agent of the Pledgee, hold the
same in trust for the Pledgee and deliver the same forthwith to the Pledgee in
the exact form received, duly endorsed by the Pledgor to the Pledgee, if
required, together with an undated stock power, proxy and power of attorney
covering such certificate duly executed in blank by the Pledgor to be held by
the Pledgee, subject to the terms hereof, as additional collateral security for
the Obligations. Any sums paid upon or in respect of the Pledged Stock upon the
liquidation or dissolution of any Issuer shall be paid over to the Pledgee to be
held by it hereunder as additional collateral security for the Obligations, and
in case any distribution of capital shall be made on or in respect of the
Collateral or any property shall be distributed upon or with respect to the
Collateral pursuant to the recapitalization or reclassification of the capital
of any Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Pledgee to be held by it hereunder as
additional collateral security for the Obligations. If any sums of money or
property so paid or distributed in respect of the Pledged Stock shall be
received by the Pledgor, the Pledgor shall, until such money or property is paid
or delivered to the Pledgee, hold such money or property in trust for the
Pledgee, segregated from other funds of the Pledgor, as additional collateral
security for the Obligations.
(b) Without the prior written consent of the Pledgee, the Pledgor
will not (a) vote to enable, or take any other action to permit, any Issuer to
issue any stock or other equity securities of any nature or to issue any other
securities or options convertible into or granting the right to purchase or
exchange for any stock or other equity securities of any nature of such Issuer,
(b) sell, assign, pledge, transfer, exchange, or otherwise dispose of, or grant
any option with respect to, the Collateral, or (c) create, incur or permit to
exist any Lien or option in favor of, or any claim of any Person with respect
to, any of the Collateral, or any interest therein, except for the Lien provided
for by this Pledge Agreement. The Pledgor will defend the right, title and
interest of the Pledgee in and to the Collateral against the claims and demands
of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of
the Pledgee, and at the sole expense of the Pledgor, the Pledgor will promptly
and duly execute and deliver such further
-8-
instruments and documents and take such further actions as the Pledgee may
reasonably request for the purposes of obtaining or preserving the full benefits
of this Pledge Agreement and of the rights and powers herein granted. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any promissory note, other instrument or chattel paper, such
note, instrument or chattel paper (in each case, as defined in the Code) shall
be immediately delivered to the Pledgee, duly endorsed in a manner satisfactory
to the Pledgee, to be held as Collateral pursuant to this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Pledgee harmless
from, any and all liabilities with respect to, or resulting from any delay in
paying, any and all stamps, excise, sales or other taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Pledge Agreement.
(e) The Pledgor shall promptly give notice to the Pledgee upon the
occurrence of an Event of Default.
(f) The Pledgor will not (i) move the location of its chief
executive office/chief place of business out of the islands of Bermuda, or (ii)
change its name, identity or corporate structure to such an extent that any
financing statement filed by the Pledgee in connection with this Agreement would
become seriously misleading, unless it shall have given the Pledgor at least 30
days prior written notice thereof.
(6) Cash Dividends; Voting Rights. The Pledgor shall not be permitted
to receive any dividends, cash or otherwise, paid by each Issuer; the Pledgee
shall have the right to receive any and all dividends paid in respect of the
Pledged Stock and make application thereof to the Obligations in such order as
the Pledgee may determine. Unless an Event of Default shall have occurred, the
Pledgor shall be permitted to exercise all voting and corporate rights with
respect to the Pledged Stock, provided, however, that no vote shall be cast or
corporate right exercised or other action taken which, in the Pledgee's
judgment, would impair the Collateral or which would be inconsistent with or
result in any violation of any provision of this Pledge Agreement or a Default
Event, as defined in the Letter Agreement.
(7) Riqhts of the Pledgee. (a) If an Event of Default shall occur, all
shares of the Pledged Stock may, at Pledgee's sole option, be registered in the
name of the Pledgee or its nominee, and the Pledgee or its nominee may, at its
sole option, exercise (A) all voting, corporate and other rights pertaining to
such shares of the Pledged Stock at any meeting of shareholders of each Issuer
or otherwise and/or (B) any and all rights of conversion, exchange, subscription
and any other rights, privileges or options
-9-
pertaining to such shares of the Pledged Stock as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of such
Issuer, or upon the exercise by the Pledgor or the Pledgee of any right,
privilege or option pertaining to such shares of the Pledged Stock, and in
connection therewith, the right to deposit and deliver any and all of the
Pledged Stock with any committee, depositary, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine), all
without liability except to account for property actually received by it, but
the Pledgee shall have no duty to the Pledgor to exercise any such right,
privilege or option and shall not be responsible for any failure to do so or
delay in so doing.
