-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rcbt6hLBHJ1d9gfPaNzzGvUCJRBnHuXV2O/wL7Gw8ezLE441+WAXCs7ErYTvmetf m3TJPGy3G+1wWrcdXyZgDg== 0000950144-00-004307.txt : 20000331 0000950144-00-004307.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950144-00-004307 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELLETT BROTHERS INC CENTRAL INDEX KEY: 0000902055 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MISC DURABLE GOODS [5090] IRS NUMBER: 570957069 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-21632 FILM NUMBER: 588797 BUSINESS ADDRESS: STREET 1: 267 COLUMBIA AVE CITY: CHAPIN STATE: SC ZIP: 29036 BUSINESS PHONE: 8033453751 MAIL ADDRESS: STREET 1: P O BOX 128 CITY: CHAPIN STATE: SC ZIP: 29036 10-K405 1 ELLETT BROTHERS INC 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number 0-21632 ELLETT BROTHERS, INC. (Exact name of Registrant as specified in its charter) SOUTH CAROLINA 57-0957069 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 267 COLUMBIA AVENUE, CHAPIN, SOUTH CAROLINA 29036 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (803) 345-3751 Securities registered pursuant to section 12(b) of the Act: NONE Securities registered pursuant to section 12(g) of the Act: COMMON STOCK (NO PAR VALUE) 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of February 29, 2000 there were 4,316,518 shares of common stock of the Registrant outstanding, and the aggregate market value of the shares of common stock held by nonaffiliated shareholders (based upon the closing price for the stock on the Nasdaq National Market on February 29, 2000) was $31,024,973. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement in connection with the Registrant's 2000 Annual Meeting of Shareholders to be held May 17, 2000 are incorporated by reference into Part III of this report. Page 1 of 29 2 ADVISORY NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain of the statements contained in PART I, Item 1 (Business) and in PART II, Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The Company cautions readers of this Annual Report on Form 10-K that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements. Although the Company's management believes that their expectations of future performance are based on reasonable assumptions within the bounds of their knowledge of their business and operations, there can be no assurance that actual results will not differ materially from their expectations. Factors which could cause actual results to differ from expectations include, among other things, reductions in, or lack of growth of, firearm sales; potential negative effects of existing and future gun control legislation on consumer demand for firearms; the potential negative impact on gross margins from shifts in the Company's product mix toward lower margin products; seasonal fluctuations in the Company's business; competition from national, regional and local distributors and various manufacturers who sell products directly to the Company's customer base; competition from sporting goods mass merchandisers or "superstores" which sell in competition with the Company's primary customer base; exposure to product liability lawsuits; the challenges and uncertainties in the implementation of the Company's expansion and development strategies; the Company's dependence on key personnel; and other factors described in this report and in other reports filed by the Company with the Securities and Exchange Commission. PART I ITEM 1. BUSINESS BACKGROUND GENERAL Ellett Brothers, Inc. and subsidiaries (the "Company") is a nationwide marketer and supplier of natural outdoor sporting goods products. The Company markets and distributes a broad line of products and accessories for hunting and shooting sports, marine, camping, archery, and other related outdoor activities. The Company's product line, which contains over 60,000 stock-keeping units (SKU's), includes firearms, ammunition, marine electronics, small marine engine replacement parts, electric trolling motors, binoculars, cutlery, archery equipment, leather goods, flashlights, tents, lanterns, sportsmen's gifts, camping accessories, decorative boxes, licensed nostalgia items, and a variety of other natural outdoor sporting goods products. During fiscal years 1999, 1998, and 1997, revenues from sales of firearms and ammunition comprised approximately 52.6%, 50.7%, and 49.8%, respectively, of the Company's revenues. The Company features such recognized brand names as Remington, Ruger, Winchester, Daisy, Rocky Shoes and Boots, LaCrosse, Motorguide, Coleman, Rubbermaid, Leupold, Easton, Simmons, Federal, and Eureka. The Company's mailing address is 267 Columbia Avenue, Chapin, South Carolina, 29036, and its telephone number is (803) 345-3751. In late 1988, the Company began broadening its product line from primarily hunting and shooting goods to include marine accessories. The Company's marine accessories business has proven to be a natural extension of Ellett Brothers' ("Ellett") traditional sporting goods business, with sales increasing from $2.6 million in 1989 to $26.8 million in 1999. In 1994, Ellett formed a new sales group to specifically target archery retailers. The archery group has shown continued growth since its inception, reaching $8.8 million in sales in 1999. During 1995, Ellett implemented its acquisition strategy by acquiring assets of entities with products that complement Ellett's existing product lines as well as opening the possibility of new markets or channels of distribution. As a result, substantially all of the assets of Evans Sports, Inc. ("Evans") and Vintage Editions, Inc. ("Vintage") were acquired in April and September 1995, respectively. Evans is a manufacturer of outdoor sporting accessories and wooden nostalgia boxes. Vintage is a manufacturer of specialty licensed nostalgia products. While their products are similar in nature, they are very distinct in quality and marketing approaches. The Company expects to continue to seek expansion of the wood products of both companies to provide additional sales to both current and new customers. All of the assets of Evans and Vintage were transferred at the time of each respective purchase to wholly-owned subsidiaries that were incorporated in the State of South Carolina. In August 1995, Ellett purchased the accounts receivable and inventory of Safesport Manufacturing Company ("Safesport"), an importer and marketer of outdoor leisure products, specializing in camping accessories and cutlery items. In June 1997, executive management and the Board of Directors concluded that the ongoing operation of the Safesport subsidiary was not in the best interest of the Company and began liquidation. The liquidation process was substantially completed by the fourth quarter of 1997 (see Note 5 to the financial statements in Item 8, Part II which is incorporated herein by reference). On October 8, 1999, the Company purchased the assets of Archery Center International, Inc. (ACI) of Monroe, Michigan. ACI is a distributor of archery products. The Company expects to grow their archery products business by offering additional product lines to existing customers. At the time of purchase, all of the assets were transferred to a wholly owned subsidiary that was incorporated in the State of South Carolina. Page 2 of 29 3 DESCRIPTION OF BUSINESS MARKETING The Company currently sells to more than 20,000 active customer accounts (defined as customers who have made a purchase from the Company within the last twelve months), the majority of which are independent natural outdoor sporting goods retailers (as opposed to mass merchandisers). The Company's largest customer was responsible for approximately 1.9% of 1999 sales, and sales to the Company's ten largest customers represented approximately 4.8% of 1999 sales. The Company seeks to expand its existing customer base further through the identification of new or alternative channels for its product lines. Distribution channels targeted by the Company include specialty pro shop retailers of archery products, industry organization groups and larger sporting goods stores. Ellett's customer base in its traditional distribution business is organized into individual business units. Each sales associate, after ten weeks of intensive training, is promoted to manager of an individual business unit serving a designated customer base. Each business unit manager participates in the development of an annual profit plan, receives monthly profit and loss statements, and is accountable for the performance of the business unit. Business unit managers continually update each customer's file with product, sales and other customer-specific information to tailor the Company's services to better suit the customer's needs. Customers regularly contact their personal business unit managers to obtain current information regarding compatible products and accessories, product warranties, and product availability. The Company believes this organizational structure is unique in its industry because the business unit managers are incentivized to develop strong one-on-one relationships with their customers and to enhance their sales, marketing, and management skills. The Company believes this enhances the overall productivity of each business unit. Ellett's commitment to ongoing training and professional development of its business unit managers is a key feature of the organization. Ellett trains each business unit manager to be a constant source of product information for that business unit's customers. Management believes this teleservicing approach is unique to Ellett. Each business unit manager receives 500 hours of training in the manager's first year and approximately 200 hours of training each year thereafter. Prior to any customer contact, each business unit manager must successfully complete an intensive 10 week training, testing, and analysis process, which addresses product knowledge and a broad range of selling and management skills. Every business unit manager begins each day with a training meeting designed to build on earlier training and provide updates on Company direction, product promotions, and new marketing opportunities. In addition, periodic career enhancement classes provide in-depth training on a wide range of topics. Because of Ellett's business unit approach and state-of-the-art telecommunications technology, we do not need an outside sales force in our traditional distribution business. Ellett's business unit approach, combined with our teleservicing, enables us to communicate frequently with our entire customer base, providing timely updates on market developments, new products, promotions, and order status. In 1999, Ellett averaged approximately 4,700 outbound customer contacts and 4,000 inbound customer contacts daily, with a collective total of 400 hours of telephone time daily. Ellett believes that it is capable of contacting its entire customer base in two days rather than the weeks typically required by a traditional field sales force. Evans and Vintage rely on an inside marketing staff as well as independent sales representatives. The products of the subsidiaries are also cross-marketed to traditional Ellett customers by Ellett's sales associates to help generate additional sales for the subsidiaries. A key part of Ellett's marketing strategy is the production of complete annual product catalogs, as well as frequent promotional mini-catalogs. Annual catalogs are produced for each of our major product groups, including hunting and shooting sports products, archery products, marine accessories, Evans' products, and Vintage's products. The hunting and shooting, archery, and marine catalogs are produced in two separate formats. The Ellett version is designed to be used at a retail sales counter by store employees as a reference tool and sales guide. Ellett also sells catalogs to its customer base with the retail store's name on the front cover, which the retailers generally give to their best customers. Management believes that through this process our catalogs are found in the hands of the most active consumers in the marketplace. In 1999, we distributed over 97,000 copies of our annual catalogs. In 1999, Ellett's distribution business produced 40 different mini-catalogs (periodic promotional flyers) for our hunting and shooting sports products, archery products, and marine accessory products with 35% of our sales being from items featured in these mini-catalogs. These promotional, business-to-business mail order vehicles are designed to focus our customers and business unit managers on a narrow range of products, including special values, new products, and upcoming seasonal items for a short period of time. Page 3 of 29 4 DISTRIBUTION Ellett's ability to ship orders in a timely fashion is an important element in maintaining successful customer relationships. Our distribution centers pride themselves on generally having customer orders ready for shipment within six business hours of the receipt of an order, resulting in virtually no backlog of orders. Consequently, Ellett serves as a "just-in-time" inventory supplier to many of our distribution business customers. Our electronic inventory management system enables us to manage over 60,000 stock keeping units, minimizing out-of-stock situations and provides what we believe to be one of the highest fulfillment rates in our industry. The Company utilizes United Parcel Service for delivery services to the majority of its customers, while a few customers pick up merchandise. The use of UPS has allowed the Company to avoid the substantial fixed costs associated with regional warehouse locations and a fleet of trucks. Following the 1997 UPS strike, management reviewed this relationship and determined that the benefits exceed the risks of any future strike. PURCHASING AND SUPPLIERS The Company currently purchases products from approximately 1,000 manufacturers and other suppliers. The Company's four largest suppliers accounted for approximately 28.2%, 27.7%, and 26.9% of the Company's purchases during 1999, 1998, and 1997, respectively. Management believes that the Company's size, reputation, prompt payment history, and overall knowledge of independent sporting goods retailers have contributed to strong relationships with its suppliers. The majority of the suppliers provide advertising allowances to the Company to assist in the promotion and sale of their products, via the catalogs and mini-catalogs, while many are actively involved in on-site promotion efforts at Ellett. Ellett's purchasing associates play a key role in merchandising. They are responsible for the initial buying decisions, including selection and pricing, and coordination of supplier promotional efforts. All distribution products are evaluated on a 2 to 3 week cycle and must perform to guidelines established by the Company. Raw materials for the manufacturing and assembly operations are evaluated as each major purchase cycle is encountered. Purchasing associates are regularly involved in reviewing new products or current product performance for the addition or discontinuance of items. COMPETITION The industry in which Ellett competes is extremely competitive. The principal methods of competition within the natural outdoor sporting goods distribution industry include purchasing convenience, customer service, inventory selection, price, and rapid customer order turnaround. Ellett believes that it differentiates itself by its strategies of servicing each customer through that customer's own personal business unit manager, providing customers with ongoing product and market information, after-the-sale follow-up, carrying one of the most extensive selections of inventory in its various product categories, and having customer orders generally ready for shipment within six business hours of the order being received by a business unit manager. Ellett's customer base for its distribution business consists almost exclusively of independent sporting goods retailers located across the United States. Ellett competes with other national distributors, various regional and local distributors and various manufacturers who sell certain products directly to these retailers. Ellett has identified approximately 60 distributors, of whom approximately six are national in scope, competing in the hunting and shooting sports, camping and archery products and outdoor accessories markets, and has identified approximately 50 other distributors competing in the marine accessories markets. Certain of these competitors may have substantially greater financial resources, larger sales and support staffs and greater purchasing power than Ellett. Ellett's ability to compete successfully depends on factors both within and outside its control, including its ability, if necessary, to support reductions in selling prices through reductions in operating expenses, the timing and success of product introductions, access to high demand products, successful inventory management, suitable product quality, reliability and price, and general economic conditions. Ellett also indirectly competes with sporting goods mass merchandisers or "superstores," to which Ellett generally does not sell, but which generally sell in competition with the Ellett's primary customer base of independent sporting goods retailers. Although our distribution business shares customers with our subsidiaries, competition in the markets of the subsidiaries differs from Ellett's traditional distribution business. Management believes Evans and Vintage hold the majority of the market for nostalgic and licensed decorative boxes, with a few smaller companies competing for market share. Evans' customer base is dominated by mass merchandisers and Vintage's sales are predominately through specialty catalogs and gift shops. The main competitive factor for Evans and Vintage is being able to produce a product timely and at a price level commensurate to the quality of the item. ACI is a distribution business similar to our archery group. It competes with other archery distributors as well as national distributors, various regional and local distributors. ACI will enable the Company to offer a broader product line and provide an additional distribution point. Page 4 of 29 5 GOVERNMENT REGULATION AND LICENSES In recent years, an increasing amount and variety of legislation aimed at eliminating or limiting the production, sale, possession, ownership and use of certain kinds of firearms has been introduced in the United States Congress and in various state legislatures, and the Company expects that such legislation will continue to be introduced in the future. In addition, certain states and other local governments have already adopted, or are currently considering the adoption of, laws aimed at the control of firearm possession and ownership by the public. There can be no assurance that existing and future gun control legislation will not have a substantial negative impact on consumer demand for firearms and result in a material adverse effect on the Company's financial condition, results of operations, and cash flows. The Company is also subject to a variety of federal, state and local laws and regulations relating to, among other things, advertising, the sale and handling of firearms, the offering and extension of credit and workplace and product safety, including various regulations concerning the storage of gunpowder. Certain governmental licenses and permits are also necessary in connection with the Company's operations. In particular, as with any seller of firearms, the Company is required to maintain a federal firearms license that imposes various restrictions and conditions on the Company's operations, including a requirement that the Company resell firearms and ammunition only to federally licensed firearms dealers. In addition, all exports of firearms and ammunition require federal government licenses in advance of shipment. In the event that the Company should be determined to be in violation of any applicable regulations, licenses or permits, the Company could become subject to cease and desist orders, injunctions, civil fines and other penalties. Any such penalties could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows. ASSOCIATES The Company views all of its personnel as associates of the Company, rather than