1
EXHIBIT 99.2
2
The Acquisition
Pursuant to a Stock Purchase Agreement (the "Acquisition Agreement") dated as of
May 11, 2001 between Xxxxxxx Corporation ("Xxxxxxx") and Saf-T-Hammer
Corporation ("Parent" and "Acquirer"), Parent acquired (the "Acquisition") all
of the issued and outstanding shares of the Company. As a result of the
Acquisition, the Company became a wholly owned subsidiary of Saf-T-Hammer. The
Parent paid $15 million dollars (the "Purchase Price") in exchange for all of
the issued and outstanding shares of Xxxxx & Wesson ("Acquiree") as follows:
- $5 million (See the "Loan") of which was paid at closing
- $10 million must be paid on or before May 11, 2002 pursuant to the
terms of an unsecured promissory note issued by The Parent to
Xxxxxxx (the "Acquisition Note"). The Acquisition Note accrues
interest at a rate of 9% per year.
The Purchase Price was the result of arm's length negotiations between the
Parent and Xxxxxxx. This business combination has been accounted for using the
purchase method of accounting, under APB Opinion No. 16, and accordingly, the
purchase price was allocated to the assets purchased and liabilities assumed
based upon their estimated fair values on the date of acquisition.
Acquisition Note
Pursuant to the Acquisition Agreement, the Parent issued a promissory note in
the amount of $10 million as partial consideration for the acquisition of the
Company. This note is due on May 11, 2002, is unsecured and bears interest at 9%
per annum. In the event of default by the Parent, the interest rate would
increase by an additional 2% per annum on the outstanding balance.
Xxxxxxx Note
The Acquisition Agreement required the Parent to guaranty the Company's existing
obligations to Xxxxxxx under a promissory note issued on April 30, 1997 by the
Company to Xxxxxxx (the "Xxxxxxx Note"). The original Xxxxxxx Note was in the
amount of $73,830,000, due April 30, 2004 and bore interest at the rate of 9%
per annum. Prior to the Acquisition, Xxxxxxx contributed to the capital of the
Company $23,830,000 of the Xxxxxxx Note, thereafter leaving a balance of
$50,000,000. Immediately subsequent to the Acquisition, the Company paid
$20,000,000 of the Xxxxxxx Note. The outstanding principal balance on the
Xxxxxxx Note is $30 million. In satisfaction of this condition, the Parent
executed a guaranty in favor of Xxxxxxx dated May 11, 2001. The terms of the
Xxxxxxx Note was amended as follows:
(a) Commencing on May 11, 2001, the new due date was extended by ten
years to May 11, 2011.
(b) Unpaid principal balance shall be paid in 84 equal monthly
payments commencing on May 11, 2004.
(c) Until paid in full, dividends declared and paid to the Parent
shall not exceed $600,000 for the twelve month period ended May
11, 2002, and not exceed $1,800,000 for annual periods thereafter.
(d) Until the payment of the $10 million Acquisition Note owed by the
Parent to Xxxxxxx, the Company shall not, either directly or
indirectly, incur, assume, guaranty, or otherwise become liable to
any indebtedness, except in the ordinary course of business.
(e) The Company shall not liquidate, wind-up or dissolve any business
assets, including tangible and intangible assets.
(f) In the event of default by the Parent on the Acquisition Note, or
default by the Company on the Xxxxxxx Note, the Xxxxxxx Note shall
be accelerated and become due and payable in full immediately.
The Loan
The initial payment of $5 million was obtained as a loan from an individual,
pursuant to a Promissory Note & Loan Agreement dated May 6, 2001 between the
Parent and the individual. Interest accrues on the Note at a rate of 12% per
annum and matures on May 15, 2002. Pursuant to the terms of the Note, the Parent
prepaid the annual interest of $600,000 on the latter of five business days
after the consummation of the Acquisition or May 15, 2001.
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The Note is secured by a pledge of all of the issued and outstanding stock of
the Company, as evidenced by a Stock Pledge Agreement dated and effective as of
May 11, 2001 between the Parent and Xx. Xxxxx (the "Pledge Agreement").
UNAUDITED PROFORMA DISCLOSURES
The following unaudited proforma balance sheet, results of operations and net
loss per share assume that the acquisition of Xxxxx & Wesson Corp. occurred as
of the beginning of each period presented, after giving effect to proforma
adjustments. The proforma adjustment represents amortization of intangibles and
interest expense arising from the Acquisition Note, Xxxxxxx Note and The Loan,
as defined above. The proforma financial information is presented for
informational purposes only and may not necessarily be indicative of the
operating results that would have occurred had these acquisitions been
consummated as of the beginning of each period presented, nor is it indicative
of future operating results.