(b) The rights of the Pledgee hereunder shall not be conditioned
or contingent upon the pursuit by the Pledgee of any right or remedy against the
Pledgor or against any other Person which may be or become liable in respect of
all or any part of the Obligations or against any collateral security therefor,
guarantee thereof or right of offset with respect thereto. The Pledgee shall not
be liable for any failure to demand, collect or realize upon all or any part of
the Collateral or for any delay in doing so, nor shall the Pledgee be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Pledgor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.
(8) Remedies. If an Event of Default shall occur, the Pledgee may
exercise, in addition to all other rights and remedies granted in this Pledge
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, the Pledgee, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Pledgor, each Issuer or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived) may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, assign, give option
or options to purchase or otherwise dispose of and deliver the Collateral or any
part thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Pledgee shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
the Collateral so sold, free of any right or equity of
-10-
redemption in the Pledgor, which right or equity is hereby waived or released.
The Pledgee shall apply any Proceeds from time to time held by it and the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred in respect thereof or incidental to the care or safekeeping of any of
the Collateral or in any way relating to the Collateral or the rights of the
Pledgee hereunder, including, without limitation, reasonable attorneys' fees and
disbursements of counsel to the Pledgee, to the payment in whole or in part of
the Obligations, in such order as the Pledgee may elect, and only after such
application and after the payment by the Pledgee of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Pledgee account for the surplus, if any, to the Pledgor. To the
extent permitted by applicable law, the Pledgor waives all claims, damages and
demands it may acquire against the Pledgee arising out of the exercise by them
of any rights hereunder. If any notice of a proposed sale or other disposition
of Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least ten (10) days before such sale or other
disposition. The Pledgor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of Collateral are insufficient to pay the
Obligations and the fees and disbursements of any attorneys employed by the
Pledgee to collect such deficiency.
(9) Private Sales. The Pledgor recognizes that the Pledgee may be
unable to effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act") and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable than if
such sale were a public sale and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner. The Pledgee shall be under no obligation to delay a sale of
any of the Pledged Stock for the period of time necessary to permit any Issuer
to register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Issuer would agree to do so. The
Pledgor further agrees to use its best efforts to do or cause to be done all
such other acts as may be necessary to make such sale or sales of all or any
portion of the Pledged Stock pursuant to this paragraph 9 valid and binding and
in compliance with any and all other applicable requirements of law.
-11-
(10) Term. This Agreement, including the pledges granted hereunder,
shall terminate upon the final payment in full of the Obligations, provided that
the Pledgee shall not thereafter be required to remit to the Pledgor or any of
its assignees or successors any portion of the Note proceeds. Upon termination
of this Agreement, any Collateral still pledged hereunder (and not yet disposed
of) shall be promptly delivered to the Pledgor together with all stock powers,
powers of attorney and proxies.
(11) Amendments. etc. with respect to the Obligations. The Pledgor
shall remain obligated hereunder, and the Collateral shall remain subject to the
Lien granted hereby, notwithstanding that, without any reservation of rights
against the Pledgor, and without notice to or further assent by the Pledgor, any
demand for payment of any of the Obligations made by the Pledgee may be
rescinded by the Pledgee, and any of the Obligations continued, and the
Obligations, or the liability of any Issuer or any other Person upon or for any
part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered, or released by the Pledgee, and the Note and any other documents
executed and delivered in connection therewith may be amended, modified,
supplemented or terminated, in whole or part, as the Pledgee may deem advisable
from time to time, and any guarantee, right of offset or other collateral
security at any time held by the Pledgee for the payment of the Obligations may
be sold, exchanged, waived, surrendered or released. The Pledgee shall not have
any obligation to protect, secure, perfect or insure any other Lien at any time
held by it as security for the Obligations or any property subject thereto. The
Pledgor waives any and all notice of the creation, renewal, extension or accrual
of any of the Obligations and notice of or proof of reliance by the Pledgee upon
this Pledge Agreement; the Obligations, and any of them, shall conclusively be
deemed to have been created, contracted or incurred in reliance upon this Pledge
Agreement; and all dealings between any Issuer and the Pledgor, on the one hand,
and the Pledgee, on the other, shall likewise be conclusively presumed to have
been had or consummated in reliance upon this Pledge Agreement. The Pledgor
waives diligence, presentment, protest, demand for payment and notice of default
or nonpayment to or upon any Issuer or the Pledgor with respect to the
Obligations.