merely as employees. As of February 29, 2000, the Company employed approximately 425 associates, none of whom was a member of an industry trade union or collective bargaining unit. Part-time workers (primarily clerical and distribution) are also utilized over the course of the year as needed to assist the Company during periods of peak sales. COMPANY TRADENAMES AND TRADEMARKS The Company utilizes several trade names, trademarks and service marks in the course of its business, including, among others, the Ellett Brothers(R), Ellett Brothers As Big As All Outdoors(R), and As Big As All Outdoors(R) trademarks. Although the Company's operations are not dependent upon any single trade name or trademark, other than the Ellett Brothers trademark, the Company considers its various trademarks and trade names to be valuable to its business. ITEM 2. PROPERTIES The Company's operations are carried out at five separate locations. The following table sets forth certain information regarding each of these facilities: Approximate Aggregate Usable Square Feet Status --------------------------------- Chapin, South Carolina 190,000 Owned Newberry, South Carolina 140,000 Owned Houston, Missouri 62,000 Leased Taylorsville, North Carolina 30,000 Leased Monroe, Michigan 18,000 Leased The Company's headquarters is housed in the 190,000 square foot, two-story office and warehouse facility located on 12 acres of land owned by the Company. The second floor of this facility, approximately 40,000 square feet, encompasses the Company's teleservicing sales and administrative departments, including a complete media workshop as well as a video and photography studio. Both of the Chapin, South Carolina facilities serve as collateral under the Company's industrial revenue refunding bonds. See Note 11 to the Financial Statements in Item 8, Part II which is incorporated herein by reference. The Newberry facility, located on 16.4 acres of land owned by the Company, includes 34,000 square feet of warehouse space added in February 1996. ITEM 3. LEGAL PROCEEDINGS See Note 17 to the Financial Statements in Item 8, Part II which is incorporated herein by reference. Page 5 of 29 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of shareholders of Ellett Brothers, Inc. during the fourth quarter of fiscal year 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of Ellett Brothers, Inc. is traded on the Nasdaq National Market System under the symbol ELET. As of March 6, 2000, the Company had a total of approximately 65 shareholders of record. Certain of these shareholders of record hold shares in nominee name for other beneficial owners. The following table sets forth the quarterly high and low sale prices per share for the common stock as reported on the Nasdaq National Market and dividends on common stock. Quarter Ended: High Low Dividend - ------------------------------------------------------------- March 31, 1998 $ 6.500 $ 5.500 $ 0.02 June 30, 1998 6.250 4.440 0.02 September 30, 1998 5.125 3.250 0.02 December 31, 1998 4.875 3.563 0.02 March 31, 1999 5.500 4.250 0.04 June 30, 1999 8.000 3.375 0.04 September 30, 1999 8.375 4.000 0.04 December 31, 1999 6.875 4.750 0.04 The Company did not sell any equity securities during the fiscal year ended December 31, 1999 which were not registered under the Securities Act of 1933. ITEM 6. SELECTED FINANCIAL DATA
(in thousands except per share and other data) 1999 1998 1997(3) 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Sales $168,056 $147,130 $152,500 $147,666 $150,411 Income (loss) before income taxes 5,612 4,750 (1,353) 2,673 7,384 Net income (loss) 3,575 3,012 (815) 1,687 4,634 Basic and diluted earnings (loss) per share 0.83 0.61 (0.16) 0.33 0.89 Dividends paid per share(1) 0.16 0.08 0.08 0.08 0.08 Weighted average number of shares outstanding 4,313 4,955 5,148 5,135 5,230 Working capital 50,894 46,538 48,140 55,029 50,512 Total assets 72,926 64,769 63,614 73,688 70,275 Long-term debt obligations 35,596 32,297 33,187 38,472 33,533 Shareholders' equity 26,093 22,932 23,336 24,637 24,548 Other data: Number of business units at year end 126 127 139 145 160 Number of customers served during year(2) 20,065 20,677 23,800 25,890 25,737
(1) Includes quarterly dividends at $0.04 per share paid in March, June, September and December 1999, $0.02 per share paid in March, June, September and December 1998, 1997, 1996, and 1995. (2) Due to the potential for errors in elimination of mutual customers between subsidiaries, the numbers for 1999, 1998, 1997, 1996, and 1995 are approximations. Management feels that any differences are insignificant. (3) In June 1997, executive management and the Board of Directors concluded that ongoing operation of the Safesport Manufacturing Company subsidiary was not in the best interest of the Company and began liquidation of this subsidiary. The liquidation was substantially concluded by December 31, 1997 with a net after tax loss of $2,276 ($0.44 per share). Page 6 of 29 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1999 COMPARED TO 1998 Sales for the year ended December 31, 1999 were $168.1 million as compared to $147.1 million in 1998, an increase of $21.0 million or 14.2%. Total sales in our distribution business were up 14.2% in 1999 as compared to 1998. Sales of our hunting and shooting sports products led the way with an increase of 16.1% in 1999, as compared to 1998. The marine accessory products increased 12.1%, and sales of our camping, archery and outdoor accessories increased by 11.1%, as compared to 1998. Sales from our subsidiaries in 1999, which includes our acquisition of ACI, were $7.0 million, as compared to $6.1 million, an increase of $900,000 or 14.3%. Excluding ACI, sales were down 4.5% in 1999 compared to 1998, mainly due to a cancellation of a large sale to a major account. Gross profit for the year ended December 31, 1999 was $30.5 million (18.2% of sales) as compared to $26.4 million (18.0% of sales) in 1998. This increase was primarily achieved in our distribution business with hunting and shooting sports products accounting for the largest part of the increase. Selling, general and administrative expenses in 1999 were $22.7 million (13.5% of sales) as compared to $19.7 million (13.4% of sales), an increase of 15.1%. Excluding ACI, expenses were up 13.3%. This increase was primarily due to one-time expenses associated with the Year 2000 remediation work, increased costs associated with our associates' health insurance program, and freight costs. Interest expense for the year ended December 31, 1999 was $2.7 million (1.6% of sales) as compared to $2.5 million (1.7% of sales) in 1998. The increase was mainly related to the ACI transaction along with higher borrowings. Income tax expense in 1999 was $2.0 million as compared to $1.7 million in 1998. The effective tax rate was 36.3% in 1999 as compared to 36.6% in 1998. Net income for 1999 was $3.6 million, or $0.83 per basic and diluted share, as compared to $3.0 million, or $0.61 per basic and diluted share, in 1998. 1998 COMPARED TO 1997 Sales for the year ended December 31, 1998 were $147.1 million as compared to $144.4 million in 1997, excluding the sales from the liquidation of Safesport Manufacturing Company in 1997, an increase of $2.7 million or 1.9%. Including Safesport in the 1997 total, sales were $152.5 million. Total sales in our distribution business were up 3.3% in 1998 as compared to 1997. The marine accessory products led the way with a 14.5% increase when compared to 1997, while sales of our camping, archery and outdoor accessories increased by 8.2%. Although sales of our hunting and shooting sports products declined 1.3% in 1998 as compared to 1997, this decline occurred in the first half of the year, as our sales were up 4.8% over 1997 in the second half of the year. Sales from our subsidiaries in 1998, excluding Safesport, were $6.1 million, as compared to $7.9 million, a decrease of $1.8 million or 22.8%. Sales to our major accounts did not materialize as expected, especially in the fourth quarter, resulting in the decline in sales. Gross profit for the year ended December 31, 1998 was $26.4 million (18.0% of sales) as compared to $25.3 million (17.5% of sales), excluding Safesport from last year's results. Efforts to increase gross profit in 1998 as a percentage of sales in our distribution operations were successful in all four quarters. Including Safesport in 1997, total gross profit was $23.1 million (15.2% of sales). Selling, general and administrative expenses in 1998 were $19.7 million (13.4% of sales) as compared to $19.5 million (13.5% of sales), excluding Safesport from last year's results, an increase of 1.0%. Recoveries in our bad debt expense along with collections of Safesport receivables previously written off in 1997 contributed to a lower total expense as a percentage of sales. Including Safesport, selling, general and administrative expenses were $21.8 million (14.3% of sales) in 1997. Interest expense for the year ended December 31, 1998 was $2.5 million (1.7% of sales) as compared to $3.3 million (2.2% of sales) in 1997. Income tax expense in 1998 was $1.7 million as compared to $1.3 million in 1997, excluding Safesport. The effective tax rate was 36.6% in 1998 as compared to 36.5% in 1997. Including Safesport in 1997, the income tax benefit was $538,000, which was an effective tax rate of 39.8%. Net income for 1998 was $3.0 million, or $0.61 per basic and diluted share, as compared to $2.3 million, or $0.44 per basic and diluted share, in 1997, excluding the impact of Safesport from the 1997 amounts. Including Safesport in 1997, the net loss for 1997 was $815,000, or $0.16 per basic and diluted share. Page 7 of 29 8 SEASONALITY AND QUARTERLY INFORMATION Historically, the Company's business has been seasonal. The sales of hunting and shooting sports products, as well as camping, archery and outdoor accessories, usually increase in the third quarter of each year and peak early in the fourth quarter. Sales of marine accessories usually increase in the first quarter of each year, then peak midway through the second quarter and continue at similar levels through the first half of the third quarter. Operations of the subsidiaries acquired during 1995 have been seasonal, producing significantly higher sales and gross profit during the third and fourth quarters, with losses in the first and second quarters. The Company's operating results may also be affected by a wide variety of factors, such as legislative and regulatory changes, competitive pressures, and general economic conditions. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity are cash flows from operations and borrowings under its revolving credit facility. Pursuant to its operating strategy, the Company maintains minimal cash balances and is substantially dependent on, among other things, the availability of adequate working capital financing to support inventories and accounts receivable. Net cash provided by operating activities was $2.7 million during the year ended December 31, 1999, as compared to $5.9 million in 1998. In 1999 cash provided from net income and non-cash items was used for additional inventories. In addition, accounts receivable increased as a result of increased fourth quarter sales over the prior year. Cash provided from operating activities in 1998 resulted mainly from net income earned along with an increase in accounts payable. Net cash used in investing activities was $5.2 million during the year ended December 31, 1999, as compared to $1.6 million in 1998. The increase in net cash used in investing activities was mainly due to the purchase of computer equipment and the new information system. In addition, $2.3 million was utilized in the purchase of the assets of ACI. Net cash provided by financing activities was $2.6 million during the year ended December 31, 1999, as compared to net cash used of $4.5 million in 1998. In 1999, the net cash provided was from increased net borrowings of $3.9 million used primarily for the ACI acquisition offset by dividends of $700,000 and long term debt reduction of $600,000. In 1998, the net cash used was primarily for the repurchase of common stock of $3.2 million, along with dividends of $400,000, long term debt reduction of $500,000, and repayments of the revolver of $300,000. Working capital requirements for the Company's traditional distribution business have historically been somewhat seasonal in nature. Accounts receivable have generally increased in the first quarter primarily because of the customary industry practice during the first quarter of each year to offer customers extended payment terms for purchases of certain products, thereby extending the payment due dates for a portion of its sales into the third and fourth quarters of the year. Accounts receivable have generally increased further early in the third quarter as additional 60 to 90 day extended terms have been offered to stimulate sales in advance of the Company's highest volume quarters. Accounts receivable usually decrease in the fourth quarter as payments are received on prior quarters' sales and a larger percentage of current sales are made with shorter payment terms. Inventory generally builds during the first two quarters and peaks in the third quarter to support the higher sales volumes of the third and fourth quarters. Working capital requirements have been seasonal for the subsidiaries. Inventories generally have increased during the first half of the year to accommodate the sales in the third and fourth quarters. Accounts receivable generally decline to their lowest point in the second quarter just before the sales increase in the second half of the year. Principal maturities on the Company's industrial revenue refunding bonds for 2000, 2001, and 2002 will be $617,000, $667,000, and $716,000, respectively. The annual interest charges, at the fixed rate of 7.5%, will be $525,000, $479,000, and $429,000 for 2000, 2001, and 2002, respectively (see Note 11 to the Financial Statements in Item 8, Part II which is incorporated herein by reference). Management believes that cash generated from operations, and available under the Company's revolving credit facility, will be sufficient to finance its operations, expected working capital needs, capital expenditures, debt service requirements, and business acquisitions during 2000 and for the foreseeable future. YEAR 2000 The Company devoted resources throughout its business operations to minimize the risk of potential disruption from the Year 2000 ("Y2K") problem. In late 1996, the Company determined that its operating system would not be Y2K compliant and made a decision to purchase new operating software (purchasing, distribution, and financial) to run its business. In connection with this decision, new hardware was purchased that moved the Company from a mainframe to a client/server environment. The installation of the new system began in the third quarter of 1999 with the final conversion in January 2000. The Company had made the decision in the third quarter to remediate its existing systems to run its operations that would not be converted by January 1, 2000. The Company spent over $350,000 for this remediation. Page 8 of 29 9 The cost of the system upgrades, which includes hardware and software, since inception through completion, is expected to be approximately $5.5 million, which includes $2.3 million incurred in 1999. The Company successfully transitioned into the year 2000 with no issues. All operating systems worked at the start of the new year and no problems have been encountered with vendors or customers. To date, the Company's operating systems are working with no Y2K issues. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk for a change in interest rates relates solely to its debt under its revolving credit facility ($30.3 million at December 31, 1999). The Company does not currently use derivative financial instruments. Approximately $5.9 million of the Company's debt at December 31, 1999 was subject to fixed interest rates and principal payments. This debt is comprised of the Company's long-term debt under its industrial revenue refunding bonds which carry an interest rate of 7.5%. The Company is exposed to changes in interest rates primarily as a result of its debt in a revolving credit facility ("Facility") used to maintain liquidity and fund the Company's business operations. Pursuant to the Company's operating strategies, it maintains minimal cash balances and is substantially dependent on, among other things, the availability of adequate working capital financing to support inventories and accounts receivables. The Facility provides the Company with a revolving line of credit and letters of credit. The maximum amount that can be outstanding at anytime is $45.0 million. The term of the Facility expires on September 30, 2001. Borrowings under the Facility bear interest at a rate equal to, at the Company's option, prime rate plus 0.375% or 1.75% above the 30 or 90 day LIBOR rate. Combinations of these rates can be used for the various loans that comprise the total outstanding balance under the Facility. The interest rates of the Facility are subject to change based on changes in the Company's leverage ratio and net income. At December 31, 1999, the interest rate was 8.23% (see Note 10 to the Financial Statements in Item 8, Part II which is incorporated herein by reference). The definitive extent of the Company's interest rate risk under the Facility is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. The Company's long-term debt has a fair value, based upon current interest rates, of approximately $37.0 million at December 31, 1999 ($33.9 million at December 31, 1998). Fair value will vary as interest rates change. The following table presents the aggregate maturities and historical cost amounts of the fixed debt principal and interest rates by maturity dates at December 31, 1999: Maturity Date Fixed Rate Debt Interest Rate ------------------------------------------------------------- 2000 $ 617,000 7.5% 2001 667,000 7.5% 2002 716,000 7.5% 2003 767,000 7.5% 2004 817,000 7.5% Thereafter 2,302,000 7.5% ------------------------------------------------------------- $ 5,886,000 7.5% Page 9 of 29 10 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (A) FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (in thousands) December 31, - --------------------------------------------------------------------------------------------------------------------- Assets 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 346 $ 183 Accounts receivable, less allowance for doubtful accounts of $634 and $605 at December 31, 1999 and 1998, respectively 21,777 20,066 Other accounts receivable 1,109 1,716 Inventories 36,061 32,140 Prepaid expenses 1,154 948 Deferred income tax asset 834 440 - --------------------------------------------------------------------------------------------------------------------- Total current assets 61,281 55,493 - --------------------------------------------------------------------------------------------------------------------- Property, plant and equipment, at cost, less accumulated depreciation and amortization 9,352 7,567 Other assets: Intangible assets, at cost, less accumulated amortization 2,292 1,682 Other assets 1 27 - --------------------------------------------------------------------------------------------------------------------- Total other assets 2,293 1,709 - --------------------------------------------------------------------------------------------------------------------- $ 72,926 $ 64,769 ===================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable, trade $ 7,891 $ 7,149 Accrued expenses 1,780 1,239 Income tax payable 99 - Current portion of long-term debt 617 567 - --------------------------------------------------------------------------------------------------------------------- Total current liabilities 10,387 8,955 - --------------------------------------------------------------------------------------------------------------------- Revolving credit facility 30,327 26,461 Long-term debt 5,269 5,836 Deferred income tax liability and other 850 585 Commitments and contingencies (see Notes 12 and 17) Shareholders' equity: Preferred stock, no par value (5,000 shares authorized, no shares issued or outstanding) - - Common stock, no par value (20,000 shares authorized, 4,317 and 4,297 shares issued and outstanding as of December 31, 1999 and 1998, respectively) 9,652 9,559 Common stock subscribed 317 93 Unearned compensation (12) (55) Subscription receivable (465) (423) Retained earnings 16,608 13,716 Accumulated other comprehensive income (loss) (7) 42 - --------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 26,093 22,932 - --------------------------------------------------------------------------------------------------------------------- $ 72,926 $ 64,769 =====================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. Page 10 of 29 11 CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) For the year ended December 31, - ----------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- Sales $ 168,056 $ 147,130 $ 152,500 Cost of goods sold 137,529 120,685 129,372 - ----------------------------------------------------------------------------------------------------------------------- Gross profit 30,527 26,445 23,128 Selling, general and administrative expenses 22,673 19,706 21,785 - ----------------------------------------------------------------------------------------------------------------------- Income from operations 7,854 6,739 1,343 - ----------------------------------------------------------------------------------------------------------------------- Other income (expenses): Interest income 445 481 454 Interest expense (2,674) (2,497) (3,297) Other income (expense) (13) 27 147 - ----------------------------------------------------------------------------------------------------------------------- Total other expense, net (2,242) (1,989) (2,696) - ----------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 5,612 4,750 (1,353) Income tax expense (benefit) 2,037 1,738 (538) - ----------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 3,575 $ 3,012 $ (815) ======================================================================================================================= Basic and diluted earnings (loss) per common share $ 0.83 $ 0.61 $ (0.16) ======================================================================================================================= Weighted average shares outstanding 4,313 4,955 5,148 =======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. Page 11 of 29 12 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except per share data)
