Exhibit (e)(17)
SUCCESS BONUS AGREEMENT
This SUCCESS BONUS AGREEMENT (this "Agreement") is made and entered into as
of this November 26, 2003 by and among Brass Eagle Inc., a Delaware corporation
("Brass Eagle"), K2 Inc., a Delaware corporation ("K2"), Xxxx Acquisition Sub,
Inc., a Delaware corporation and wholly owned subsidiary of K2 ("Acquisition
Sub"), and the individual managers of Brass Eagle that are listed on the
signature page hereto (each being a "Manager" and together the "Managers").
WHEREAS, on November 19, 2002, the Compensation Committee of the Board of
Directors of Brass Eagle approved a Success Bonus Program pursuant to which the
Managers are to be paid the amounts listed on Exhibit A hereto upon a successful
sale of the Company led by the management team (the "Success Bonus Program");
WHEREAS, Brass Eagle, K2 and Acquisition Sub entered into an Agreement and
Plan of Merger and Reorganization, dated October 22, 2003 (the "Merger
Agreement"), pursuant to which, after the consummation of an exchange offer by
K2 for all of the issued and outstanding shares of common stock of Brass Eagle,
Acquisition Sub will be merged with and into Brass Eagle (the "Merger"), upon
the terms and subjects to the conditions contained in the Merger Agreement;
WHEREAS, in the absence of the effectiveness of this Agreement, the Success
Bonus Program would become due and payable upon the completion of the Merger;
and
WHEREAS, Brass Eagle, K2 and Acquisition Sub have agreed to amend the
Success Bonus Program, and the Managers by entering into this Agreement hereby
each consent to the amendment of the Success Bonus Program, to change the
conditions thereto and to increase the maximum amount payable thereunder, as
more fully set forth in this Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Effectiveness of Agreement. The provisions of this Agreement, other than
the provisions set forth in Sections 10, 11 and 12 hereof (the "Immediately
Effective Provisions"), are subject to, and shall become effective only upon,
the Effective Time (as defined in the Merger Agreement) of the Merger on or
prior to April 22, 2004. Upon such effectiveness, the original Success Bonus
Program shall be of no further force and effect and the amounts reflected on
Exhibit A shall no longer be payable to the Managers. If the Effective Time has
not occurred on or prior to that date, then the provisions of this Agreement
(other than the Immediately Effective Provisions) shall not come into effect and
the Success Bonus Program shall remain in full force and effect in accordance
with its original terms. The Immediately Effective Provisions are effective as
of the date of this Agreement.
2. Definitions. When used in this Agreement, the following terms shall have
the following meanings:
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"Adjusted Consolidated EBITDA" shall have the meaning set forth on Exhibit
B hereto.
"Amended Bonus Schedule" shall mean the schedule of bonuses included in the
table set forth on Exhibit C hereto.
"Applicable Delivery Deadline" shall mean, with respect to the Initial
Calculation (as defined below) of Adjusted Consolidated EBITDA for the Six-Month
Period (as defined below), July 31, 2004 and, with respect to the Initial
Calculation of Adjusted Consolidated EBITDA for the Twelve-Month Period (as
defined below), January 31, 2004.
"K2 Change-of-Control" shall mean (a) a consolidation or merger of K2 with
or into any other corporation or corporations in which K2's stockholders
immediately prior to the merger do not hold at least fifty percent (50%) of the
voting power of the surviving corporation in the consolidation or merger, (b) a
sale, conveyance or disposition of all or substantially all of the assets of K2,
or (c) the completion by K2 of a transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of K2 is transferred.
"Manager Representative" shall mean E. Xxxx Xxxxx or such other person as
shall be designated in writing to K2 by at least a majority of the Managers from
time to time.
"Permanent Disability" shall mean the physical or mental incapacity of a
Manager of a nature that has prevented or would reasonably prevent the Manager
from performing on a full-time basis each of the material duties of the Manager
with Brass Eagle for a period of 12 consecutive weeks or an aggregate of 24
weeks within any period of 12 consecutive months, as determined by the Brass
Eagle Board of Directors in the exercise of its good faith and reasonable
judgment, upon receipt of and in reliance on sufficient competent medical advice
from one or more individuals selected by the Board of Directors, who are
qualified to give professional medical advice.
"Resigns" shall mean that a Manager has terminated his employment with
Brass Eagle, other than by Terminating for Good Reason or due to the death or
Permanent Disability of the Manager.