(12) Limitation on Duties Regarding Collateral. The Pledgee's sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,shall
be to deal with it in the same manner as the Pledgee deals with similar
securities and property for its own account. The Pledgee and its directors,
officers, employees or agents shall not be liable for failure to demand, collect
or realize upon any of the Collateral or for any delay in
-12-
doing so or shall be under any obligations to sell or otherwise dispose of any
Collateral upon the request of the Pledgor or otherwise.
(13) Severability. Any provisions of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(14) Paragraph Headings. The paragraph headings used in this Pledge
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
(15) No Waiver; Cumulative Remedies. The Pledgee shall not by any act
(except by a written instrument pursuant to paragraph 15 hereof) be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Event of
Default or in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of the Pledgee, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Pledgee of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Pledgee would otherwise have on any future occasion. The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any other rights or remedies provided by law.
(16) Waivers and Amendments. Successors and Assigns. None of the terms
or provisions of this Pledge Agreement may be amended, supplemented or otherwise
modified except by a written instrument executed by the Pledgor and the Pledgee.
This Pledge Agreement shall be binding upon the successors and assigns of the
Pledgor and shall inure to the benefit of the Pledgee and its successors and
assigns, including, without limitation, Bank of Boston Connecticut and any
subsequent senior lenders of the Pledgee.
(17) Marshalling. Pledgee shall not be required to marshal any present
or future collateral security for (including, but not limited to, this Pledge
Agreement and the Collateral), or other assurances of payment of, the
Obligations, the Loan or any of them, or to resort to such collateral security
or other assurances of payment in any particular order. To the extent that the
Pledgor lawfully may, the Pledgor hereby agrees that the Pledgor will not invoke
any law relating to the marshalling of collateral that might
-13-
cause delay in or impede the enforcement of Pledgee's rights under this Pledge
Agreement or under any other instrument evidencing any of the Obligations or
under which any of the Obligations is outstanding or by which any of the
Obligations is secured or payment thereof is otherwise assured, and to the
extent that it lawfully may, the Pledgor hereby irrevocably waives the benefits
of all such laws.
(18) Notices. Notices by the Pledgee to the Pledgor or any Issuer may
be given by hand, by mail, by telex or by facsimile transmission, addressed or
transmitted to the Pledgor, or in the case of any Issuer, in care of the
Pledgor, at the Pledgor's address or transmission number set forth below and
shall be effective (a) when delivered by hand, (b) in the case of mail, three
days after deposit in the postal system, first class postage pre-paid and (c) in
the case of telecopy notice, when sent. The Pledgor or any Issuer may change
their respective addresses and transmission numbers by written notice to the
Pledgee.
The Pledgor: Challenger Industries Inc.
Reid House
31 Church Street
P.O. Box HM 1437
Hamilton HM FX
BERMUDA
Attention: President
Telecopy: (809) 292-5560
With a copy to: Philip P. Rossetti, Esquire
Hale and Dorr
60 State Street
Boston, MA 02109
Telecopy: (617) 526-5000
The Pledgee: O. F. Mossberg & Sons, Incorporated
Maverick Arms, Inc.
7 Grasso Avenue
North Haven, CT 06473
Attention: Vice President and General
Counsel
Telecopy: (203) 230-5423
With a copy to: Stanford N. Goldman, Jr., Esquire
Schatz & Schatz, Ribicoff & Kotkin
90 State House Square
Hartford, CT 06103
Telecopy: (203) 246-1225
(19) Expenses. The Pledgor will upon demand pay to the Pledgee the
amount of any and all expenses, including the reasonable fees and expenses of
counsel and of any experts and agents, which the
-14-
Pledgee may incur in connection with (a) the custody, preservation or sale of,
collection from or other realization upon any of the Collateral, (b) the
exercise or enforcement of any of the rights of the Pledgee hereunder, or (c)
the failure by the Pledgor to perform or observe any of the provisions hereof.