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SAF-T-HAMMER CORPORATION
PROFORMA BALANCE SHEET - MARCH 31, 2001
Balance Sheet
Acquirer Acquiree Proforma Consolidated
Historical Historical
March 31, 2001 May 11, 2001 Adjustments Proforma
-------------- ------------ ----------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 181,430 $ 48,598,168 $(20,000,000)(1),(2),(3) $ 28,779,598
Accounts receivables 18,015 7,733,517 7,751,532
Inventory 8,420 9,489,931 14,768,927(1) 24,267,278
Other current assets -- 7,126,862 -- 7,126,862
Due from Xxxxxxx Corporation -- 7,699,500 7,699,500
------------- ------------- ------------ -------------
TOTAL CURRENT ASSETS 207,865 80,647,978 (5,231,073) 75,624,770
------------- ------------- ------------ -------------
PROPERTY, PLANT AND EQUIPMENT 31,232 21,790,649 (13,182,539)(1) 8,639,342
INTANGIBLES -- 15,619,115 (10,664,159)(1) 4,954,956
INVESTMENT IN SUBSIDIARY - XXXXX & WESSON CORP -- -- --
OTHER ASSETS 399,120 399,120
------------- ------------- ------------ -------------
TOTAL ASSETS $ 638,217 $ 118,057,742 $(29,077,771) $ 89,618,188
============= ============= ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payables and accrued expenses $ 131,431 $ 16,373,582 $ 4,878,867(1) $ 21,383,880
Loan payable 500,000 -- 500,000
Deferred income -- 1,612,707 1,612,707
------------- ------------- ------------ -------------
TOTAL CURRENT LIABILITIES 631,431 17,986,289 4,878,867 23,496,587
------------- ------------- ------------ -------------
NON-CURRENT LIABILITIES:
Deferred tax liability -- 3,016,990 7,530,339(1) 10,547,329
Other non-current liabilities 597,426 10,567,486 11,164,912
Note payable, Individual, net of debt
issue cost of $5 million -- -- --(3) --
Note payable, Xxxxxxx -- 50,000,000 (10,000,000)(1),(2) 40,000,000
------------- ------------- ------------ -------------
TOTAL LIABILITIES 1,228,857 81,570,765 2,409,206 85,208,828
------------- ------------- ------------ -------------
STOCKHOLDERS' EQUITY:
Common stock 14,721 8 (8) 14,721
Additional paid in capital 3,807,663 94,753,721 (89,753,721)(3) 8,807,663
Accumulated deficit (4,413,024) (58,266,752) 58,266,752 (4,413,024)
------------- ------------- ------------ -------------
TOTAL STOCKHOLDERS' EQUITY (590,640) 36,486,977 (31,486,977) 4,409,360
------------- ------------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 638,217 $ 118,057,742 $(29,077,771) $ 89,618,188
============= ============= ============= =============
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SAF-T-HAMMER CORPORATION
PROFORMA STATEMENT OF OPERATIONS
Unaudited Proforma Statement of Operations - Three Months Ended March 31, 2001
----------------------------------------------------------------------------------------
Acquirer Acquiree
Historical Historical Consolidated Proforma
Three months ended Three months ended Proforma Three months ended
March 31, 2001 March 31, 2001 Adjustments March 31, 2001
-------------- -------------- ----------- --------------
(Audited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 21,151 $ 17,665,685 $17,686,836
Cost of sales 8,418 15,783,427 (1,532,050)(4) 14,259,795
----------- ------------ -----------
Gross profit 12,733 1,882,258 3,427,041
----------- ------------ -----------
Operating expenses:
Research and development and other - 2,572,696 2,572,696
Selling, general and
administrative 409,729 4,169,275 (509,379)(5) 4,069,625
Loss on impairment of goodwill - 7,250,000 (7,250,000)(6) -
----------- ------------ ------------ -----------
409,729 13,991,971 13,991,971 6,642,321
----------- ------------ ----------- -----------
Loss from operations (396,996) (12,109,713) (12,109,713) (3,215,280)
Interest expense, net 36,000 581,539 1,670,250(7) 2,287,789
----------- ------------ -----------
Loss before taxes (432,996) (12,691,252) (5,503,069)
Provision for income taxes - - -
----------- ------------ -----------
Net loss $ (432,996) $(12,691,252) $(5,503,069)
=========== ============ ===========
Weighted average number of shares
outstanding - basic and diluted 15,931,330 15,931,330
----------- -----------
Net loss per share, basic and
diluted $ (0.03) $(0.35)
----------- -----------
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SAF-T-HAMMER CORPORATION
PROFORMA STATEMENT OF OPERATIONS
Unaudited Proforma Statement of Operations - Year ended December 31, 2000
-----------------------------------------------------------------------------------------
Acquirer Acquiree
Historical Historical Consolidated Proforma
Year ended 12 months ended Proforma Year ended
December 31, 2000 December 31, 2000 Adjustments December 31, 2000
----------------- ----------------- ----------- -----------------