"Terminated for Cause" shall mean that a Manager has been terminated by
Brass Eagle from the employment of Brass Eagle due to the occurrence of any one
or more of the following events:
(a) the Manager has been convicted of a felony or other charge involving
moral turpitude;
(b) the Manager has engaged in fraud, misappropriation of funds,
embezzlement or similar conduct against Brass Eagle or dishonesty in connection
with Brass Eagle matters;
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(c) the Manager has willfully failed or refused to perform agreed-upon
responsibilities or directives of senior executive management of Brass Eagle or
K2 and has not cured such act within 20 days after receipt of notice of such act
from Brass Eagle
(d) the Manager has committed any act of gross negligence, willful breach
of fiduciary obligation or corporate waste against Brass Eagle that is not cured
within 20 days of, or is repeated after, receipt of notice of such act from
Brass Eagle; or
(e) the Manager has committed any material breach of the Manager's
employment or non-competition agreement, if any, with Brass Eagle that is not
cured within 20 days after receipt of notice of such material breach from Brass
Eagle.
"Terminated without Cause" shall mean that a Manager has been terminated by
Brass Eagle from the employment of Brass Eagle, but was not Terminated for
Cause.
"Terminating with Good Reason" shall mean that a Manager has terminated his
employment with Brass Eagle due to (a) the breach by Brass Eagle, K2 or
Acquisition Sub of any employment agreement with, or benefit plan or arrangement
benefiting, the Manager, (b) any material decrease of the Manager's duties,
responsibilities, compensation and/or benefits as compared to those existing
prior to the completion of the Merger or (c) the relocation of the Manager's
place of employment more than fifty (50) miles from the office at which the
Manager was based as of the date hereof, except for required travel on the
business of Brass Eagle or K2 to an extent substantially consistent with the
Manager's present business obligations; provided that the provision to the
Manager of benefits of K2 provided to similarly situated employees of K2 shall
not constitute "Good Reason" pursuant to clauses (a) or (b) above.
3. New Bonus Terms. Subject to the effectiveness of this Agreement pursuant
to Section 1 hereof, the Success Bonus Program is hereby amended to provide for
the payment by Brass Eagle to the Managers of the bonuses set forth on the
Amended Bonus Schedule under the following circumstances:
(a) Bonuses for Six-Month Period. If the Adjusted Consolidated EBITDA
for the six-month period ended June 30, 2004 (the "Six-Month Period") is
equal to or greater than $4.334 million, then Brass Eagle shall pay to the
Managers the bonus amounts set forth in Column I on the Amended Bonus
Schedule (less any required withholdings for federal, state or local
taxes); provided that no such bonus or any portion thereof shall be payable
to any Manager that Resigns or is Terminated for Cause at any time prior to
June 30, 2004.
(b) Bonus for Twelve-Month Period. If the Adjusted Consolidated EBITDA
for the twelve-month period ended December 31, 2004 (the "Twelve-Month
Period") is: (i) equal to or greater than $15.0 million but less than $16.0
million, then Brass Eagle shall pay to the Managers the bonus amounts set
forth in Column II on the Amended Bonus Schedule (less any required
withholdings for federal, state or local taxes); (ii) equal to or greater
than $16.0 million but less than $17.0 million, then Brass Eagle shall pay
to the Managers the bonus amounts set forth in Columns II and III on the
Amended
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Bonus Schedule (less any required withholdings for federal, state or local
taxes); and (iii) equal to or greater than $17.0 million, then Brass Eagle
shall pay to the Managers the bonus amounts set forth in Columns II and IV
on the Amended Bonus Schedule (less any required withholdings for federal,
state or local taxes); provided that no such bonus or any portion thereof
shall be payable to any Manager that Resigns or is Terminated for Cause at
any time prior to December 31, 2004.
(c) In the event that any Manager is not paid a bonus pursuant to
Sections 3(a) and/or 3(b) because such Manager or Managers Resigns or has
been Terminated for Cause prior to the applicable threshold date, the bonus
amounts otherwise payable to such Manager shall be forfeited and shall not
be payable to any other Manager or Managers.
4. Payment Dates. The amounts, if any, required to be paid under Section
3(a) shall be paid within 10 days after the filing due date for K2's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2004. The amounts,
if any, required to be paid under Section 3(b) shall be paid within 10 days
after the filing due date for K2's Annual Report on Form 10-K for the fiscal
year ended December 31, 2004. Notwithstanding the foregoing provisions of this
Section 4, any bonus payments that may become payable pursuant to an Initial
Calculation of the Adjusted Consolidated EBITDA that is subject to a Notice of
Dispute shall be paid promptly after the resolution of the dispute pursuant to
the provisions of Section 7 hereof.