(20) Irrevocable Authorization and Instruction to Issuers. The Pledgor
hereby authorizes and instructs each Issuer to comply with any instruction
received by such Issuer from the Pledgee in writing that (a) states that an
Event of Default has occurred and (b) is otherwise in accordance with the terms
of this Pledge Agreement, without any other or further instructions from the
Pledgor, and the Pledgor agrees that each Issuer shall be fully protected in so
complying.
(21) Integration. This Pledge Agreement represents the agreement of the
Pledgor with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Pledgee relative to subject
matter hereof not expressly set forth or referred to herein, in the Note or in
the Letter Agreement.
(22) GOVERNING LAW. THIS PLEDGE AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PLEDGOR UNDER THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
CONNECTICUT (BUT NOT ITS CONFLICTS OF LAW PROVISIONS). The Pledgor hereby
consents to service of process, and to be sued, in the State of Connecticut and
consents to the jurisdiction of the courts of the State of Connecticut and the
United States District Court for the District of Connecticut, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action or other proceeding arising hereunder or out
of any of the Obligations or with respect to the transactions contemplated
hereby, and expressly waives any and all objections Pledgor may have to venue in
any such courts.
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement
to be duly executed and delivered as of the date first above written.
CHALLENGER INDUSTRIES INC.
By /s/ Peter G. Leighton
---------------------------
Its President
-15-
O. F. MOSSBERG & SONS, INCORPORATED
By /s/ William H. Schoner
-----------------------------
Its Vice President
MAVERICK ARMS, INC.
By /s/ William H. Schoner
-----------------------------
Its Vice President
-16-
STATE OF CONNECTICUT )
) ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 31st day of May, 1995, personally
appeared Peter G. Leighton known to me to be the President of Challenger
Industries Inc., and that he as such officer, signer and sealer of the foregoing
instrument, acknowledged the execution of the same to be his free act and deed
individually and as such officers, and the free act and deed of said
corporation.
In Witness Whereof, I hereunto set my hand.
----------------------------
Commissioner of the Superior Court
STATE OF CONNECTICUT )
) ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 31st day of May, 1995, personally
appeared William H. Schoner, known to me to be the Vice President of O. F.
Mossberg & Sons, Incorporated, and that he as such officer, signer and sealer of
the foregoing instrument, acknowledged the execution of the same to be his free
act and deed individually and as such officer, and the free act and deed of said
corporation.
In Witness Whereof, I hereunto set my hand.
----------------------------
Commissioner of the Superior Court
-17-
STATE OF CONNECTICUT)
)ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 31st day of May, 1995, personally
appeared William H. Schoner, known to me to be the Vice President of Maverick
Arms, Inc., and that he as such officer, signer and sealer of the foregoing
instrument, acknowledged the execution of the same to be his free act and deed
individually and as such officer, and the free act and deed of said corporation.
In Witness Whereof, I hereunto set my hand.
-------------------------------------
Commissioner of the Superior Court
SCHEDULE I
Corporation Shares Certificate Number
- ----------- ------ ------------------
Lakefield Arms Limited 650,000 P-1
Lakefield Arms Limited 100 C-1
Passive Bullet Traps, Inc. 1,000 2
STOCK TRANSFER POWER
KNOW ALL MEN BY THESE PRESENTS, FOR VALUE RECEIVED, Challenger
Industries Inc., hereby sells, assigns and transfers unto___________________
(____) shares of the common stock of Lakefield Arms Limited (the "Corporation")
standing in __________________________ name on the books of the Corporation
represented by Certificate No.________ herewith, and does hereby irrevocably
constitute and appoint _____________ attorney to transfer said stock, or any
part thereof, on the books of the Corporation with full power of substitution.
IN WITNESS WHEREOF, Challenger Industries, Inc., has executed this
Stock Transfer Power this ____ day of ________________.
CHALLENGER INDUSTRIES, INC,
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
STOCK TRANSFER POWER
KNOW ALL MEN BY THESE PRESENTS, FOR VALUE RECEIVED, Challenger
Industries, Inc., hereby sells, assigns and transfers unto___________________
(____) shares of the preferred stock of Lakefield Arms Limited (the
"Corporation") standing in __________________________ name on the books of the
Corporation represented by Certificate No.________ herewith, and does hereby
irrevocably constitute and appoint _____________ attorney to transfer said
stock, or any part thereof, on the books of the Corporation with full power of
substitution.