Accumulated Common Other Common Stock Unearned Subscription Retained Comprehensive Comprehensive Stock Subscribed Compensation Receivable Earnings Income (Loss) Income (Loss) Total - ---------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity at 12/31/96 $12,550 $ $ (250) $ - $12,337 $ - $24,637 Comprehensive loss: Net loss - - - - (815) $ (815) - (815) Change in unrealized gain on available for sale securities in the IRB reserve - - - - - 21 21 21 -------- Comprehensive loss $ (794) ======== Dividends paid, $0.08 per share - - - - (411) - (411) Repurchase of 56 shares of common stock (276) - - - - - (276) Issuance of 112 shares of common stock to executive officers 559 - (84) (452) - - 23 Amortization of unearned compensation - - 157 - - - 157 - ------------------------------------------------------------------------------------------ -------------------------- Shareholders' equity at 12/31/97 12,833 - (177) (452) 11,111 21 23,336 Comprehensive income: Net income - - - - 3,012 $ 3,012 - 3,012 Change in unrealized gain on available for sale securities in the IRB reserve - - - - - 21 21 21 -------- Comprehensive income $ 3,033 ======== Dividends paid, $0.08 per share - - - - (407) - (407) Repurchase of 824 shares of common stock (3,274) - - 64 - - (3,210) Issuance of 20 shares of common stock to an executive officer - 93 - - - - 93 Interest on subscription receivable - - - (35) - - (35) Amortization of unearned compensation - - 122 - - - 122 - ------------------------------------------------------------------------------------------ -------------------------- Shareholders' equity at 12/31/98 9,559 93 (55) (423) 13,716 42 22,932 Comprehensive income: Net income - - - - 3,575 $ 3,575 - 3,575 Change in unrealized gain on available for sale securities in the IRB reserve - - - - - (49) (49) (49) -------- Comprehensive income $ 3,526 ======== Dividends paid, $0.16 per share - - - - (683) - (683) Issuance of 20 shares of common stock to an executive officer 93 (93) - - - - - Issuance of 40 shares of common stock to an executive officer - 275 - - - - 275 Issuance of 10 shares of common stock to an executive officer - 42 - (42) - - - Amortization of unearned compensation - - 43 - - - 43 - ------------------------------------------------------------------------------------------ -------------------------- Shareholders' equity at 12/31/99 $ 9,652 $ 317 $ (12) $ (465) $16,608 $ (7) $26,093 - ------------------------------------------------------------------------------------------ --------------------------
The accompanying notes are an integral part of these consolidated financial statements. Page 12 of 29 13
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the year ended December 31, - ------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income (loss) $ 3,575 $ 3,012 $ (815) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,054 983 973 Deferred income taxes (434) 421 (146) Provision for loss on accounts receivable 576 374 1,568 Amortization of unearned compensation 43 122 157 Stock award to executive officer 275 93 -- Loss (gain) on sale of property and equipment (15) -- 7 Changes in operating assets and liabilities (net of impact of acquisition): Receivables (1,680) (1,135) (1,655) Inventories (2,195) (605) 8,221 Prepaid expenses (193) 540 2,239 Accounts payable, trade 742 2,725 (3,485) Accrued expenses 541 (645) 188 Income tax payable 99 -- -- Other 331 (25) 162 - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 2,719 5,860 7,414 - -------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of property and equipment (2,561) (1,596) (1,257) Purchase of intangibles and other assets (471) -- -- Proceeds from sale of property and equipment 140 3 15 Purchase of assets in business acquisition (2,281) -- -- - -------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (5,173) (1,593) (1,242) - -------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Gross borrowings on revolving credit facility 174,158 150,304 151,592 Gross repayments on revolving credit facility (170,292) (150,606) (156,332) Principal payments on long-term debt (566) (517) (467) Principal payments on capital lease obligations -- (8) (45) (Increase) decrease in subscription receivable -- (35) 23 Repurchase of common stock -- (3,210) (276) Dividends to shareholders (683) (407) (411) - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 2,617 (4,479) (5,916) - -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 163 (212) 256 Cash and cash equivalents: Beginning of year $ 183 $ 395 $ 139 - -------------------------------------------------------------------------------------------------------------------------- End of year $ 346 $ 183 $ 395 ========================================================================================================================== Cash payments for interest $ 2,656 $ 2,491 $ 3,339 ========================================================================================================================== Cash payments for income taxes $ 2,372 $ 1,080 $ 438 ==========================================================================================================================
Supplemental disclosure of non-cash investing and financing activities: o The change in net unrealized gain (loss) on investment securities available for sale was ($49) and $21 for the years ended December 31, 1999 and 1998, respectively. o During 1999, the Company issued $93 of common stock to an executive officer from common stock subscribed. o During 1999, the Company agreed to issue $42 of common stock to an executive officer in exchange for a subscription receivable. o During 1998, the Company repurchased 16 shares of common stock from an executive officer in exchange for the forgiveness of a $64 subscription receivable. The accompanying notes are an integral part of these consolidated financial statements. Page 13 of 29 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share data) 1. BASIS OF PRESENTATION Ellett Brothers, Inc. (the Company) is principally a supplier of goods and customer services to independent retailers who serve the natural outdoor sporting goods market, primarily in the United States. The Company's products are diversified among a wide variety of outdoor sporting goods equipment including a wide selection of styles and brand names. In addition, the Company operates three wholly-owned subsidiaries. One subsidiary is a manufacturer of outdoor sporting accessories and wooden nostalgia boxes. Another subsidiary manufactures specialty licensed nostalgic products, and the other subsidiary distributes archery products. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Use of estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash and cash equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Revenue recognition The Company recognizes revenue from product sales at the time of shipment. Inventories Inventories, consisting principally of purchased goods held for resale, are stated at the lower of cost or market, with cost determined under the first-in, first-out (FIFO) method. Credit risk The Company performs ongoing evaluations of its customers and generally does not require collateral. An allowance for doubtful accounts is provided in an amount equal to the estimated collection losses. At December 31, 1999 and 1998 prepaid expenses included prepayments in the amounts of $400 and $257, respectively, on future purchases of inventory from certain suppliers for which the Company will receive favorable discounts. Advertising costs The Company has elected to expense all advertising costs as incurred or the first time advertising takes place, with the exception of direct response advertising, which is capitalized and amortized over the period of its expected future benefit. At December 31, 1999 and 1998, the Company did not have any significant amounts capitalized as direct response advertising. The Company incurred total advertising expenditures of $536, $587, and $735 during the years ended December 31, 1999, 1998, and 1997, respectively. Property, plant and equipment Property, plant and equipment are depreciated or amortized using the straight-line method over the estimated useful lives of the respective assets which range as follows: Description Years ---------------------------------------------------- Buildings and improvements 25 - 39 Furniture, fixtures and equipment 3 - 10 Expenditures for repairs and maintenance are charged to expense as incurred. The costs of major renewals and betterments are capitalized and depreciated over their estimated useful lives. The cost and related accumulated depreciation of property, plant and equipment are removed from the accounts upon disposition and any resulting gain or loss is reflected in results of operations. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Accordingly, when indicators of impairment are present, the Company evaluates the carrying value of property, plant and equipment, and intangibles, in relation to operating performance. Page 14 of 29 15 Intangible assets Intangible assets principally represent the amount by which costs of acquired net assets exceeded their related fair value ("goodwill") and costs of acquired non-compete agreements. The non-compete agreements are being amortized over the original terms of the agreements. Intangible assets are amortized using the following methods and estimated useful lives. Description Method Years ------------------------------------------------------------------ Deferred financing costs Effective interest 20 Licenses and trademarks Straight-line 5 - 20 Goodwill Straight-line 10 - 15 Non-compete agreements Straight-line 5 - 10 Fair values of financial instruments The Company owns certain debt securities held on deposit with the trustee for payment of interest and principal on the IRB bond (see Note 11). Market values of bond issues outstanding are based on quotes received from securities dealers or the present value of principal and interest payments at the current market rates. The revolving credit facility is carried at current value which approximates the fair market value. Income taxes Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Stock based compensation The Company continues to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation costs for stock options, if any, are measured as the excess of the quoted market price of the Company's stock at the date of the grant over the amount an associate must pay to acquire the stock. SFAS No. 123, "Accounting for Stock-Based Compensation", established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. The Company has elected to continue its current method of accounting as described above, and has adopted the disclosure requirements of SFAS No. 123. Earnings per common share Although the Company had options outstanding during portions of the three years ended December 31, 1999, they have an antidilutive effect on earnings per share for each year. As such, basic and diluted earnings (loss) per share for the years ended December 31, 1999, 1998, and 1997 are net income (loss) divided by the weighted average shares outstanding. Investment securities The Company accounts for investment securities in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement requires investment securities to be classified into three types: (a) Securities Held to Maturity - Debt securities that the Company has the positive intent and ability to hold to maturity are reported at amortized cost. (b) Trading Securities - Debt and equity securities that are bought and held principally for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in earnings. (c) Securities Available for Sale - Debt and equity securities not classified as either securities held to maturity or trading securities are reported at fair value, with unrealized gains and losses reported as a separate component of shareholders' equity. The classification of securities is generally determined at the date of purchase. Gains and losses on sales of investment securities, computed based on the specific identification method, are included in other income (expense) at the time of sale. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS No. 133 is effective for financial statements for all fiscal quarters of all fiscal years beginning after June 15, 2000, as deferred by SFAS No. 137. The Company intends to adopt SFAS No. 133; however, management anticipates that SFAS No. 133 is not expected to have a material impact on the Company's consolidated financial position, results of operations, or cash flows due to the Company's limited use of derivative instruments. Page 15 of 29 16 3. COMPREHENSIVE INCOME Comprehensive income includes net income and all other changes to the Company's equity, with the exception of transactions with shareholders ("other comprehensive income"). The Company's only components of other comprehensive income relate to unrealized gains and losses on available for sale securities. 4. ACQUISITION In October of 1999, the Company purchased the assets of Archery Center International, Inc. (ACI) located in Monroe, Michigan. ACI is a leading distributor in the archery industry. The Company paid $2,281 in cash for these assets. The purchase price exceeded the book value of ACI's assets by $420. The purchase price was allocated as follows: Inventory $1,726 Prepaid expenses 13 Property, plant and equipment 122 Goodwill 420 ------ $2,281 ====== The assets of ACI were placed into a separate, wholly-owned subsidiary, and the acquisition was accounted for using the purchase method of accounting, with the excess of the purchase price over the estimated fair value of the assets acquired being recorded as goodwill. The goodwill arising from this transaction is being amortized on a straight-line basis over a period of 15 years. In addition to the purchase agreement, the Company entered into a non-compete agreement with the former owner of ACI. The Company has agreed to pay the former owner specified sums of money over each of the next five years for the non-compete agreement. The Company has recorded the non-compete agreement and the deferred compensation liability at the present value of future cash flows with the non-compete amortized on a straight-line basis and the liability amortized using the effective interest method over a period of five years. At December 31, 1999, the balances for the non-compete agreement and the deferred compensation liability were $350 and $355, respectively. The non-compete agreement has been recorded in intangible assets and has an accumulated amortization balance of $17 at December 31, 1999. The deferred compensation liability has a long-term portion of $305 and a current portion of $50 which has been included in accrued expenses. The results of operations for ACI are included in the income statement only from the time of the acquisition through December 31, 1999. If ACI had been acquired at the beginning of the year, the Company would have reported sales of $176,852, $155,522, and $160,338, and net income (loss) of $3,617, $3,060, and ($772) for each of the years ended December 31, 1999, 1998, and 1997, respectively. 5. CLOSING OF SUBSIDIARY OPERATION In June 1997, executive management and the Board of Directors concluded that ongoing operation of the Safesport Manufacturing Company subsidiary was not in the best interest of the Company, and began liquidation of this subsidiary. The liquidation was substantially concluded by the end of 1997. An after tax reserve of $2,725, or $0.53 per share, was established as of June 30 for the purpose of this liquidation. The reserve was reviewed as of September 30, 1997 and adjusted to reflect the liquidation efforts through that point. The reserves were adjusted to the values noted below, resulting in $208 of net income for the three months ended September 30, 1997. As of December 31, 1997, the liquidation was substantially concluded and the reserves were adjusted to zero, resulting in $241 of net income for the three months ended December 31, 1997. The reserve was composed of the following components as of June 30, 1997 and as of September 30, 1997. June 30, 1997 September 30, 1997 -------------------------------------------------------------------- Inventory reserve $ 3,548 $ 1,246 Accounts receivable reserve 207 580 Accrued expenses 255 10 Current tax benefit (1,285) (688) -------------------------------------------------------------------- Net reserve $ 2,725 $ 1,148 -------------------------------------------------------------------- 6. INVENTORIES Inventories consisted of the following at December 31: 1999 1998 ------------------------------------------------------------- Finished goods $ 34,686 $ 31,112 Raw materials 1,048 881 Work in progress 327 147 ------------------------------------------------------------- $ 36,061 $ 32,140 ------------------------------------------------------------- Page 16 of 29 17 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at December 31: 1999 1998 ----------------------------------------------------------- Land $ 201 $ 216 Buildings and improvements 6,554 6,751 Furniture, fixtures and equipment 10,697 8,021 ----------------------------------------------------------- 17,452 14,988 Less accumulated depreciation and amortization 8,100 7,421 ----------------------------------------------------------- $ 9,352 $ 7,567 ----------------------------------------------------------- 8. INTANGIBLE ASSETS Intangible assets consisted of the following at December 31: 1999 1998 --------------------------------------------------------- Deferred financing costs $ 336 $ 336 Licenses 244 203 Goodwill 1,028 528 Non-compete agreements 2,050 1,700 --------------------------------------------------------- 3,658 2,767 Less accumulated amortization 1,366 1,085 --------------------------------------------------------- $ 2,292 $ 1,682 --------------------------------------------------------- 9. INVESTMENT SECURITIES The amortized cost and estimated market value of investment securities at December 31, 1999 and 1998 are as follows:
Gross Gross Gross Estimated Amortized Unrealized Unrealized Market Year Cost Gains Losses Value - ---------------------------------------------------------------------------------------------------- 1999 Available for Sale: Bond Reserve $ 1,121 $ 11 $ (18) $ 1,114 1998 Available for Sale: Bond Reserve $ 1,122 $ 43 $ (1) $ 1,164
10. REVOLVING CREDIT FACILITY In 1994, the Company entered into a revolving credit facility (the "Agreement") with an affiliate of First Union National Bank of North Carolina, N.A. The Agreement is collateralized by substantially all of the Company's assets other than real estate. The initial term of the Agreement was for three years ending in June 1997. The Agreement was amended in September 1997 to extend the term to September 30, 2001. Effective August 1, 1999 borrowings under the Agreement bear interest at a rate equal to, at the Company's option, prime rate plus .375% or 1.75% above the 30 or 90 day LIBOR rate. On October 8, 1999 the Agreement was amended to include ACI and to increase the maximum amount of the borrowings to $45 million for a 120 day period, at which time the maximum borrowings revert to $40 million. Combinations of these rates can be used for the various loans which comprise the total facility outstanding balance. The interest rates of the facility are subject to change based on changes in the Company's leverage ratio and net income. At December 31, 1999, the interest rate was 8.23%. The Agreement provides the Company with a revolving line of credit and letters of credit. The revolving line of credit provides loans of up to 70% of the eligible inventories and up to 85% of eligible receivables. The maximum amount that can be outstanding at any time, subject to the aforementioned 120 day period, under the Agreement is $45 million. At December 31, 1999 the Company had $12.6 million available under the Agreement. The Agreement contains various restrictions which, among other things, limit capital expenditures and limit cash dividends. The Agreement also requires the Company to meet various minimum financial covenants. Page 17 of 29 18 11. LONG-TERM DEBT Long-term debt consisted of the following at December 31:
1999 1998 - ---------------------------------------------------------------------------------------------------------------- Industrial Revenue Refunding Bonds, Series 1988 ("IRB") collateralized by real estate. The fixed interest of 7.5% due to bond holders semi-annually is required to be deposited with the Trustee monthly in an amount equal to one-sixth of the next interest payment. The Company also pays one-twelfth of the next principal payment (by way of annual maturity or annual mandatory sinking fund redemption) to the Trustee monthly in addition to the interest. The bonds are due September, 2008. $ 7,000 $ 7,567 Industrial revenue refunding bond reserve on deposit with the Trustee (1,114) (1,164) - ---------------------------------------------------------------------------------------------------------------- 5,886 6,403 Less, current portion (617) (567) - ---------------------------------------------------------------------------------------------------------------- $ 5,269 $ 5,836 - ---------------------------------------------------------------------------------------------------------------
Under the terms of the IRB, the Company is required to maintain a reserve fund with a fair market value in the amount of $1,050 on deposit with the Trustee. The Company may, depending upon market value fluctuations of the bonds held in the reserve fund, be required to make payments to bring the fund up to the $1,050. If for any reason, the reserve fund is in excess of the required amount, such excess may be used to reduce required sinking fund payments. Reserve fund balances may also be used toward the redemption of the outstanding IRB obligations. In September 1997, the agreement was amended to reduce the interest rate from 10.65% to 7.5%, and to eliminate the ability for early redemption. The fair market value of the IRB at December 31, 1999 and 1998 was approximately $6,735 and $7,486, respectively. Principal maturities and sinking fund requirements for long-term debt at December 31, 1999 are as follows: For year ending December 31, 2000 $ 617 2001 667 2002 716 2003 767 2004 817 Thereafter 2,302 ------------------------------------------------- $ 5,886 ================================================= Under the bond agreement, as amended, annual cash dividends are limited to 60% of annual net income (adjusted for non-cash charges), a required minimum fixed charge ratio of 1.25:1 (adjusted for non-cash charges), a required minimum current ratio of 1.17:1, and a required minimum shareholders' equity level (as defined) of $6,000 at December 31, 1996 and thereafter. 12. OPERATING LEASES The Company entered into three significant leases for computer equipment in conjunction with the first phase of an information system upgrade. The Company incurred $229, $279, and $279 in rental expenses related to these leases in 1999, 1998, and 1997, respectively. The future minimum lease payments related to these leases as of December 31, 1999 are $40 for the year ending December 31, 2000. The Company's subsidiaries lease the manufacturing and office space under non-cancelable operating leases. These leases expire through 2005. The Company has the right to cancel these leases with a 90 day notice beginning in 1998 for one lease and in 2000 for the other. Rent expense under these subsidiaries leases approximated $149, $125, and $125 in the years ended December 31, 1999, 1998, and 1997, respectively. The following is a summary of the future rental payments as of December 31, 1999: For the year ending December 31, ----------------------------------------------- 2000 $ 415 2001 415 2002 276 2003 233 2004 226 Thereafter 467 ----------------------------------------------- $ 2,032 =============================================== Page 18 of 29 19 13. COMMON AND PREFERRED STOCK In January 1997, the Company issued 112 shares of common stock for total consideration of $475 ($452 in promissory notes and $23 of cash) to two executives of the Company in exchange for the cancellation of 112 fully vested and outstanding options of the officers with an exercise price of $7.00 per share. The promissory notes bear interest at 5.6%, payable semi-annually, and become due on a pro-rata basis as the shares are sold by the executives. The shares carried restrictions over their transferability which were lifted over a two-year period ending January 1999. The market value of the common stock at the date of the transaction was $559. The difference between the market value and the price at which the shares were sold to the executives is reflected as unearned compensation and is being amortized over the two-year period. In June of 1998, the Company reacquired 34 shares from one of the former executives and recorded it using the cost method of accounting for treasury stock. During 1998, the Company awarded 20 shares to an executive officer when the market value of these shares was $93. During 1999, the Company awarded 40 shares to an executive officer when the market value of these shares was $275. Compensation expense was recognized at the time of these awards and shareholders' equity reflects the stock subscribed in 1999. In 1999, the Company also issued to an executive officer an option to purchase up to 10 shares of the Company's common stock at 85% of the market price of the stock at the grant date. The Company recognized compensation expense of $7 related to this discount. The Company reacquired 46 and 10 shares in June and December of 1997, respectively; and reacquired 142, 448, and 200 shares of its common stock in September, October, and December of 1998, respectively. The Company recorded these acquisitions using the cost method of accounting for treasury stock. The Company is authorized to issue 20,000 shares of no-par-value common stock. Additionally, the Board of Directors of the Company is authorized to issue, at its discretion, up to 5,000 shares of preferred stock in one or more series with the number of shares, designation, relative rights and preferences, and limitations to be determined by resolution of the Board of Directors. However, no share of stock of any class shall be subject to preemptive rights or have cumulative voting provisions. 14. STOCK COMPENSATION PLANS The Company has two stock option plans that provide for the granting of up to 500 options to associates. The options granted are normally at an exercise price equal to the fair value of the shares at the date of the grant. During 1998, under the stock option program (the "Plan"), one executive was granted an option to acquire 50 shares of common stock at $10 per share, and 50 shares of stock at $15 per share. The options expire five years from the date granted. In 1999, under the Plan, one executive was granted and exercised an option to acquire 10 shares of common stock at an exercise price of $4.25 per share. A summary of the status of the Plan as of December 31, 1999 and 1998 and changes during the years then ended is presented below:
1999 1998 --------------------------------- --------------------------------- Weighted Average Weighted Average Shares Exercise Price Shares Exercise Price ----------- --------------------- ----------- --------------------- Outstanding at beginning of year 100 $ 12.50 - $ - Granted 10 4.25 100 12.50 Exercised (10) 4.25 - - ----------- --------------------- ----------- --------------------- Outstanding at end of year 100 $ 12.50 100 $ 12.50 ----------- --------------------- ----------- --------------------- Options exercisable 100 $ 12.50 100 $ 12.50 ----------- --------------------- ----------- ---------------------
The following table summarizes information about the Plan's stock options at December 31, 1999:
Options Outstanding Options Exercisable ------------------------------------------------------------- --------------------------------------- Number Weighted Average Number Exercisable Outstanding at Remaining Weighted Average and Vested at Weighted Average Range of Exercise Prices 12/31/99 Contractual Life Exercise Price 12/31/99 Exercise Price - --------------------------- ------------------------------------------------------------- --------------------------------------- $10 - $15 100 3.50 $ 12.50 100 $ 12.50
Had compensation cost been recognized based on the fair value of the options at the grant dates for awards under the Plan consistent with the method of SFAS No. 123, the Company's net income would have been decreased to the pro forma amount of $2,976 and earnings per share would have been $0.60 for the year ended December 31, 1998. Since all options granted in 1998 were fully vested at December 31, 1998, there would be no impact on 1999 earnings. Page 19 of 29 20 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants. The weighted average fair value of options granted during the year ended December 31, 1998 was approximately $0.37. 1999 ------ Dividend yield 2.00% Expected volatility 36.72% Risk-free interest rate 5.40% Expected lives, in years 5 At December 31, 1999 the Company had 400 shares reserved for future grants of stock options. 15. INCOME TAXES Income tax expense (benefit) consisted of the following:
For the year ended December 31, ----------------------------------------------------------------------------------------- 1999 1998 1997 ----------------------------------------------------------------------------------------- Current: Federal $ 2,350 $1,273 $ (573) State 121 44 181 ----------------------------------------------------------------------------------------- 2,471 1,317 (392) ----------------------------------------------------------------------------------------- Deferred: Federal (396) 342 103 State (38) 79 (249) ----------------------------------------------------------------------------------------- (434) 421 (146) ----------------------------------------------------------------------------------------- $ 2,037 $1,738 $ (538) =========================================================================================
Components of the net deferred income tax liability (asset) were as follows:
As of December 31, ---------------------------------------------------------------------------------------- 1999 1998 ---------------------------------------------------------------------------------------- Depreciation and amortization $ 545 $ 538 Bad debt expense (230) (217) Inventory capitalization (416) (212) State net operating loss - (6) Other (188) 42 ---------------------------------------------------------------------------------------- Total $ (289) $ 145 ========================================================================================
Income tax expense varied from statutory federal income taxes as follows:
For the year ended December 31, ----------------------------------------------------------------------------------------- 1999 1998 1997 ----------------------------------------------------------------------------------------- Income taxes at 34% statutory federal rate $ 1,908 $1,615 $ (460) State income taxes, net of federal tax benefit 10 81 (45) Other 119 42 (33) ----------------------------------------------------------------------------------------- Income tax expense (benefit) $ 2,037 $1,738 $ (538) =========================================================================================
The Company had approximately $797 of state net operating loss carryforwards at December 31, 1999. These carryforwards will expire in 2002 through 2013, if not utilized. 16. EMPLOYEE BENEFIT PLAN The Company has a 401(k) defined contribution plan (the "Plan") covering substantially all full-time associates who meet certain age and length of service requirements. Participants are eligible to contribute up to 20% of their annual compensation, not to exceed legal limits, and the Company, at its discretion, makes matching contributions to the Plan. Participants vest immediately in their contributions and after three years in the Company's contributions. The Company incurred expenses related to the Plan of $131, $84, and $67 for the years ended December 31, 1999, 1998, and 1997, respectively. Page 20 of 29 21 17. CONTINGENCY The Company is a party to litigation in connection with the distribution of its inventory. Over the past eighteen months, twenty-nine cities and/or counties and one advocacy group have filed lawsuits against the firearms industry as a whole. These lawsuits list numerous manufacturers and distributors as defendants in the claims. To date, three of the thirty suits have been dismissed, as the judges have found the complaints "without standing" under the laws of their respective states. The Company was named in four of these remaining twenty-seven suits. The Company and all distributors were dismissed from one of these lawsuits (the Hamilton-Cargill lawsuit) in the first quarter of 1999. For the remaining defendants, this case is under appeal. Pending the appeal, there are three remaining industry-wide cases in which the Company is named. Although the outcome cannot be predicted, it is the opinion of management that the Company has meritorious defenses and the disposition of these matters will not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. 18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table of supplementary financial information presents selected unaudited quarterly results of the Company's operations over the last eight quarters:
1998 1999 - ------------------------------- ------------------------------------------------- ----------------------------------------------- First Second Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter - ------------------------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- ----------- Sales $ 34,032 $ 31,856 $ 39,625 $ 41,617 $ 38,946 $ 38,319 $ 45,931 $ 44,860 Gross profit 5,906 5,748 7,227 7,564 6,748 6,850 8,428 8,501 Selling, general, and administrative 4,795 4,554 5,206 5,151 5,293 5,271 5,817 6,292 Income from operations 1,111 1,194 2,021 2,413 1,455 1,579 2,611 2,209 Net income 451 500 884 1,177 678 687 1,302 908 Basic and diluted earnings per share 0.09 0.10 0.17 0.26 0.16 0.16 0.30 0.21 - ------------------------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- -----------
19. Business Segment Information The Company's reportable segments are business units that offer different products and have separate management teams and infrastructures. The business units have been aggregated into two reportable segments. These segments are: Hunting, Shooting, Camping, Archery & Outdoor Products ("HS&A") and Marine Products. The "Other" segment includes the Company's other operations. For the year ended December 31, 1997, the "Other" segment information included the Safesport operation. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based upon operating income of the business units. The following table presents information about reported segments for the years ended December 31 (in millions):
- --------------------------------------------------------------------------------------------------------- 1999 HS&A MARINE OTHER TOTAL - --------------------------------------------------------------------------------------------------------- Sales $ 135.5 $ 26.8 $ 5.8 $ 168.1 Operating income 5.6 2.1 .2 7.9 Identifiable segment assets 48.8 6.8 2.2 57.8 Capital expenditures 2.4 .1 .1 2.6 Depreciation .5 .1 .1 .7 - --------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------- 1998 HS&A MARINE OTHER TOTAL - --------------------------------------------------------------------------------------------------------- Sales $ 117.1 $ 23.9 $ 6.1 $ 147.1 Operating income 4.4 1.7 .6 6.7 Identifiable segment assets 43.8 6.5 2.0 52.3 Capital expenditures 1.6 .0 .0 1.6 Depreciation .5 .1 .1 .7 - ---------------------------------------------------------------------------------------------------------
Page 21 of 29 22
- --------------------------------------------------------------------------------------------------------------------------- 1997 HS&A MARINE OTHER TOTAL - --------------------------------------------------------------------------------------------------------------------------- Sales $ 115.5 $ 21.0 $ 16.0 $ 152.5 Operating income (loss) 3.8 1.3 (3.8) 1.3 Identifiable segment assets 41.0 6.7 3.2 50.9 Capital expenditures 1.2 .0 .1 1.3 Depreciation .5 .1 .1 .7 - ---------------------------------------------------------------------------------------------------------------------------
A reconciliation of total segment operating income to total consolidated income before taxes for the years ended December 31 (in millions) as follows:
- ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Operating income $ 7.9 $ 6.7 $ 1.3 Interest income and other income, net .4 .5 .6 Interest expense (2.7) (2.5) (3.3) - ----------------------------------------------------------------------------------------------------------------------------- Income (loss) before taxes $ 5.6 $ 4.7 $ (1.4) - -----------------------------------------------------------------------------------------------------------------------------
A reconciliation of identifiable segment assets to total assets for the year ended December 31 (in millions) is as follows:
- ---------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- Identifiable segment assets $ 57.8 $ 52.3 $ 50.9 Other corporate assets 15.1 12.5 12.7 - ---------------------------------------------------------------------------------------------------------------------------- Total assets $ 72.9 $ 64.8 $ 63.6 - ----------------------------------------------------------------------------------------------------------------------------