5. Death; Permanent Disability; Employment Termination. In the event of the
death or Permanent Disability of any of the Managers or any Manager being
Terminated without Cause or Terminating with Good Reason at any time after the
completion of the Merger, the applicable Manager or the estate of the deceased
Manager, as the case may be, shall be paid any bonus payments that otherwise
would have become payable to the applicable Manager not later than the times
that such bonus payments would otherwise have been required to be made,
notwithstanding the failure of the Manager to remain in the employment of Brass
Eagle for any specific period of time or any other provision of this Agreement.
6. No Effect on Other Compensation or Benefits. The bonuses payable to the
Managers under this Agreement shall have no affect on the base, bonus, other
compensation or benefits to which the Managers shall be entitled as employees of
Brass Eagle under the Merger Agreement, any employment agreement or otherwise.
None of the change-of-control agreements (or change-of-control provisions
contained in employment agreements) to which any of the Managers are party shall
be affected by this Agreement or the bonus amounts payable hereunder, but each
of such agreements and employment agreement provisions shall remain in full
force and effect in accordance with its terms.
7. Calculation of Adjusted Consolidated EBITDA; Dispute Resolution.
(a) As soon as practicable after the completion of each of the
Six-Month Period and the Twelve-Month Period, but not later than the
Applicable Delivery Deadline, K2 shall cause to be prepared and delivered
to the Manager Representative a calculation of Adjusted Consolidated EBITDA
for the applicable period (the "Initial Calculation"), which shall be
prepared in accordance with GAAP and the same
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accounting principles and practices, consistently applied, as those used in
the preparation of Brass Eagle's financial statements for the most recent
comparable period ending prior to the completion of the Merger
(b) Following receipt of the Initial Calculation, the Managers will be
afforded a period of 14 days to review the Initial Calculation. To assist
in any such review, K2 shall make available to the Manager Representative
any work sheets and other papers prepared in connection with the Initial
Calculation. At or before the end of the 14-day review period, the Manager
Representative shall either (i) accept the Initial Calculation in its
entirety or (ii) deliver to K2 a written notice setting forth a detailed
explanation of those items in the Initial Calculation that the Managers
dispute and, to the extent possible, a statement (with reasonable detail as
to the disputed matters) of what the Managers believe is the correct
calculation (a "Notice of Dispute"). If the Manager Representative does not
deliver a Notice of Dispute to K2 within the 14-day review period, the
Managers will be deemed to have accepted the Initial Calculation in its
entirety. If the Manager Representative delivers a Notice of Dispute in
which it disputes some, but not all, of the items in the Initial
Calculation, the Managers will be deemed to have accepted all of the items
not disputed.
(c) During the 14-day period after the delivery of a Notice of
Dispute, the Manager Representative and K2 will attempt to resolve in good
faith any disputed items. If they are unable to resolve all of the disputed
items, the remaining disputed items will be referred to a single arbitrator
selected by the parties pursuant to the rules of the American Arbitration
Association for resolution. The determination by the arbitrator, which
shall only be with respect to the disputed items, shall be final and
binding on the parties. Nothing herein shall be construed to authorize or
permit the arbitrator to resolve any such dispute by making an adjustment
to the Initial Calculation that is outside of the range defined by the
respective amounts proposed by K2 and by the Managers in their Dispute
Notice. The arbitrator shall determine which party shall pay the fees and
expenses of the arbitration based on the relative merits of each party's
calculations.
8. K2 Guarantee; K2 and Acquisition Sub Covenants.
(a) Subject to the effectiveness of this Agreement pursuant to Section
1, K2 hereby guarantees the satisfaction of the obligations of Brass Eagle
to pay the bonuses set forth on the Amended Bonus Schedule in accordance
with the terms and conditions of this Agreement. K2 and Acquisition Sub
hereby represent and warrant that, as of the effectiveness of this
Agreement pursuant to Section 1, neither of them are subject to, and K2 and
Acquisition Sub agree that they will not enter into or become subject to,
any agreements, covenants, prohibitions or any other restrictions of any
kind that would limit the ability of Brass Eagle, K2 or Acquisition Sub to
fulfill each and every payment and other obligation under this Agreement,
or have received consent to the waiver of such limitations with respect
hereto.