IN WITNESS WHEREOF, Challenger Industries, Inc., has executed this
Stock Transfer Power this ____ day of ________________.
CHALLENGER INDUSTRIES, INC.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
STOCK TRANSFER POWER
KNOW ALL MEN BY THESE PRESENTS, FOR VALUE RECEIVED, Challenger
Industries, Inc., hereby sells, assigns and transfers unto___________________
(____) shares of the capital stock of Passive Bullet Traps, Inc. (the
"Corporation") standing in __________________________ name on the books of the
Corporation represented by Certificate No.________ herewith, and does hereby
irrevocably constitute and appoint _____________ attorney to transfer said
stock, or any part thereof, on the books of the Corporation with full power of
substitution.
IN WITNESS WHEREOF, Challenger Industries, Inc., has executed this
Stock Transfer Power this ____ day of ________________.
CHALLENGER INDUSTRIES, INC.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
POWER OF ATTORNEY
The undersigned, Challenger Industries, Inc., does hereby appoint
_______________ , of ______________ as the attorney-in-fact of the undersigned
to act in its name, place and stead in any way which it itself could do, of it
were personally present, with respect to any and all shares of common stock of
Lakefield Arms Limited now or hereafter owned by the undersigned and with
respect to any dividends and distributions thereof, including without
limitation, all right and power to vote, encumber, transfer or assign all or any
part of such stock. This power of attorney is coupled with an interest and shall
be irrevocable.
Dated this _____ day of_________________.
CHALLENGER INDUSTRIES, INC.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
STATE OF CONNECTICUT)
)ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 31st day of May, 1995, personally
appeared Peter Leighton, known to me to be the President of Challenger
Industries, Inc., and that he as such officer, signer and sealer of the
foregoing instrument, acknowledged the execution of the same to be his free act
and deed individually and as such officer, and the free act and deed of said
corporation.
In Witness Whereof, I hereunto set my hand.
----------------------------------
Commissioner of the Superior Court
POWER OF ATTORNEY
The undersigned, Challenger Industries, Inc., does hereby appoint
_______________ , of ______________ as the attorney-in-fact of the undersigned
to act in its name, place and stead in any way which it itself could do, of it
were personally present, with respect to any and all shares of preferred stock
of Lakefield Arms Limited now or hereafter owned by the undersigned and with
respect to any dividends and distributions thereof, including without
limitation, all right and power to vote, encumber, transfer or assign all or any
part of such stock. This power of attorney is coupled with an interest and shall
be irrevocable.
Dated this _____ day of_________________.
CHALLENGER INDUSTRIES, INC.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
STATE OF CONNECTICUT)
)ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 31st day of May, 1995, personally
appeared Peter Leighton, known to me to be the President of Challenger
Industries, Inc., and that he as such officer, signer and sealer of the
foregoing instrument, acknowledged the execution of the same to be his free act
and deed individually and as such officer, and the free act and deed of said
corporation.
In Witness Whereof, I hereunto set my hand.
----------------------------------
Commissioner of the Superior Court
POWER OF ATTORNEY
The undersigned, Challenger Industries, Inc., does hereby appoint
_______________ , of ______________ as the attorney-in-fact of the undersigned
to act in its name, place and stead in any way which it itself could do, of it
were personally present, with respect to any and all shares of common stock of
Passive Bullet Traps, Inc.now or hereafter owned by the undersigned and with
respect to any dividends and distributions thereof, including without
limitation, all right and power to vote, encumber, transfer or assign all or any
part of such stock. This power of attorney is coupled with an interest and shall
be irrevocable.
Dated this _____ day of ___________________.
CHALLENGER INDUSTRIES, INC.
By /s/ Peter G. Leighton
---------------------------
Its President
STATE OF CONNECTICUT)
)ss. Hartford
COUNTY OF HARTFORD )
Before me, the undersigned, this 1st day of May, 1995, personally
appeared Peter G. Leighton, known to me to be the President of Challenger
Industries, Inc., and that he as such officer, signer and sealer of the
foregoing instrument, acknowledged the execution of the same to be his free act
and deed individually and as such officer, and the free act and deed of said
corporation.
In Witness Whereof, I hereunto set my hand.