Page 22 of 29 23 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Ellett Brothers, Inc. In our opinion, the consolidated balance sheets and the related consolidated statements of operations, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Ellett Brothers, Inc. and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 14(a)(2) on page 26, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers, LLP Charlotte, North Carolina February 11, 2000 Page 23 of 29 24 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Information called for by Part III (Items 10, 11, 12 and 13) of this report on Form 10-K has been omitted as the Company intends to file with the Securities and Exchange Commission not later than April 29, 2000, a definitive proxy statement pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934. Such information will be set forth in such Proxy Statement and is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by the Item is incorporated by reference from the section of the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held May 17, 2000, under the caption "DIRECTORS AND EXECUTIVE OFFICERS." ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference from those sections of the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held May 17, 2000 under the captions "EXECUTIVE COMPENSATION", "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION" AND "PERFORMANCE GRAPH." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference from the section of the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held May 17, 2000 under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference from the section of the Company's Proxy Statement relating to the Annual Meeting of Shareholders to be held May 17, 2000 under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Page 24 of 29 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: 1. Financial Statements: See Item 8 of this report on Form 10-K. 2. Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts - Page 26 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or are inapplicable, or the required information is disclosed elsewhere, and therefore, have been omitted. 3. Exhibits: The Exhibits listed on the accompanying Index to Exhibits on pages 28 and 29 are filed as part of this report. (b) There were no reports filed on Form 8-K for the quarter ended December 31, 1999. Page 25 of 29 26 ELLETT BROTHERS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, & 1997 (IN THOUSANDS)
Balance at Charged to Charged to Balance at Beginning Cost/ Other End Description of Period Expenses Accounts Deductions of Period ----------- ---------- ---------- ---------- ---------- ---------- 1999 Allowance for Doubtful Accounts $ 605 $ 576 $ 614 (B) $1,161 (A) $ 634 ====== ====== ====== ====== ====== Allowance for Obsolete Inventory $ 569 (C) $ -(D) $ - $ 34 $ 535 ====== ===== ====== ====== ====== 1998 Allowance for Doubtful Accounts $ 769 $ 374 $ 750 (B) $1,288 (A) $ 605 ====== ====== ====== ====== ====== Allowance for Obsolete Inventory $ 697 (C) $ -(D) $ - $ 128 $ 569 ====== ===== ====== ====== ====== 1997 Allowance for Doubtful Accounts $ 750 $1,568 $ 899 (B) $2,448 (A) $ 769 ====== ====== ====== ====== ====== Allowance for Obsolete Inventory $ 500 (C) $3,745(D) $ - $3,548 $ 697 ====== ====== ====== ====== ======
- ----------------------- The information above is provided in support of the financial statements as further described in Note 2 to the financial statements. (A) Represents actual write-off of uncollectable accounts. (B) Recoveries. (C) The Company maintains a general reserve for excess or obsolete inventory and for lower of cost or market adjustments. As part of the Company's inventory management, slow moving items are identified and prices are reduced until the items are liquidated. These sales are part of sales and cost of sales. (D) Reflected as cost of sales. See Note C above. Page 26 of 29 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ELLETT BROTHERS, INC. (Registrant) Date: March 30, 2000 By: /s/ Joseph F. Murray, Jr. ------------------------------------- Joseph F. Murray, Jr. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Robert D. Gorham, Jr. Chairman of the Board March 30, 2000 - -------------------------------- Robert D. Gorham, Jr. /s/ Joseph F. Murray, Jr. Director, President and March 30, 2000 - -------------------------------- Chief Executive Officer Joseph F. Murray, Jr. /s/ George E. Loney Chief Financial Officer March 30, 2000 - -------------------------------- George E. Loney /s/ E. Wayne Gibson Director, Chairman of the Executive March 30, 2000 - -------------------------------- Committee and Secretary E. Wayne Gibson /s/ William H. Batchelor Director March 30, 2000 - -------------------------------- William H. Batchelor /s/ Charles V. Ricks Director March 30, 2000 - -------------------------------- Charles V. Ricks /s/ William H. Stanley Director March 30, 2000 - -------------------------------- William H. Stanley
Page 27 of 29 28 INDEX TO EXHIBITS Exhibit Number Description ------- ----------- 3(a) Articles of Incorporation of the Corporation. Incorporated by reference to Exhibit 3(a) filed as part of the Corporation's Registration Statement on Form S-1 (File No. 33-61490). 3(b) Bylaws of the Corporation. Incorporated by reference to Exhibit 3(b) filed as part of the Corporation's Registration Statement on Form S-1 (File No. 33-61490). 3(c) Amendment dated April 5, 1999 to the Bylaws of the Corporation filed as Exhibit 3(b). 4(a) Specimen Stock Certificate for the Common Stock of the Corporation. Incorporated by reference to Exhibit 4(a) filed as part of the Corporation's Registration Statement on Form S-1 (File No. 33-61490). 4(b) Loan Agreement between Lexington County, South Carolina and Ellett Brothers Limited Partnership dated as of November 1, 1988. Incorporated by reference to Exhibit 4(c) filed as part of the Corporation's Registration Statement on Form S-1 (File No. 33-61490). 4(c) Promissory Note of Ellett Brothers Limited Partnership to Lexington County, South Carolina dated December 1, 1988. Incorporated by reference to Exhibit 4(d) filed as part of the Corporation's Registration Statement on Form S-1 (File No. 33-61490). 4(d) Trust Indenture between Lexington County, South Carolina and Ellett Brothers Limited Partnership dated as of November 1, 1988. Incorporated by reference to Exhibit 4(e) filed as part of the Corporation's Registration Statement on Form S-1 (File No. 33-61490). 4(e) Mortgage and Security Agreement between Ellett Brothers Limited Partnership and Citizens and Southern Trust Company (South Carolina), National Association, dated as of November 1, 1988. Incorporated by reference to Exhibit 4(f) filed as part of the Corporation's Registration Statement on Form S-1 (File No. 33-61490). 4(f) Form of Amendment dated June 3, 1992 between Ellett Brothers Limited Partnership, NationsBank, Allstate Municipal Income Opportunities Trust and Allstate Municipal Income Trust II relating to the Loan Agreement filed as Exhibit 4(b). Incorporated by reference to Exhibit 4(i) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1993. 4(g) Form of Letter Agreement dated July 29, 1992 among Allstate Municipal Income Opportunities Trust, Allstate Municipal Income Trust II, Ellett Brothers Limited Partnership, NationsBank and Lexington County relating to the Loan Agreement filed as Exhibit 4(b). Incorporated by reference to Exhibit 4(j) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1993. 4(h) Letter dated February 23, 1993 of Allstate Municipal Income Opportunities Trust and Allstate Municipal Income Trust II to Ellett Brothers Limited Partnership relating to the Loan Agreement filed as Exhibit 4(b). Incorporated by reference to Exhibit 4(k) filed as part of the Corporation's Registration Statement on Form S-1 (File No. 33-61490). 4(i) Form of Assignment and Assumption Agreement dated June 9, 1993 between Ellett Brothers Limited Partnership and Ellett Brothers, Inc. relating to the Loan Agreement filed as Exhibit 4 (b). Incorporated by reference to Exhibit 4(l) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1993. 4(j) First Amendatory Loan Agreement between Lexington County, South Carolina, the Corporation and The Bank of New York dated as of September 12, 1997. Incorporated by reference to Exhibit 4(j) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. 4(k) First Supplemental Trust Indenture between Lexington County, South Carolina, the Corporation and The Bank of New York dated as of September 12, 1997. Incorporated by reference to Exhibit 4(k) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. 4(l) Mortgage Modification Agreement between the corporation and The Bank of New York dated as of September 12, 1997. Incorporated by reference to Exhibit 4(l) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. 4(m) Modification of Note between the Corporation and The Bank of New York dated as of September 12, 1997. Incorporated by reference to Exhibit 4(m) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. Page 28 of 29 29 INDEX TO EXHIBITS (CONTINUED) Exhibit Number Description ------- ----------- 10(a) Financing and Security Agreement dated June 10, 1994 between First Union Commercial Corporation and the Corporation. Incorporated by reference to Exhibit 10(d) filed as part of the Corporation's quarterly report on Form 10-Q for the quarter ended June 30, 1994. 10(b) Amendment dated April 21, 1995 to the Financing and Security Agreement filed as exhibit 10(a). Incorporated by reference to Exhibit 10(e) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1995. 10(c) Amendment dated December 23, 1996 to the Financing and Security Agreement filed as Exhibit 10(a). Incorporated by reference to exhibit 10(f) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1996. 10(d) Amendment dated March 31, 1997 to the Financing and Security Agreement filed as Exhibit 10(a). Incorporated by reference to Exhibit 10(d) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. 10(e) Amendment dated September 26, 1997 to the Financing and Security Agreement filed as Exhibit 10(a). Incorporated by reference to Exhibit 10(e) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. 10(f) Amendment dated December 30, 1997 to the Financing and Security Agreement filed as Exhibit 10(a). Incorporated by reference to Exhibit 10(f) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. 10(g) Amendment dated December 31, 1998 to the Financing and Security Agreement filed as Exhibit 10(a). Incorporated by reference to Exhibit 10(g) filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1998. 10(h) Amendment dated July 30, 1999 to the Financing and Security Agreement filed as Exhibit 10(a). 10(i) Amendment dated October 8, 1999 to the Financing and Security Agreement filed as Exhibit 10(a). 10(j) Amendment dated October 8, 1999 to the Financing and Security Agreement filed as Exhibit 10(a). 21 Subsidiaries of the Registrant. Incorporated by reference to Exhibit 21 filed as part of the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997. 27 Financial data schedule. Page 29 of 29 EX-3.C 2 AMENDMENT TO THE BYLAWS OF THE CORPORATION 1 EXHIBIT 3(c) AMENDED AND RESTATED BYLAWS OF ELLETT BROTHERS, INC. ARTICLE I OFFICES AND REGISTERED AGENT SECTION 1.01. PRINCIPAL OFFICE. The Corporation shall maintain its Principal Office in the City of Chapin, State of South Carolina, or such other place as designed from time to time by the Board of Directors for the principal executive offices of the Corporation. SECTION 1.02. REGISTERED OFFICE. The Corporation shall maintain a Registered Office as required by the South Carolina Business Corporation Act of 1988, as amended from time to time (the "Act"), at a location in the State of South Carolina designated by the Board of Directors from time to time. In the absence of a contrary designation by the Board of Directors, the Registered Office of the Corporation shall be located at its Principal Office. SECTION 1.03. OTHER OFFICES. The Corporation may have such other offices within and without the State of South Carolina as the business of the Corporation may require from time to time. The authority to establish or close such other offices may be delegated by the Board of Directors to one or more of the Corporation's Officers. SECTION 1.04. REGISTERED AGENT. The Corporation shall maintain a Registered Agent as required by the Act who shall have a business office at the Corporation's Registered Office. The Registered Agent shall be designated by the Board of Directors from time to time to serve at its pleasure. In the absence of such designation the Registered Agent shall be the Corporation's Secretary. SECTION 1.05. FILINGS. In the absence of directions from the Board of Directors to the contrary, the Secretary of the Corporation shall cause the Corporation to maintain currently all filings in respect of the Registered Office and Registered Agent with all governmental officials as required by the Act or otherwise by law. ARTICLE II SHAREHOLDERS SECTION 2.01. ANNUAL MEETINGS. An annual meeting of the Corporation's shareholders shall be held once each calendar year for the purpose of electing Directors and for the transaction of such other business as may properly come before the meeting. The annual meeting shall be held at the time and place designated by the Chairman of the Board or the Board of Directors from time to time. In the absence of or in the event of any conflict between any such designation, the annual meeting shall be held at the Corporation's Principal Office at the hour of ten o'clock in the morning on the second Tuesday of the sixth month following the Corporation's 2 fiscal year-end; but if that day shall be a holiday under federal or South Carolina law, then such annual meeting shall be held on the next succeeding business day. SECTION 2.02. SPECIAL MEETINGS. Special meetings of the Corporation's shareholders may be called for any one or more lawful purposes by the Corporation's President, the Chairman of the Board, a majority of the Directors, or the holders of record of ten percent of the Corporation's outstanding shares of stock entitled to vote at such meeting. Special meetings of the shareholders shall be held at a time and location designated by the Chairman of the Board or by a majority of the Directors as reflected in the notice of the meeting provided for hereinafter; provided, however, that if the Chairman of the Board or a majority of Directors do not designate a time and location, such meetings shall be held at the Corporation's Principal Office at the hour of ten o'clock in the morning on the date designated in the notice of the meeting provided for below. In the event that the Chairman of the Board and a majority of Directors timely designate different times or locations, then the designations of the majority of the Directors shall control. SECTION 2.03. NOTICE OF MEETINGS, WAIVER OR NOTICE. Written or printed notice of all meetings of shareholders shall be delivered not less than ten nor more than sixty days before the meeting date, either personally, by mail, or by any other method permitted under the Act, to all shareholders of record entitled to vote at such meeting. If mailed, the notice shall be deemed to be delivered when deposited with postage thereon prepaid in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the Corporation's records, or if a shareholder shall have filed with the Secretary of the Corporation a written request that notices to such shareholder be mailed to some other address, then directed to such shareholder at that other address. Such notice shall state the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting was called. At the written request, delivered personally or by registered or certified mail, of the person or persons calling a special meeting of shareholders, the President or Secretary of the Corporation shall fix the date and time of the meeting and provide notice thereof to the shareholders as required above; provided, however, such date shall in no event be fixed less than ten or more than sixty days from the date the request was received. If the notice of the meeting is not given within fifteen days after the request is made to the President or Secretary, the person or persons calling the meeting may fix the date and time of the meeting and give or cause to be given the notice thereof required above. Notice of a meeting of shareholders need not be given to any shareholder who attends such meeting or who, in person or by proxy, signs a waiver of notice either before or after the meeting. To be effective such waiver shall contain statements or recitals sufficient to identify beyond reasonable doubt the meeting to which it applies. Such statements or recitals may, but need not necessarily, include reference to the date and purpose of the meeting and the business transacted thereat. Statement or recital of the proper date of a meeting shall be conclusive identification of the meeting to which a waiver of notice applies unless the waiver contains additional statements or recitals creating a patent ambiguity as to its proper application. SECTION 2.04. QUORUM. Except as may otherwise be required by the Act or the Corporation's Articles of Incorporation, at any meeting of shareholders the presence, in person or by proxy, of the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum for the transaction of any business properly before the meeting. Shares entitled to vote as a separate voting group on a matter may take action at a meeting on such matter only if a quorum of the shares in the separate voting group are present in person or by 3 proxy at the meeting. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, at any meeting of shareholders the presence, in person or by proxy, of the holders of a majority of the outstanding shares in a separate voting group entitled to vote thereat as separate voting group, if any, shall constitute a quorum of such separate voting group for purposes of such matter. In the absence of a quorum a meeting may be adjourned from time to time, in accordance with the provisions concerning adjournments contained elsewhere in these Bylaws, by the holders of a majority of the shares represented at the meeting in person or in proxy. At such adjourned meeting a quorum of Shareholders may transact such business as might have been properly transacted at the original meeting. SECTION 2.05. TRANSACTION OF BUSINESS. Business transacted at an annual meeting of shareholders may include all such business as may properly come before the meeting. Business transacted at a special meeting of shareholders shall be limited to the purposes stated in the notice of the meeting. SECTION 2.06. SHAREHOLDERS OF RECORD. For the purpose of determining shareholders entitled to vote at any meeting of shareholders, or entitled to receive dividends or other distributions, or in connection with any other proper purpose requiring a determination of shareholders, the Board of Directors shall by resolution fix a record date for such determination. The date shall be not more than fifty and not less than ten days prior to the date on which the activity requiring the determination is to occur. The shareholders of record appearing in the stock transfer books of the Corporation at the close of business on the record date so fixed shall constitute the shareholders of right in respect of the activity in question. In the absence of action by the Board of Directors to fix a record date, the record date shall be ten days prior to the date on which the activity requiring a determination of shareholders is to occur. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting to a date not later than one hundred twenty days after the date fixed for the original meeting; provided, however, that the Board of Directors may in its discretion fix a new record date for any adjourned meeting. SECTION 2.07. VOTING. Except as may otherwise be required by the Act or the Corporation's Articles of Incorporation, and subject to the provisions concerning shareholders of record contained elsewhere in these Bylaws, a person (or his proxy) present at a meeting of shareholders shall be entitled to one vote for each share of voting stock as to which such person is the shareholder of record. In elections of Directors, those candidates receiving the greater number of votes cast (although not necessarily a majority of votes cast) at the meeting shall be elected. Any other corporate action shall be authorized by a majority of the votes cast at the meeting unless otherwise provided by the Act, the Corporation's Articles of Incorporation, or these Bylaws. SECTION 2.08. VOTING INSPECTORS. For each meeting of Shareholders an odd number of persons (which may be only one person) shall be appointed to serve as voting inspectors, either by the Board of Directors prior to the meeting or by the presiding official at the meeting. The voting inspectors may include one or more representatives of the Corporation's Transfer Agent, if any. The voting inspectors shall by majority decision (if more than one inspector) resolve all disputes which may arise concerning the qualification of voters, the validity of proxies, the existence of a quorum, the voting power of shares, and the acceptance, rejection, and tabulation 4 of votes. Each voting inspector shall take an oath (which may be in writing) to execute his duties impartially and to the best of his ability. Such oath shall be administered to each voting inspector before a voting inspector enters upon the discharge of his duties. The Corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the voting inspector(s), acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder. Neither the Corporation nor the voting inspector(s) who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section shall be liable in damages to any shareholder for the consequences of the acceptance or rejection. Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this Section 2.08 is valid unless a court of competent jurisdiction determines otherwise. SECTION 2.09. ADJOURNMENTS. A majority of the voting shares held by shareholders of record present in person or by proxy at a meeting of shareholders may (whether or not constituting a quorum) adjourn a meeting from time to time to a date, time, and place fixed by notice as provided for above or, if such date is less than thirty days from the date of adjournment, to a date, time, and place fixed by the majority vote and announced at the original meeting prior to adjournment. SECTION 2.10. ACTION WITHOUT MEETING. Holders of record of voting shares may take action without meeting by written consent as to such matters and in accordance with such requirements and procedures as may be permitted by the Act. SECTION 2.11. PROXIES. At all meetings of shareholders, a shareholder may vote in person or by proxy. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. A proxy must be filed (a) in writing executed by the shareholder or by his duly authorized attorney in fact, or (b) by a telegram or cablegram appearing to have been transmitted by the shareholder; provided, however that the Board of Directors may also establish procedures by which shareholders can file proxies with the Secretary by telecopier facsimile transmission. No proxy shall be valid after eleven months from the date of its execution unless it qualifies as an irrevocable proxy under the Act. SECTION 2.12. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another corporation may be voted, either in person or by proxy, by the officer, agent, or proxy as the bylaws of that corporation may prescribe, or in the absence of such provision, as the board of directors of that corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by such trustee either in person or by proxy, but no trustee shall be entitled to vote shares held by such trustee without a transfer of the shares into such trustee's name as trustee. Shares standing in the name of a receiver may be voted, either in person or by proxy, by the receiver, and shares held by or under the control of a receiver may be voted, either in person or by proxy, by the receiver without the transfer thereof into such receiver's name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. 5 A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote, either in person or by proxy, the shares so transferred. SECTION 2.13. ACTION. Approval of actions by shareholders shall be in accordance with the requirements of the Act, except to the extent otherwise provided by the Articles of Incorporation. SECTION 2.14. INSPECTION RIGHTS. The shareholders shall have only such rights to inspect records of this Corporation to the extent, and according to the procedures and limitations, prescribed by the Act. SECTION 2.15. CONDUCT OF MEETINGS. The Chairman of the Board of Directors shall preside at each meeting of shareholders. In the absence of the Chairman, the meeting shall be chaired by an officer of the Corporation in accordance with the following order: Chief Executive Officer, President and Vice President. In the absence of all such officers, the meeting shall be chaired by an officer of the Corporation chosen by the vote of a majority in interest of the shareholders present in person or represented by proxy and entitled to vote thereat. The Secretary or in his or her absence an Assistant Secretary or in the absence of the Secretary and all Assistant Secretaries a person whom the chairman of the meeting shall appoint shall act as secretary of the meeting and keep a record of the proceedings thereof. The Board of Directors of the Corporation shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to shareholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comment by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure ARTICLE III DIRECTORS SECTION 3.01. AUTHORITY. The Board of Directors shall have ultimate authority over the conduct and management of the business and affairs of the Corporation. 6 SECTION 3.02. NUMBER. The Corporation shall have an authorized range of no fewer than two and no more than seven Directors. The number of Directors within such authorized range: (a) initially shall be established at two Directors; and (b) thereafter shall be established from time to time without amendment to these Bylaws by resolution of the Board of Directors or as otherwise provided by law. The authorized range and established number of Directors may be increased or decreased from time to time by resolution of the Board of Directors; provided, however, that after election of Directors at the first annual meeting of the shareholders, the established number of Directors may be increased or decreased from time to time by resolution of the Board of Directors only by a number of Directors that is thirty percent (30%) or less of the number of Directors last elected by the shareholders, and only the shareholders may increase or decrease by more than thirty percent (30%) the established number of Directors last elected by the shareholders. No decrease in the authorized range or established number of Directors shall have the effect of shortening the term of any incumbent Director. SECTION 3.03. TENURE. Each Director shall hold office from the date of his election and qualification until his successor shall have been duly elected and qualified, or until his earlier removal, resignation, death, or incapacity. An election of all Directors by the shareholders shall be held at each annual meeting of the Corporation's shareholders. A Director need not be a shareholder. In case of any increase in the number of Directors, the additional directorships so created may be filled in the first instance in the same manner as a vacancy in the Board of Directors. SECTION 3.04. REMOVAL. Any Director may be removed from office, with or without cause, by a vote of the holders of a majority of the shares of the Corporation's voting stock. Any Director may be removed from office with cause by a majority vote of the Board of Directors at a meeting at which only the removal and replacement of the Director or Directors in question shall be considered. SECTION 3.05. VACANCIES. The Board of Directors may by majority vote of the Directors then in office, regardless of whether such Directors constitute a quorum, elect a new Director to fill a vacancy on the Board of Directors; provided, however, that no person may be elected to fill a vacancy created by his removal from office pursuant to these Bylaws. SECTION 3.06. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Directors shall be called and held for the purpose of annual organization, changes in the established number of Directors, if any, appointment of Officers and committees, and transaction of any other business. If such meeting is held promptly after and at the place specified for the annual meeting of shareholders, no notice of the annual meeting of the Board of Directors need be given. Otherwise, such annual meeting of the Board of Directors shall be held at such time (at any time prior to and not more than thirty days after the annual meeting of shareholders) and place as may be specified in the notice of the meeting. The Board of Directors may by resolution provide for the holding of additional regular meetings without notice other than such resolution; provided, however, the resolution shall fix the dates, times, and places (which may be anywhere within or without the State of the Corporation's Principal Office) for these regular meetings. Except as otherwise provided by law, any business may be transacted at any annual or regular meeting of the Board of Directors. 7 SECTION 3.07. SPECIAL MEETINGS; NOTICE OF SPECIAL MEETING. Special meetings of the Board of Directors may be called for any lawful purpose or purposes by any Director or the President of the Corporation. The person calling a special meeting shall give, or cause to be given, to each Director at his business address, notice of the date, time and place of the meeting by any normal means of communication not less than seventy-two hours nor more than sixty days prior thereto. The notices may, but need not, describe the purpose of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail addressed to the Director's business address, with postage thereon prepaid. If notice is given by telegram, the notice shall be deemed delivered when the telegram is delivered to the telegraph company and the transmission fee therefor is paid. If notice is given by telecopier facsimile transmission, the notice shall be deemed delivered when the facsimile of the notice is transmitted to a telecopier facsimile receipt number designated by the receiving Director, if any, so long as such director transmits to the sender an acknowledgment of receipt. Any time or place fixed for a special meeting must permit participation in the meeting by means of telecommunications as authorized below. SECTION 3.08. WAIVER OF NOTICE OF SPECIAL MEETINGS. Notice of a special meeting need not be given to any Director who signs a waiver of notice either before or after the meeting. To be effective the waiver shall contain recitals sufficient to identify beyond reasonable doubt the meeting to which it applies. The recitals may, but need not necessarily, include reference to the date and purpose of the meeting and the business transacted thereat. Recital of the proper date of a meeting shall be conclusive identification of the meeting to which a waiver of notice applies unless the waiver contains additional recitals creating a patent ambiguity as to its proper application. The attendance of a Director at a special Directors meeting shall constitute a waiver of notice of that meeting, except where the Director attends the meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. SECTION 3.9. PARTICIPATION BY TELECOMMUNICATIONS. Any Director may participate in, and be regarded as present at, any meeting of the Board of Directors by means of conference telephone or any other means of communication by which all persons participating in the meeting can hear each other at the same time. SECTION 3.10. QUORUM. A majority of Directors in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. SECTION 3.11. ACTION. The Board of Directors shall take action pursuant to resolutions adopted by the affirmative vote of a majority of the Directors participating in a meeting at which a quorum is present, or the affirmative vote of a greater number of Directors where required by the Corporation's Articles of Incorporation or otherwise by law. SECTION 3.12. ACTION WITHOUT MEETING. Any action permitted by the Act and required or permitted to be taken by the Board of Directors at an annual, regular, or special meeting may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Directors in accordance with the procedures authorized by the Act. 8 SECTION 3.13. PRESUMPTION OF ASSENT. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward his dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right to dissent shall not apply to a Director who voted in favor of such action. SECTION 3.14. EXECUTIVE COMMITTEE. The Board of Directors shall by resolution, adopted in accordance with the Act, designate and delegate authority to an Executive Committee with any or all such authority as may be permitted by the Act. The Executive Committee shall be a standing committee appointed annually. The Executive Committee shall be composed of two or more members, who shall serve at the pleasure of the Board of Directors. All voting members of the Executive Committee must be Directors of the Corporation appointed by the Board of Directors in accordance with Section 33-8-240 of the Act. The Chairman of the Executive Committee shall be elected by the Board of Directors from the Directors appointed to the Executive Committee. The Chairman of the Executive Committee shall have such duties and authority as set forth in these Bylaws. The Chairman of the Board shall be a member of the Executive Committee. The duties, constitution, and procedures of the Executive Committee shall be prescribed by the Board of Directors. In the absence, incapacity, inability, or refusal of the President to act, the Executive Committee shall designate an Officer or Director temporarily or indefinitely to assume the authority and perform the duties of the President, which designee shall serve in such capacity at the pleasure of the Executive Committee. SECTION 3.15. OTHER COMMITTEES. The Board of Directors may from time to time by resolution, adopted in accordance with the Act, designate and delegate authority to an Audit Committee, a Compensation Committee, and other committees, with any or all such authority as may be permitted by the Act. Any such committee may be designated as a standing committee appointed annually or as a special committee for specific circumstances or transactions with a limited duration. Each committee shall be composed of two or more members, who shall serve at the pleasure of the Board of Directors. All voting committee members must be Directors of the Corporation appointed by the Board of Directors in accordance with Section 33-8-240 of the Act. The Chairman of the Board shall be given notice of all committee meetings and may in his discretion attend meetings of any committee to which he is not appointed as a member. The duties, constitution, and procedures of any committee shall be prescribed by the Board of Directors. The Board of Directors shall designate one member of each committee as its chairman. In the event the Corporation is listed on the NASDAQ National Merit System, and so long as the Board of Directors determines in its discretion to maintain such listing, the Board of Directors shall designate, delegate such authority to, and appoint, as a standing committee, an Audit Committee which satisfies the applicable NASDAQ/NMS criteria. SECTION 3.16. COMMITTEE MEETINGS. A majority of each committee's voting members shall constitute a quorum for the transaction of business by the committee, and each committee shall take action pursuant to resolutions adopted by a majority of the committee's voting members participating in a meeting at which a quorum of the committee is present. Each committee may also take action without a meeting if a consent in writing, setting forth the action 9 taken, shall be signed by all of the committee's voting members in accordance with the procedures authorized by the Act. Special meetings of any committee may be called at any time by any Director who is a member of the committee or by any person entitled to call a special meeting of the full Board of Directors. Except as otherwise provided in this section, the conduct of all meetings of any committee, including notice thereof, and the taking of any action by such committee, shall be governed by Sections 3.06 through 3.13 of this Article. SECTION 3.17. COMPENSATION. The Board of Directors may by resolution authorize payment to all Directors of a uniform fixed sum for attendance at each meeting or a stated salary (which need not be uniform) as a Director, or a combination thereof, in such amounts as the Board may determine from time to time. The Board of Directors may, in its discretion, authorize payments of greater amounts or different forms to the Chairman of the Board or particular Directors or committee members than are paid to other Directors. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore. The Board of Directors may also by resolution authorize the payment or reimbursement of all expenses of each Director related to the Director's attendance at meetings or other service to the Corporation. SECTION 3.18. NOTIFICATION OF NOMINATIONS. Nominations for the election of Directors may be made by the Board of Directors or by any shareholder entitled to vote for the election of directors. Any shareholder entitled to vote for the election of directors at a meeting may nominate persons for election as Directors only if written notice of such shareholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 120 days in advance of such meeting, and (ii) with respect to any election to be held at a special meeting of shareholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated, (b) a representation that such shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (c) a description of all arrangements or understandings between such shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such shareholder, (d) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors, and (e) the consent of each nominee to serve as a Director of the Corporation if elected. The chairman of a shareholder meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. SECTION 3.19. ORDER OF BUSINESS. Unless otherwise determined by the Chairman of the Board, the order of business at the annual meeting, and so far as practicable at all other meetings of the Board of Directors, shall be as follows: 1. Determination of a quorum 10 2. Reading and disposal of all unapproved minutes 3. Reports of Officers and committees, if applicable 4. Change in established number of Directors, if applicable 5. Appointment of Officers and committees, if applicable 6. Unfinished business, if applicable 7. New business 8. Adjournment Unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, or unless required by a specific rule to the contrary in these Bylaws, the Articles of Incorporation, or the Act, meetings of the Board of Directors shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV OFFICERS SECTION 4.01. IN GENERAL. The Officers of the Corporation shall consist of a Chairman of the Board, a Chairman of the Executive Committee, a President, one or more Vice Presidents, a Secretary, and a Treasurer, and such additional vice presidents, assistant secretaries, assistant treasurers and other officers and agents as the Board of Directors deems advisable from time to time. All Officers shall be appointed by the Board of Directors to serve at the pleasure of the Board. Except as may otherwise be provided by Act or in the Articles of Incorporation, any Officer may be removed by the Board of Directors at any time, with or without cause. Any vacancy, however occurring, in any office may be filled by the Board of Directors for the unexpired term. One person may hold two or more offices. Each Officer shall exercise the authority and perform the duties as may be set forth in these Bylaws and any additional authority and duties as the Board of Directors shall determine from time to time. SECTION 4.02. CHAIRMAN OF THE BOARD. The Board of Directors shall elect from the Directors a Chairman of the Board to serve at the pleasure of the Board of Directors. The Chairman of the Board shall whenever possible preside at all meetings of shareholders and all meetings of the Board of Directors. Except as otherwise provided herein and as may be specifically limited by resolution of the Board of Directors or Executive Committee, the Chairman of the Board may execute on the Corporation's behalf any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents. The Chairman of the Board shall exercise such additional authority and duties as set forth in these Bylaws and as the Board of Directors shall determine from time to time. SECTION 4.03. CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Board of Directors shall elect from the Directors (who are appointed to the Executive Committee) a Chairman of the Executive Committee to serve at the pleasure of the Board of Directors. The Chairman of the Executive Committee shall preside at all meetings of the Executive Committee. In the absence of the Chairman of the Board, the Chairman of the Executive Committee shall preside at all meetings of the shareholders and all meetings of the Board of Directors. Except as otherwise provided herein and as may be specifically limited by resolution of the Board of Directors or 11 Executive Committee, the Chairman of the Executive Committee may execute on the Corporation's behalf any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents. The Chairman of the Executive Committee shall exercise such additional authority and duties as set forth in these Bylaws and as the Board of Directors shall determine from time to time. SECTION 4.04. PRESIDENT. The President shall, subject to the authority of the Board of Directors and Executive Committee, manage the business and affairs of the Corporation. The President shall see that the resolutions of the Board of Directors and committees thereof are put into effect. Except as otherwise provided herein, the President may execute on the Corporation's behalf such contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents as may be authorized by specific or general resolution of the Board of Directors. The President shall also perform such other duties and may exercise such other powers as are incident to the office of president and as are from time to time assigned to him by the Act, these Bylaws, the Board of Directors, the Chairman of the Board, or the Chairman of the Executive Committee. SECTION 4.05. VICE PRESIDENTS. Except as otherwise determined by the Board of Directors, each Vice President shall serve under the direction of the President. Except as otherwise provided herein, each Vice President shall perform such duties and may exercise such powers as are incident to the office of vice president and as are from time to time assigned to him by the Act, these Bylaws, the Board of Directors, the Chairman of the Board, the Chairman of the Executive Committee, or the President. SECTION 4.06. SECRETARY. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Secretary shall serve under the direction of the President. The Secretary shall whenever possible attend all meetings of the shareholders and the Board of Directors, and whenever the Secretary cannot attend such meetings, such duty shall be delegated by the presiding officer for such meeting to a duly authorized assistant secretary. The Secretary shall record or cause to be recorded under his general supervision the proceedings of all such meetings and any other actions taken by the shareholders or the Board of Directors (or by any committee of the Board in place of the Board) in a book or books (or similar collection) to be kept for such purpose. The Secretary shall give, or cause to be given, all notices in connection with such meetings. The Secretary shall be the custodian of the Corporate seal and affix the seal to any document requiring it, and to attest thereto by signature. The Secretary may delegate his authority to affix the Corporation's seal and attest thereto by signature to any Assistant Secretary. The Board of Directors may give general authority to any other officer or specified agent to affix the Corporation's seal and to attest thereto by signature. Unless otherwise required by law, the affixing of the Corporation's seal shall not be required to bind the Corporation under any documents duly executed by the Corporation and the use of the seal shall be precatory in the discretion of the Corporation's duly authorized signing officers. The Secretary shall properly keep and file, or cause to be properly kept and filed under his supervision, all books, reports, statements, notices, waivers, proxies, tabulations, minutes, certificates, documents, records, lists, and instruments required by the Act or these Bylaws to be kept or filed, as the case may be. The Secretary may when requested, and shall when required, authenticate any records of the Corporation. Except to the extent otherwise required by the Act, the Secretary may maintain, or cause to be maintained, such items within or without the State of South Carolina at any 12 reasonable place. In the event the Board of Directors designates and engages a Transfer Agent, as permitted by these Bylaws, such duties of keeping such shareholder records and the like accepted by such Transfer Agent shall be deemed delegated from the Secretary to such Transfer Agent, but such Transfer Agent shall be subject to supervision of the Secretary. The Secretary shall perform such other duties and may exercise such other powers as are incident to the office of secretary and as are from time to time assigned to him by the Act, these Bylaws, the Board of Directors, the Chairman of the Board, or the President. SECTION 4.07. TREASURER. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Treasurer shall serve under the direction of the President. The Treasurer shall, under the direction of the President, keep safe custody of the Corporation's funds and securities, maintain and give complete and accurate books, records, and statements of account, give and receive receipts for moneys, and make deposits of the Corporation's funds, or cause the same to be done under his supervision. The Treasurer shall upon request report to the Board of Directors on the financial condition of the Corporation. The Treasurer may be required by the Board of Directors at any time and from time to time to give such bond as the Board may determine. The Treasurer shall perform such other duties and may exercise such other powers as are incident to the office of treasurer and as are from time to time assigned to him by the Act, these Bylaws, the Board of Directors, the Chairman of the Board, or the President. SECTION 4.08. ASSISTANT OFFICERS. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Assistant Secretaries and Assistant Treasurers, if any, shall serve under the immediate direction of the Secretary and the Treasurer, respectively, and under the ultimate direction of the President. The Assistant Officers shall assume the authority and perform the duties of their respective immediate superior officer as may be necessary at the direction of such immediately superior officer, or in the absence, incapacity, inability, or refusal of such immediate superior officer to act. The seniority of Assistant Officers shall be determined from their dates of appointment unless the Board of Directors shall otherwise specify. SECTION 4.09. SALARIES. The salaries and other compensation of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary or other compensation by reason of the fact that he is also a Director of the Corporation. ARTICLE V INDEMNIFICATION SECTION 5.01. SCOPE. Every person who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a Director or Officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest extent legally permissible under and pursuant to the Act (and 13 regardless of whether such proceeding is by or in the right of the Corporation), against all expenses, liabilities, and losses (including without limitation attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement) suffered, or reasonably incurred by him in connection therewith. Such right of indemnification shall be a contract right that may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such Directors, Officers, or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of Shareholders, insurance, provision of law, or otherwise, as well as their rights under this Article V. The Corporation may contract in advance to provide indemnification. SECTION 5.02. ADVANCES AND REIMBURSEMENTS. The determination that indemnification under this Article V is permissible and the evaluation as to the reasonableness of expenses in a specific case shall be made, in the case of a Director, as provided by the Act, and in the case of an Officer or other person indemnified under Section 5.03, if any, as provided in Section 5.03 of this Article; provided, however, that if a majority of the Directors of the Corporation has changed after the date of the alleged conduct giving rise to a claim for indemnification, such determination and evaluation shall, at the option of the person claiming indemnification, be made by special legal counsel agreed upon by the Board of Directors and such person. Unless a determination has been made that indemnification is not permissible, and upon receipt of such written affirmation as required by the Act from the person to be indemnified, the Corporation shall make advances and reimbursements for expenses incurred by a Director or Officer or other person indemnified under Section 5.03, if any, in a proceeding upon receipt of an undertaking from him to repay the same if it is ultimately determined that he is not entitled to indemnification. Such undertaking shall be an unlimited, unsecured general obligation of the Director or Officer and shall be accepted without reference to his ability to make repayment. The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that a Director or Officer acted in such a manner as to make him ineligible for indemnification. SECTION 5.03. INDEMNIFICATION OF OTHER PERSONS. The Corporation may, to a lesser extent or to the same extent that the Corporation is required to provide indemnification to its Directors and Officers, provide indemnification and make advances and reimbursements for expenses to (a) its employees, agents, and advisors, (b) the directors, officers, employees, agents, and advisors of its subsidiaries and predecessor entities, and (c) any person serving any other legal entity in any capacity at the request of the Corporation; and, if authorized by general or specific action of the Board of Directors, may contract in advance to do so. The determination that indemnification under this Section is permissible, the authorization of such indemnification, and the advance or reimbursement, if any, and the evaluation as to the reasonableness of expenses in a specific case, shall be made as authorized from time to time by general or specific action of the Board of Directors, which action may be taken before or after a claim for indemnification is made, or as otherwise provided by the Act. No person's rights under Sections 5.01 or 5.02 of this Article shall be limited by the provisions of this Section 5.03. SECTION 5.04. INDEMNIFICATION PLAN. The Board of Directors may from time to time adopt an Indemnification Plan implementing the rights granted in Section 5.01. This Indemnification Plan shall set forth in detail any other mechanics for exercise of the 14 indemnification rights granted in this Article V, and shall be binding upon all parties except to the extent it is proven to be inconsistent with these Bylaws or the Act. The absence of the adoption of such plan, however, shall not vitiate the effectiveness of the rights conferred by this Article V. SECTION 5.05. INSURANCE. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, or any other person indemnified or described as the subject of potential indemnification in this Article V, against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. SECTION 5.06. MISCELLANEOUS. Every reference in this Article V to persons who are or may be entitled to indemnification shall include all persons who formerly occupied any of the positions referred to and their respective heirs, executors, and administrators. Special legal counsel selected to make determinations under this Article V may be counsel for the Corporation. Indemnification pursuant to this Article V shall not be exclusive of any other right of indemnification to which any person may be entitled, including indemnification pursuant to valid contract, indemnification by legal entities other than the Corporation and indemnification under policies of insurance purchased and maintained by the Corporation or others. However, no person shall be entitled to indemnification by the Corporation to the extent prohibited by the Act or to the extent he is indemnified by another, including an insurer; provided, however, that the Corporation may make advances and reimbursements, subject to appropriate repayment obligations, under Section 5.02 if the effectiveness of such other indemnification will be delayed. The provisions of this Article shall not be deemed to prohibit the Corporation from entering into contracts otherwise permitted by law with any individuals or legal entities, including those named above, for the purpose of conducting the business of the Corporation. Indemnification of any person under this Article V shall be implemented only in accordance with procedures and requirements mandated by the Act and by plans, if any, adopted pursuant to Section 5.04. If any provision of this Article V or its application to any person or circumstance is held invalid by a court of competent jurisdiction, the invalidity shall not affect other provisions or applications of this Article V, and to this end the provisions of this Article V are severable. ARTICLE VI TRANSACTIONS SECTION 6.01. CONTRACTS. The Board of Directors may authorize any Officer or Officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. SECTION 6.02. LOANS. The Board of Directors may authorize any Officer or Officers, or agent or agents, to contract any indebtedness and grant evidence of indebtedness and collateral 15 therefor in the name of an on behalf of the Corporation, and such authority may be general or confined to specific instances. SECTION 6.03. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by the Officer or Officers, or agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 6.04. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select. SECTION 6.05. VOTING OF SHARES IN OTHER CORPORATIONS OWNED BY THE CORPORATION. Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of the other corporation by the Chairman of the Board, the Chairman of the Executive Committee, or the President of the Corporation if any of them is present, or in their absence by any Vice-President of the Corporation who may be present. Whenever, in the judgment of the Chairman of the Board, the Chairman of the Executive Committee, or the President, or in their absence, of any Vice-President, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned or controlled by the Corporation, the proxy or consent shall be executed in the name of the Corporation by the Chairman of the Board, the Chairman of the Executive Committee, the President, or one of the Vice-Presidents of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote such share or shares of stock issued by the other corporation. ARTICLE VII STOCK SECTION 7.01. CERTIFICATES FOR SHARES. Certificates representing shares of capital stock of the Corporation shall state upon the face thereof the name of the person to whom issued, the number of shares, the fact that the Corporation is organized under the laws of the State of South Carolina, and such other matters as the Board of Directors may approve or as may be required by the Act. Each certificate shall be signed by (a) any one of the Chairman of the Board, the Chairman of the Executive Committee, the President, or a Vice President, and (b) by any one of the Secretary or an Assistant Secretary. Where a certificate is countersigned by (i) a Transfer Agent other than the Corporation or its employee, or (ii) a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any Officer whose facsimile signature has been placed upon a certificate shall have ceased to be such Officer before such certificate is issued it may be issued by the Corporation with the same effect as if he were such Officer at the date of issue. All certificates for shares shall be consecutively numbered. Certificates for shares of different classes, and different series within a class, to the extent authorized, if any, shall bear appropriate designations to identify the class or series as required by the Act. 16 SECTION 7.02. STOCK TRANSFER BOOKS. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issuance, shall be entered on the stock transfer books of the Corporation. Such stock transfer books shall be maintained by the Secretary or Transfer Agent as a record of the Corporation's shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each shareholder. SECTION 7.03. TRANSFER OF SHARES. Subject to the provisions of the Act and to any transfer restrictions binding on the Corporation, transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his agent, attorney-in-fact or other legal representative, who shall furnish proper evidence of authority to transfer, upon surrender for cancellation of the certificate for such shares. Unless the Board of Directors in its discretion has by resolution established procedures, if any, by which a beneficial owner of shares held by a nominee may be recognized by the Corporation as the owner thereof, the person in whose name shares stand on the stock transfer books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. The Corporation's stock transfer books maintained by the Secretary or the Transfer Agent shall be conclusive in all such regards absent a determination by the Board of Directors of manifest error. All certificates surrendered to the Corporation for transfer shall be canceled. SECTION 7.04. NEW OR REPLACEMENT CERTIFICATES. No new stock certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed, or mutilated certificate a substitute certificate may be issued therefor upon: (a) the making of an affidavit by the holder of record of the shares represented by such certificate setting forth the facts concerning the loss, theft, or mutilation thereof; (b) delivery of such bond and/or indemnity to the Corporation as the Secretary or Board of Directors may prescribe or as may be required by law; and (c) satisfaction of such other reasonable requirements (which may include without limitation advertisement of the same) as the Secretary or Board of Directors may prescribe. To the extent permitted by applicable law (including Section 36-8-405 of the South Carolina Uniform Commercial Code), a new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is not imprudent to do so; and without limiting the generality of the foregoing, the Secretary or the Board of Directors may in their discretion waive (except as prohibited by law) any bond requirement otherwise applicable where the aggregate fair market value of the shares represented by such lost, stolen, or mutilated certificate is less than five hundred dollars based upon indicia deemed reasonable by the waiving party. SECTION 7.05. BENEFICIAL OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its stock transfer books as the owner of shares to receive dividends or other distributions, and to vote as such owner, and to hold liable for calls and assessments, if any, a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by the Act or by procedures, if any, established by resolution of the Board of Directors in its discretion by which a beneficial owner of shares held by a nominee may be 17 recognized as the owner thereof. Such procedures, if any, shall also set forth the extent of such recognition. SECTION 7.06 TRANSFER AGENT. The Board of Directors may, in its discretion, appoint an independent institutional Transfer Agent to serve as transfer agent and registrar for the Corporation's stock at the pleasure of the Board. Such Transfer Agent shall assist the Corporation's Secretary and voting inspectors in performance of their duties respecting shares of the Corporation's stock. Such Transfer Agent shall maintain the Corporation's stock transfer books and stock certificates in accordance with the Act, these Bylaws, instructions of the Board of Directors, and customary procedures consistently applied. Such Transfer Agent shall perform such other duties and shall be entitled to exercise such other powers, as may be assigned to the Transfer Agent from time to time by the Secretary or the Board of Directors. SECTION 7.07 TRANSFER RESTRICTIONS. The Secretary shall have full power and authority to place or cause to be placed on any and all stock certificates restrictive legends to the extent