(b) K2 and Acquisition Sub agree and acknowledge that the Adjusted
Consolidated EBITDA thresholds set forth in Sections 3(a) and 3(b) are
based on Brass
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Eagle's projections for the fiscal year ended December 31, 2004, and that
the achievement of such projections are based on Brass Eagle being
permitted to make the capital and other expenditures included in Brass
Eagle's operating plan and budget for the fiscal year ended December 31,
2004. In the event that capital and other expenditures included in the
operating plan and budget are not made, the parties shall negotiate in good
faith to determine appropriate adjustments to Adjusted Consolidated EBITDA,
if any, as a result of such capital and other expenditures not being made.
9. K2 Change-of-Control. K2 agrees that, in the event of a K2
Change-of-Control, K2 will cause its successor or the acquiring company, as
applicable, in the K2 Change-of-Control to expressly assume and agree to honor
and pay each of the payment and other obligations of Brass Eagle, K2 and
Acquisition Sub under this Agreement.
10. Consent under Merger Agreement.
(a) K2 and Acquisition Sub hereby consent, pursuant to Section 5.1 of the
Merger Agreement, to the execution of this Agreement and the amendment of the
Success Bonus Program.
(b) Each of the Managers hereby consent to the execution of this Agreement
and the amendment of the Success Bonus Program.
11. Disclosure. Brass Eagle agrees to file an amendment to its Schedule
14D-9, and K2 agrees to file amendments to its Registration Statement on Form
S-4, to include the disclosures required as a result of the execution of this
Agreement. Brass Eagle and K2 shall provide the other party with a reasonable
opportunity to review and comment on their respective amended filings prior to
filing the same with the Securities and Exchange Commission.
12. Miscellaneous.
(a) Entire Agreement. This Agreement, including the exhibits hereto,
constitutes the entire agreement among the parties hereto, and supersedes
all other prior written or oral agreements and understandings among the
parties, with respect to the subject matter hereof.
(b) Assignment. This Agreement shall inure to the benefit of and be
binding upon each of the parties hereto and their respective successors,
heirs and assigns; provided that no party may assign or otherwise transfer
their rights or obligations under this Agreement to any third party without
the prior written consent of the other party.
(c) Validity. If any provision of this Agreement or the application
thereof to any person or circumstance is held invalid or unenforceable, the
remainder of this Agreement and the application of such provision to other
persons or circumstances shall not be affected thereby and to such end the
provisions of this Agreement are agreed to be severable.
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(d) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return
receipt requested) to each other party as follows:
If to K2 or Acquisition Sub: K2 Inc.
0000 Xxxxxxx Xxxxxxx Xxxx
Xxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: General Counsel
If to the Company to: Brass Eagle Inc.
0000 X.X. 00xx Xxxxxx
Xxxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Chief Executive Officer
If to the Manager Representative: E. Xxxx Xxxxx
c/o Brass Eagle Inc.
0000 X.X. 00xx Xxxxxx
Xxxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
(e) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, notwithstanding any
conflict of law provisions to the contrary.
(f) Descriptive Headings; Section References. The descriptive headings
herein are inserted for convenience of reference only and are not intended
to be part of or to affect the meaning or interpretation of this Agreement.
All references herein to sections, subsections, paragraphs and clauses are
references to sections, subsections, paragraphs and clauses of this
Agreement unless specified otherwise.
(g) Counterparts. This Agreement may be executed by facsimile and may
be executed in one or more counterparts, each of which shall be deemed to
be an original but all of which shall together constitute one and the same
agreement.
[signature pages follows on the next page]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
BRASS EAGLE INC.
By: /s/ E. Xxxx Xxxxx /s/ E. Xxxx Xxxxx
------------------------------------- ----------------------------------------
Name: E. Xxxx Xxxxx E. Xxxx Xxxxx
Title: President and Chief Executive
Officer
K2 INC. /s/ J. R. Xxxxx Xxxxx
----------------------------------------
J. R. Xxxxx Xxxxx
By: /s/ Xxxx X. Xxxxxx
-------------------------------------
Name: Xxxx X. Xxxxxx
Title: Senior Vice President and /s/ Xxxxxx X. XxXxxx
Chief Financial Officer ----------------------------------------
Xxxxxx X. XxXxxx
XXXX ACQUISITION SUB, INC.