(Audited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 13,367 $ 84,430,583 $ 84,443,950
Cost of sales 5,347 69,152,903 (3,512,842)(4) 65,645,408
-------------- ------------- ------------
Gross profit 8,020 15,277,680 18,798,542
-------------- ------------- ------------
Operating expenses:
Research and development and other 195,109 9,461,363 9,656,472
Selling, general and
administrative 2,025,126 17,632,590 (1,531,504)(5) 18,126,212
Loss on impairment of goodwill - 19,333,333 (19,333,333)(6) 0
-------------- ------------- ------------
2,220,235 46,427,286 27,782,684
-------------- ------------- ------------
Loss from operations (2,212,215) (31,149,606) (8,984,142)
Interest expense, net 329,855 2,475,037 6,681,000(7) 9,485,892
-------------- ------------- ------------
Loss before taxes (2,542,070) (33,624,643) (18,470,034)
============== ============= ============
Provision for income taxes - (0) (0)
Net loss $ (2,542,070) $ (33,624,643) $(18,470,034)
============== ============= ============
Weighted average number of shares
outstanding - basic and diluted 11,021,937 11,021,937
--------------- ------------
Net loss per share, basic and
diluted $ (0.23) $(1.68)
--------------- ------------
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SAF-T-HAMMER CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The pro forma adjustments to the condensed consolidated balance sheet are as
follows:
(1) To reflect the acquisition of Xxxxx & Wesson Corp. and the
allocation of the purchase price on the basis of the fair values of
the assets acquired and liabilities assumed. The components of the
purchase price and its allocation to the assets and liabilities of
Xxxxx & Wesson are as follows:
COMPONENTS OF PURCHASE PRICE:
Cash paid on May 11, 2001 $ 5,000,000
Note payable, Xxxxxxx, due May 11, 2002 10,000,000
------------
Total purchase price $ 15,000,000
------------
ALLOCATION OF PURCHASE PRICE:
Stockholder's equity of Xxxxx & Wesson (36,486,977)
Increase in inventories (elimination of LIFO
reserve and adjustment to fair value) (14,768,927)
Increase to plant, property and equipment (6,874,351)
Increase to tradename (Intangible) (880,885)
Increase in accrued liabilities contingent upon
sale of Xxxxx & Wesson 4,878,867
Increase in deferred income taxes (SFAS 109) 7,530,339
------------
Fair value of net assets in excess of purchase price (31,601,934)
Allocation of negative goodwill to plant,
property and equipment 20,056,890
Allocation of negative goodwill to tradename 11,545,044
------------
$ 0
============
(2) In addition, the Company paid $20,000,000 of the Xxxxxxx Note.
(3) On May 6, 2001, Saf-T-Hammer Corporation obtained a loan from an
individual in the amount of $5 million to fund its initial cash
payment to Xxxxxxx for the purchase of Xxxxx & Wesson. Related to
this loan, Saf-T-Hammer also issued warrants to purchase, in
aggregate, approximately 8.7 million shares. Using the Black Scholes
option pricing model, debt issue costs of $5 million (value of 8.7
million shares upto the loan value) has been netted against the
proceeds of the loan. The debt issue costs will be amortized over
the life (1 year) of the note using the effective interest method.
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The pro forma adjustments to the condensed consolidated statement of operations
are as follows:
Year ended Three months ended
December 31, 2000 March 31, 2001
----------------- --------------
(4) Adjustments to cost of goods sold:
Eliminate Xxxxx & Wesson's LIFO
reserve for current period $ (2,011,333) $ (861,500)
Depreciation expense adjustment from
reduction of carrying value by allocated
negative goodwill (1,501,509) (670,550)
------------ -----------
$ (3,512,842) $(1,532,050)
------------ -----------
(5) Adjustments to selling, general and administrative expenses:
Amortization expense adjustment from goodwill
eliminated from prior sale of Xxxxx & Wesson to
Xxxxxxx under Push Down Accounting $ (1,713,000) $ (428,250)
Amortization of Tradename acquired
over 20 years using straight line method 825,000 206,250
Depreciation expense adjustment from
reduction of carrying value by allocated
negative goodwill (643,504) (287,379)
------------ -----------
$ (1,531,504) $ (509,379)
------------ -----------
(6) Adjustments to impairment loss on goodwill:
Elimination of impairment loss recognized
by Xxxxx & Wesson on historical data $(19,333,333) $(7,250,000)
------------ -----------
(7) Adjustments to interest expense - Increase/(decrease):
Xxxxxxx Note, at 9% 181,000 45,250
Xxxxxxx Acquisition Note, at 9% 900,000 225,000
Amortization of debt issue costs 5,000,000 1,250,000
Interest on loan from individual at 12% 600,000 150,000
------------ -----------
$ 6,681,000 $ 1,670,250
------------ -----------