reasonably believed necessary or appropriate to ensure the Corporation's compliance with federal or any state's securities laws, and to issue to any Transfer Agent stop transfer orders to effect compliance with such legends. ARTICLE VIII MISCELLANEOUS SECTION 8.01. FISCAL YEAR. The fiscal year of the Corporation shall be established, and may be altered, by resolution of the Board of Directors from time to time as the Board deems advisable. SECTION 8.02. DIVIDENDS. The Board of Directors may from time to time at any regular or special meeting (or by any other manner of action permitted by these Bylaws and the Act) declare, and the Corporation may pay, dividends or other distributions on its outstanding shares of stock in the manner and upon the terms and conditions as the Board of Directors deems advisable and as may be permitted by the Articles of Incorporation, the Act, and any other lawful restrictions imposed upon the Corporation. Such dividends or other distributions, when declared and permitted, may be paid in cash, stock, property, or any other permitted means lawfully declared by the Board of Directors. SECTION 8.03. SEAL. The seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, State of South Carolina." SECTION 8.04. FORMS OF RECORDS. When consistent with good business practices, any records of the Corporation may be maintained in other than written form if such other form is capable of reasonable preservation and conversion into written form within a reasonable time. 18 SECTION 8.05. AMENDMENTS. Any or all of these Bylaws may be altered, amended, or repealed and new Bylaws may be adopted by the Board of Directors, subject to the following: (a) the right of the shareholders to alter, adopt, amend, or repeal Bylaws as provided in the Act; and (b) action of the shareholders in adopting, amending, or repealing a particular Bylaw wherein the Board of Directors is expressly prohibited by such shareholder action from amending or repealing the particular Bylaw acted upon by the shareholders. The shareholders may amend or repeal any or all of these Bylaws even though these Bylaws may also be amended or repealed by the Board of Directors. Any notice of a meeting of shareholders at which Bylaws are to be adopted, amended, or repealed shall state that the purpose, or one of the purposes, of the meeting is to consider the adoption, amendment, or repeal of Bylaws and contain or be accompanied by a copy or summary of the proposal. SECTION 8.06. SEVERABILITY. If any provision of these Bylaws or the application thereof to any person or circumstances shall be held invalid or unenforceable to any extent by a court of competent jurisdiction, such provision shall be complied with or enforced to the greatest extent permitted by law as determined by such court, and the remainder of these Bylaws and the application of such provision to other persons or circumstances shall not be affected thereby and shall continue to be complied with and enforced to the greatest extent permitted by law. SECTION 8.07 USAGE. In construing these Bylaws, feminine or neuter pronouns shall be substituted for masculine forms and vice versa, and plural terms shall be substituted for singular forms and vice versa, in any place in which the context so requires. The section and paragraph headings contained in these Bylaws are for reference purposes only and shall not affect in any way the meaning or interpretation of these Bylaws. Terms such as "hereof", "hereunder", "hereto", and words of similar import shall refer to these Bylaws in the entirety and all references to "Articles", "Paragraphs", "Sections", and similar cross references shall refer to specified portions of these Bylaws, unless the context clearly requires otherwise. Terms used herein which are not otherwise defined shall have the meanings ascribed to them in the Act. All references to statutory provisions shall be deemed to include corresponding sections of succeeding law. The foregoing are certified to be the true and complete Amended and Restated Bylaws of the Corporation as adopted by the incorporator and the initial Board of Directors as of June 30, 1992 and amended and restated by the Board of Directors effective April 5, 1999. /s/ E. Wayne Gibson ----------------------------------------- Secretary (Corporate Seal) 19 ELLETT BROTHERS, INC. UNANIMOUS CONSENT OF DIRECTORS APRIL 5, 1999 The undersigned, being all of the directors of Ellett Brothers, Inc., a South Carolina corporation (the "Company"), acting pursuant to Section 33-8-210 of the South Carolina Business Corporations Act of 1988 and Article III of the Bylaws of the Company, hereby consent to the adoption of the following resolutions with the same force and effect as if they were approved and adopted at a duly constituted meeting of the directors of the Company to be effective as of the date set forth above. AMENDMENT AND RESTATEMENT OF BYLAWS WHEREAS, the Board of Directors believes that it is in the best interest of the Company that its Bylaws be amended (a) to clarify in Article II, Section 2.08 certain of the procedures for the appointment of voting inspectors at shareholder meetings, (b) to address in Article II, Section 2.15 the procedures for the conduct of shareholder meetings, and (c) to address in Article III, Section 3.18 the procedures for the nomination by any shareholder of an individual or individuals for election as a director of the Company. NOW, THEREFORE, IT IS RESOLVED, that the Bylaws of the Company as initially adopted effective June 30, 1992 be amended to address the matters set forth in the preceding paragraph and that such bylaws, as so amended, be restated to read in their entirety as set forth in Exhibit A attached hereto RESOLVED, that the appropriate officers of the Company hereby are, and each of them hereby is, authorized, in the name and on behalf of the Company, to execute and deliver any and all instruments, filings and writings of any nature and to do any other act or thing as, with the advice of counsel, they may deem to be necessary or desirable to carry out the intent of the foregoing resolution. This Consent may be executed in any number of counterparts which may be electronically transmitted to the originating office and all of which, when executed and delivered, shall have the force and effect of an original. [SIGNATURE PAGE ATTACHED] 20 IN WITNESS WHEREOF, each of the undersigned has executed this Consent to be effective as of the date first set forth above. /s/ Robert D. Gorham, Jr. -------------------------------------------- Robert D. Gorham, Jr. /s/ E. Wayne Gibson -------------------------------------------- E. Wayne Gibson /s/ Joseph F. Murray, Jr. -------------------------------------------- Joseph F. Murray, Jr. /s/ William H. Batchelor -------------------------------------------- William H. Batchelor /s/ Charles V. Ricks -------------------------------------------- Charles V. Ricks /s/ William H. Stanley -------------------------------------------- William H. Stanley EX-10.H 3 7TH AMENDMENT TO FINANCING & SECURITY AGREEMENT 1 EXHIBIT 10(h) SEVENTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT THIS SEVENTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT, dated as of July 30, 1999, is by and among FIRST UNION COMMERCIAL CORPORATION ("Lender"), ELLETT BROTHERS, INC. ("Ellett"), LEISURE SPORTS MARKETING, INC. ("Leisure"), EVANS SPORTS, INC., ("Evans"), SAFESPORT MANUFACTURING COMPANY ("Safesport"), and VINTAGE EDITIONS, INC. ("Vintage") (hereinafter Ellett, Leisure, Evans, Safesport and Vintage may be referred to collectively as the "Borrower"). RECITAL A. The Lender and the Borrower have entered into that certain Financing and Security Agreement, dated June 10, 1994, as amended (the "Financing Agreement"). B. The Borrower and the Lender have agreed to amend the Financing Agreement as set forth herein. NOW, THEREFORE, the parties hereto agree as follows: 1. Section 2.A. is amended in its entirety so that such Section now reads as follows: 2.A. "Applicable Margin" means for any calendar quarter, the following margins for the following Loans based upon the Leverage Ratio of Borrower as of the last day of the prior calendar quarter and the net income of Borrower for the four fiscal quarterly periods ending as of the last day of the prior calendar quarter:
Applicable Applicable Applicable Margins for Margins for Margins for Loans Based Loans Based Loans Based on One Month on Three Month the Prime Rate LIBOR Rate LIBOR Rate -------------- ------------ ------------- Category 1 - ---------- Net income is equal to or less than $3,000,000.00 or the Leverage Ratio is equal to or greater than 3.0 to 1.0 .375% 2.25% 2.25%
2 Category 2 - ---------- Net income is greater than $3,000,000.00 but equal to or less than $3,500,000.00 and the Leverage Ratio is less than 3.0 to 1.0 but greater than or equal to 2.25 to 1.0 .125% 2.0% 2.0% Category 3 - ---------- Net income is greater than $3,500,000.00 but equal to or less than $4,000,000.00 and the Leverage Ratio is less than 2.25 to 1.0 but greater than or equal to 1.5 to 1.0 0.0% 1.75% 1.75% Category 4 - ---------- Net income is greater than $4,000,000.00 but equal to or less than $5,000,000.00 and the Leverage Ratio is less than 1.5 to 1.0 but greater than or equal to 1.0 to 1.0 0.0% 1.50% 1.50% Category 5 - ---------- Net income is greater than $5,000,000.00 and the Leverage Ratio is less than 1.0 to 1.0 0.0% 1.25% 1.25%
2. This Seventh Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Seventh Amendment to produce or account for more than one counterpart. -2- 3 3. THIS SEVENTH AMENDMENT AND THE OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH (UNLESS SPECIFICALLY STIPULATED TO THE CONTRARY IN SUCH DOCUMENT OR AGREEMENT), AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. -3- 4 IN WITNESS WHEREOF, the parties hereto have caused this Seventh Amendment to be executed by their duly authorized corporate officers as of the day and year first above written. ELLETT BROTHERS, INC. By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) EVANS SPORTS, INC., a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) LEISURE SPORTS MARKETING, INC., a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) SAFESPORT MANUFACTURING COMPANY, a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) VINTAGE EDITIONS, INC., a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) FIRST UNION COMMERCIAL CORPORATION By: /s/ Bruce K. Rhodes/Vice President --------------------------------------------------- (Title) -4- EX-10.H 4 8TH AMENDMENT TO FINANCING & SECURITY AGREEMENT 1 EXHIBIT 10(i) EIGHTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT THIS EIGHTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT, dated as of October 8 1999, is by and among FIRST UNION COMMERCIAL CORPORATION ("Lender"), ELLETT BROTHERS, INC. ("Ellett"), LEISURE SPORTS MARKETING, INC. ("Leisure"), EVANS SPORTS, INC., ("Evans"), SAFESPORT MANUFACTURING COMPANY ("Safesport"), and VINTAGE EDITIONS, INC. ("Vintage") (hereinafter Ellett, Leisure, Evans, Safesport and Vintage may be referred to collectively as the "Borrower"). RECITAL A. The Lender and the Borrower have entered into that certain Financing and Security Agreement, dated June 10, 1994, as amended (the "Financing Agreement"). B. The Borrower and the Lender have agreed to amend the Financing Agreement as set forth herein. NOW, THEREFORE, the parties hereto agree as follows: 1. The first paragraph of Section 1(a) is amended in its entirety so that such paragraph now reads as follows: Lender agrees to make loans (the "Loans") to Borrower from time to time up to the sum of the following amounts (hereinafter such sum shall be referred to as the "Borrowing Base"): (A) an amount equal to 85% of the outstanding amount of "Eligible Trade Receivables" of Ellett; plus (B) an amount equal to 85% of "Eligible Dated Trade Receivables" of Ellett; provided, however, the foregoing amount specified in this subsection (B) shall not exceed 50% of the Receivables of Ellett; plus (C) an amount equal to the sum of 70% of "Eligible Hunting and Shooting Sports Finished Goods Inventory" of Ellett plus 50% of "Eligible Marine Finished Goods Inventory" of Ellett plus an amount equal to 50% of the "Eligible Subsidiary Inventory"; provided, however, such sum specified in this subsection (C) shall not exceed $25,000,000.00 at any time outstanding (or $30,000,000.00 at any time outstanding during the 120-day period commencing on October 8, 1999); plus 2 (D) an amount equal to 85% of the "Eligible Subsidiary Receivables"; provided, however, the outstanding principal amount of the Loans, plus the aggregate stated amount of outstanding Drafts (as defined below) plus the Letter of Credit Obligations (as defined below) shall not exceed $40,000,000.00 at any time outstanding (or $45,000,000.00 at any time outstanding during the 120-day period commencing on October 8, 1999); provided further, each Loan which bears interest at the Three Month LIBOR Rate plus the Applicable Margin shall be in a minimum amount of $1,000,000.00 and in multiples of $1,000,000.00 in excess thereof. 2. This Eighth Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Eighth Amendment to produce or account for more than one counterpart. 3. THIS EIGHTH AMENDMENT AND THE OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH (UNLESS SPECIFICALLY STIPULATED TO THE CONTRARY IN SUCH DOCUMENT OR AGREEMENT), AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. -2- 3 IN WITNESS WHEREOF, the parties hereto have caused this Eighth Amendment to be executed by their duly authorized corporate officers as of the day and year first above written. ELLETT BROTHERS, INC. By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) EVANS SPORTS, INC., a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) LEISURE SPORTS MARKETING, INC., a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) SAFESPORT MANUFACTURING COMPANY, a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) VINTAGE EDITIONS, INC., a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) FIRST UNION COMMERCIAL CORPORATION By: /s/ Bruce K. Rhodes/Vice President --------------------------------------------------- (Title) -3- EX-10.H 5 9TH AMENDMENT TO FINANCING & SECURITY AGREEMENT 1 EXHIBIT 10(j) NINTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT THIS NINTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT, dated as of October 8, 1999, is by and among FIRST UNION COMMERCIAL CORPORATION ("Lender"), ELLETT BROTHERS, INC. ("Ellett"), LEISURE SPORTS MARKETING, INC. ("Leisure"), EVANS SPORTS, INC., ("Evans"), SAFESPORT MANUFACTURING COMPANY ("Safesport"), VINTAGE EDITIONS, INC. ("Vintage") and ARCHERY CENTER INTERNATIONAL, INC. ("Archery") (hereinafter Ellett, Leisure, Evans, Safesport, Vintage and Archery may be referred to collectively as the "Borrower"). RECITAL A. The Lender, Ellett, Leisure, Evans, Safesport and Vintage have entered into that certain Financing and Security Agreement, dated June 10, 1994, as amended (the "Financing Agreement"). B. The Borrower and the Lender have agreed to amend the Financing Agreement as set forth herein. NOW, THEREFORE, the parties hereto agree as follows: 1. The Financing Agreement is hereby amended as follows: (a) The introductory paragraph of the Financing Agreement is amended in its entirety so that such paragraph now reads as follows: AGREEMENT made June 10, 1994, as amended, by and between ELLETT BROTHERS, INC., a business corporation duly organized under the laws of the State of South Carolina having a principal place of business at 267 Columbia Avenue, Chapin, South Carolina 29036 ("Ellett"), EVANS SPORTS, INC., a business corporation duly organized under the laws of the State of South Carolina having a principal place of business at 267 Columbia Avenue, Chapin, South Carolina 29036 ("Evans"), LEISURE SPORTS MARKETING, INC., a business corporation duly organized under the laws of the State of South Carolina having a principal place of business at 267 Columbia Avenue, Chapin, South Carolina 29036 ("Leisure"), SAFESPORT MANUFACTURING COMPANY, a business corporation duly organized under the laws of the State of South Carolina having a principal place of business at 267 Columbia Avenue, Chapin, South Carolina 29036 ("Safesport"), VINTAGE EDITIONS, INC., a business corporation duly organized under the laws of the State of South Carolina having a principal place of business at 267 Columbia Avenue, Chapin, South Carolina 29036 ("Vintage") and ARCHERY CENTER INTERNATIONAL, INC., a business corporation duly organized under the laws of the State of South Carolina having a principal place of business at 267 Columbia 2 Avenue, Chapin, South Carolina 29036 ("Archery") (herein Ellett, Evans, Leisure, Safesport, Vintage and Archery are collectively referred to as "Borrower") and FIRST UNION COMMERCIAL CORPORATION ("Lender") with its principal place of business at Charlotte, North Carolina. (b) Section 17 is amended by adding the following location to the list of locations contained therein: 15610 South Telegraph Road Monroe, Michigan 48161 2. Ellett, Leisure, Evans, Safesport, Vintage and Archery agree that (a) Archery is included within the term "Borrower" for all purposes in the Financing Agreement, (b) are jointly and severally obligated to repay the Obligations (as defined in the Financing Agreement), (c) the Obligations (as defined in the Financing Agreement) include all obligations, liabilities and indebtedness of each of Ellett, Leisure, Evans, Safesport, Vintage and Archery to the Lender and (d) Ellett, Leisure, Evans, Safesport, Vintage and Archery have each granted the Lender a security interest in all of their respective Receivables (as defined in the Financing Agreement), Inventory (as defined in the Financing Agreement) and Collateral (as defined in the Financing Agreement) to secure the Obligations. 3. This Ninth Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Ninth Amendment to produce or account for more than one counterpart. 4. Ellett, Leisure, Evans, Safesport, Vintage and Archery will each execute such additional documents as are reasonably requested by the Lender to reflect the terms and conditions of this Ninth Amendment and will cause to be delivered such certificates, legal opinions and other documents as are reasonably required by the Lender. In addition, Ellett, Leisure, Evans, Safesport, Vintage and Archery will pay all costs and expenses in connection with the preparation, execution and delivery of the documents executed in connection with this transaction, including, without limitation, the reasonable fees and out-of-pocket expenses of special counsel to the Lender as well as any and all filing and recording fees and stamp and other taxes with respect thereto and to save the Lender harmless from any and all such costs, expenses and liabilities. 5. THIS NINTH AMENDMENT AND THE OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH (UNLESS SPECIFICALLY STIPULATED TO THE CONTRARY IN SUCH DOCUMENT OR -2- 3 AGREEMENT), AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. -3- 4 IN WITNESS WHEREOF, the parties hereto have caused this Ninth Amendment to be executed by their duly authorized corporate officers as of the day and year first above written. ELLETT BROTHERS, INC. By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) EVANS SPORTS, INC., a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) LEISURE SPORTS MARKETING, INC., a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) SAFESPORT MANUFACTURING COMPANY, a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) VINTAGE EDITIONS, INC., a South Carolina corporation By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) -4- 5 ARCHERY CENTER INTERNATIONAL, INC., A South By: /s/ George E. Loney/Chief Financial Officer --------------------------------------------------- (Title) FIRST UNION COMMERCIAL CORPORATION By: /s/ Bruce K. Rhodes/Vice President --------------------------------------------------- (Title) -5- EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF ELLETT BROTHERS, INC. FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 DEC-31-1999 346 0 23,520 (634) 36,061 61,281 17,452 (8,100) 72,926 10,387 35,596 0 0 9,969 16,124 72,926 168,056 168,056 137,529 137,529 22,673 576 2,674 5,612 2,037 3,575 0 0 0 3,575 0.83 0.83
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