/s/ Xxxxx Xxxxxx
----------------------------------------
By: /s/ Xxxx X. Xxxxxx Xxxxx Xxxxxx
-------------------------------------
Name: Xxxx X. Xxxxxx
Title: Vice President and Chief
Financial Officer
/s/ Xxxxxxx Xxxxxxxxx
----------------------------------------
Xxxxxxx Xxxxxxxxx
/s/ Xxxx X. Xxxxx
----------------------------------------
Xxxx X. Xxxxx
/s/ Xxxx Xxxxxxx
----------------------------------------
Xxxx Xxxxxxx
/s/ Xxxxx Xxxxxxxxx
----------------------------------------
Xxxxx Xxxxxxxxx
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EXHIBIT A
SUCCESS BONUS PROGRAM
E. Xxxx Xxxxx $ 300,000
J.R. Xxxxx Xxxxx $ 125,000
Xxxxxx X. XxXxxx $ 100,000
Xxxxx Xxxxxx $ 100,000
Xxxxxxx Xxxxxxxxx $ 100,000
Xxxx X. Xxxxx $ 100,000
Xxxx Xxxxxxx $ 100,000
Xxxxx Xxxxxxxxx $ 50,000
A-1
EXHIBIT B
ADJUSTED CONSOLIDATED EBITDA
"Adjusted Consolidated EBITDA" shall mean the EBITDA of Brass Eagle and its
current subsidiaries on a consolidated basis determined in a manner consistent
with past practices of Brass Eagle; provided, however, in the event that any
cost (a) allocated to Brass Eagle by K2 (or any of its direct or indirect
subsidiaries) or (b) incurred by Brass Eagle at K2's direction, exceeds the
corresponding cost item set forth in Brass Eagle's operating plan and budget for
fiscal year ending December 31, 2004, the parties shall negotiate in good faith
to determine appropriate adjustments to Adjusted Consolidated EBITDA, if any, as
a result of such additional costs. The parties acknowledge that any cost savings
realized by Brass Eagle as a result of the Merger shall inure to the benefit of
Brass Eagle for purposes of this calculation.
B-1
EXHIBIT C
POTENTIAL BONUSES UNDER THE
AMENDED SUCCESS BONUS PROGRAM
--------------------- ---------------------- --------------------- ---------------------- ----------------------
COLUMN I COLUMN II COLUMN III COLUMN IV
MANAGER ---------------------- --------------------- ---------------------- ----------------------
POTENTIAL BONUSES POTENTIAL BONUSES POTENTIAL BONUSES POTENTIAL BONUSES
FOR SIX-MONTH PERIOD FOR TWELVE-MONTH FOR TWELVE-MONTH FOR TWELVE-MONTH
PERIOD, FIRST PERIOD, SECOND PERIOD, THIRD
THRESHOLD THRESHOLD THRESHOLD
--------------------- ---------------------- --------------------- ---------------------- ----------------------
E. Xxxx Xxxxx $ 150,000 $ 150,000 $ 76,925 $ 153,850
--------------------- ---------------------- --------------------- ---------------------- ----------------------
J.R. Xxxxx Xxxxx $ 62,500 $ 62,500 $ 32,025 $ 64,050
--------------------- ---------------------- --------------------- ---------------------- ----------------------
Xxxxxx X. XxXxxx $ 50,000 $ 50,000 $ 25,650 $ 51,300
--------------------- ---------------------- --------------------- ---------------------- ----------------------
Xxxxx Xxxxxx $ 50,000 $ 50,000 $ 25,650 $ 51,300
--------------------- ---------------------- --------------------- ---------------------- ----------------------
Xxxxxxx Xxxxxxxxx $ 50,000 $ 50,000 $ 25,650 $ 51,300
--------------------- ---------------------- --------------------- ---------------------- ----------------------
Xxxx X. Xxxxx $ 50,000 $ 50,000 $ 25,650 $ 51,300
--------------------- ---------------------- --------------------- ---------------------- ----------------------
Xxxx Xxxxxxx $ 50,000 $ 50,000 $ 25,650 $ 51,300
--------------------- ---------------------- --------------------- ---------------------- ----------------------
Xxxxx Xxxxxxxxx $ 25,000 $ 25,000 $ 12,800 $ 25,600
--------------------- ---------------------- --------------------- ---------------------- ----------------------
TOTAL $ 487,500 $ 487,500 $ 250,000 $ 500,000
--------------------- ---------------------- --------------------- ---------------------- ----------------------
C-1