----------------------------
Commissioner of the Superior Court
PROXY
The undersigned hereby appoints _________________ as the proxy of the
undersigned, with full power of substitution, to vote all of the shares of
common stock of Lakefield Arms Limited which the undersigned is entitled to vote
at any meeting, or in any consent, of the stockholders of Challenger Industries,
Inc. which may be held or sought at any time after the date hereof and prior to
_____________________. This proxy is coupled with an interest and is irrevocable
and confers upon the proxy all of the powers that the undersigned would possess
if personally present.
This proxy shall take effect and be effective at such time or times as
are set forth or provided for in the Pledge Agreement of even date herewith
between the undersigned and the Proxy.
Dated this _____ day of_________________.
CHALLENGER INDUSTRIES, INC.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
PROXY
The undersigned hereby appoints ____________ as the proxy of the
undersigned, with full power of substitution, to vote all of the shares of
preferred stock of Lakefield Arms Limited which the undersigned is entitled to
vote at any meeting, or in any consent, of the stockholders of Challenger
Industries, Inc. which may be held or sought at any time after the date hereof
and prior to_________________. This proxy is coupled with an interest and is
irrevocable and confers upon the proxy all of the powers that the undersigned
would possess if personally present.
This proxy shall take effect and be effective at such time or times as
are set forth or provided for in the Pledge Agreement of even date herewith
between the undersigned and the Proxy.
Dated this _____ day of_________________.
CHALLENGER INDUSTRIES, INC.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
PROXY
The undersigned hereby appoints_________________ as the proxy of the
undersigned, with full power of substitution, to vote all of the shares of
common stock of Passive Bullet Traps, Inc. which the undersigned is entitled to
vote at any meeting, or in any consent, of the stockholders of Challenger
Industries, Inc. which may be held or sought at any time after the date hereof
and prior to _______________. This proxy is coupled with an interest and is
irrevocable and confers upon the proxy all of the powers that the undersigned
would possess if personally present.
This proxy shall take effect and be effective at such time or times as
are set forth or provided for in the Pledge Agreement of even date herewith
between the undersigned and the Proxy.
Dated this _____ day of_________________.
CHALLENGER INDUSTRIES, INC.
By /s/ Peter G. Leighton
---------------------------
Peter G. Leighton
Its President
EXHIBIT 11
CHALLENGER INTERNATIONAL, LTD
CALCULATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS Three months SIX MONTHS Six months
ENDED ended ENDED ended
APRIL 30 April 30 APRIL 30 April 30
---------------- ----------------- ----------------- -----------------
1995 1994 1995 1994
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Primary and Fully Diluted Loss Per Share
Shares in issue beginning of period 10,583,142 9,863,142 10,583,142 9,863,142
Shares issued (weighted average) 348,987 63,562 348,987 52,665
---------------- ----------------- ----------------- -----------------
Weighted average shares in issue end of period 10,932,129 9,926,704 10,932,129 9,915,808
Dilutive Common Stock Equivalents
(weighted average)
Savage Arms Series A convertible redeemable
preferred stock (weighted average) - 600,000 - 600,000
Savage Arms Series C convertible redeemable
preferred stock (weighted average) 160,991 160,991 160,991 160,991
Other stock options using treasury stock method 267,934 354,975 264,469 427,657
---------------- ----------------- ----------------- -----------------
Total weighted average common shares and
common stock equivalents 11,361,054 11,031,774 11,357,588 11,104,455
================ ================= ================= =================
NET INCOME FOR PERIOD
(thousands of U.S. Dollars) $ 805 $ 771 $ 1,110 $ 962
================ ================= ================= =================
EARNINGS PER SHARE $ 0.07 $ 0.07 $ 0.10 $ 0.09
================ ================= ================= =================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> FEB-01-1995
<PERIOD-END> APR-30-1995
<CASH> 125
<SECURITIES> 0
<RECEIVABLES> 6,794
<ALLOWANCES> 297
<INVENTORY> 8,587
<CURRENT-ASSETS> 15,876
<PP&E> 10,628
<DEPRECIATION> 2,242
<TOTAL-ASSETS> 28,582
<CURRENT-LIABILITIES> 9,763
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 14,331
<TOTAL-LIABILITY-AND-EQUITY> 28,582
<SALES> 8,141
<TOTAL-REVENUES> 8,153
<CGS> 5,177
<TOTAL-COSTS> 5,177
<OTHER-EXPENSES> 1,431
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162
<INCOME-PRETAX> 1,383
<INCOME-TAX> 578
<INCOME-CONTINUING> 805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 805
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
