MEMBERS AGREEMENT
OF
DIABLO MARKETING LLC,
A Limited Liability Company
This MEMBERS
AGREEMENT, dated as of October 24, 2001, of Diablo Marketing
LLC (the “Company”), is by and among Zhentil Keep
Holding Co., a Delaware corporation (“ZKH”), and
Crosman Corporation, a Delaware
corporation (“Crosman”).
WHEREAS ZKH has
the manufacturing, production and marketing expertise required;
and
WHEREAS Crosman
has the sales, marketing and distribution expertise required;
and
WHEREAS the
Members desire to insure continuity of the business and management
of the Company and to provide for the disposition of the proceeds
thereof;
NOW THEREFORE,
in consideration of the foregoing and of the mutual covenants
contained herein, the parties hereto agree as follows:
Any prior
agreements and understandings among the parties hereto with respect
to the Company are hereby terminated and are of no further force
and effect, with the exception of the OPERATING AGREEMENT dated
October 24, 2001 (the “Operating Agreement”).
Capitalized terms not specifically defined herein shall have the
meaning set forth in the Operating Agreement.
This Members
Agreement shall commence on the date hereof and shall terminate
upon the occurrence of any of the following events:
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(a)
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The
mutual consent in writing of all the parties hereto; or
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(b)
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The
sale of all the Capital Interests held by all but one of the
Members; or
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(c)
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The
expiration of 60 days after a petition in bankruptcy shall
have been filed
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by
or against the Company, by persons other than any of the Members,
unless such petition shall have been discharged during such
60 day period; or
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(d)
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An
assignment by the Company for the benefit of creditors;
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(e)
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The
expiration of 60 days after the commencement of any
proceeding, by persons other than any of the Members, under any act
of Congress or governmental authority for the relief of debtors
seeking the relief or readjustment of indebtedness, either through
reorganization, composition, extension or otherwise, and such
proceedings involving the Company as debtor shall not have been
vacated within such 60 day period; or
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(f)
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The
voluntary or involuntary dissolution of the Company; provided,
however, that if voluntary, such dissolution is agreed to by
Members holding, in aggregate, at least 80% of all the Capital
Interests in the Company.
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In the Event
that any Member shall cease to be the owner of Capital Interests of
the Company, such Member shall cease to be a party to this Members
Agreement and this Members Agreement shall no longer be binding
upon or inure to the benefit of such Member; provided,
however, that nothing contained in this Section 2 shall
affect or impair any rights of obligations of any Member or the
Company arising prior to the time of the termination of this
Members Agreement, or which may arise by an event causing such
termination.
3. INITIAL
SHARE STRUCTURE
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(a)
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The
initial capital contributions of the members (“Initial
Contribution”) shall be effected as of the date hereof (the
“Effective Date”).
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(b)
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On
the Effective Date, each member’s Initial Contribution shall
be one hundred thousand US dollars (US$100,000.00).
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(c)
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Within 7 days of the Effective
Date, each member shall make a further capital contribution
(“Further Contribution”) in the amount of two hundred
seventy five thousand US dollars (US$275,000.00).
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(d)
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The
Further Contributions shall be used to purchase the molds (for
equipment masks and packaging bottles, see Schedule A) that
the Company will require for operation, at a fixed price of five
hundred fifty thousand US dollars ($550,000.00), from Unitech
Consultants Limited, a Hong Kong company
(“Unitech”).
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(e)
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The
Members shall examine the business during the first year of
operation, and together determine whether any other capital
contribution (“Optional Contribution”) shall be
required. If the Members decide unanimously that an
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Optional Contribution is required,
then the amount of said contribution shall not exceed one hundred
fifty thousand US dollars (US$150,000.00) per member. Bank
financing shall fund any other working capital
requirements.
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(f)
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The
initial Capital Interests of the Members shall be as
follows:
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4. MANAGEMENT
AND OFFICERS
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(a)
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The
business affairs of the Company shall be managed by those
procedures set forth in the Operating Agreement except as otherwise
set forth in this Section 4.
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(b)
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The
Member’s agree that their shall be two officers of the
Company, having the duties and titles set forth in this
Section 4(b).
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The
first such officer shall be the Chief Executive Officer of the
Company. The Chief Executive Officer shall be appointed by Crosman
upon the approval of ZKH, which approval shall not be unreasonably
withheld. The Chief Executive Officer shall have all of the duties
and authority of the Manager set forth in the Operating Agreement,
including, without limitation, the administration of the day-to-day
operations of the Company, cash management and record keeping,
intra-Company relations, sales, collection of debts owed to the
Company, the purchase and procurement of product and warehousing
and shipping.
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The
second officer shall be the Director of Marketing and Product
Development. The Director of Marketing and Product Development
shall be appointed by ZKH upon the approval of Crosman, which
approval shall not be unreasonably withheld. The Director of
Marketing and Product Development shall have management and
administrative responsibilities in the areas of marketing,
development of brand awareness, packaging, and product development.
However, the Director of Marketing and Product Development shall
not have the authority to expend Company funds, or to make an offer
to sell or purchase products, without the approval of the Manager
or the Chief Executive Officer. Likewise, neither the Manager, nor
the Chief Executive Officer shall have any authority to make
decisions within the management authority of the Director of
Marketing and Product Development, without the approval of such
officer.
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Salaries paid to these executives as
consideration for the performance of their duties as described
herein shall initially be the responsibility of the Member that
appointed them. These Members will be able to charge a management
fee
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to
the Company on a future date to be set by a vote of Members holding
at least 80% of the Capital Interests of the Company.
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(a)
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Members shall provide product (which
they manufacture themselves) to the Company at a profit, provided
that the Company maintains a margin consistent with distributor
margins in the relevant market (“Required Margin”) on
resale of such products, such Required Margin to be defined by the
Members at a later date.
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(b)
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Crosman shall supply CO
2
to the Company at a
price of US$0.23 per 12g bottle, plus the actual costs of
packaging. ZKH shall supply paintballs to the Company at a price of
US$14.00 per thousand, plus the actual costs of packaging. Subject
to Section 5(a), these prices may be adjusted from time to
time as required by the Member suppling such product to the
Company. Notwithstanding the foregoing, ZKH may sell existing
inventories of paintballs intended to be distributed in Sheriden
brand specific packaging to the Company at US$14.00 per thousand
until all Sheridan brand specific paintball packaging has been
utilized.
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(c)
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Members shall offer to the Company
credit terms of 60 days in the first year and 45 days in
the second year for products sold by the Members to the Company. A
Member may extend credit to the Company beyond such 60 day and
45 day terms as needed by the Company, and in such an event
will be paid interest at its actual cost of funds.
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(d)
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Members shall provide full credit to
the Company for defective product manufactured by the
Member.
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(e)
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The
Company may freely purchase product not produced by any of the
Members from alternative sources directly without being required to
do so through a Member.
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(f)
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ZKH
shall license to the Company, at no charge, the use of the
trade-names and trademarks required by the Company for use in the
retail market, including DUSK, SKUL and DIABLO, and any other
trade-names that the Members determine necessary to further the
interests of the Company.
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(g)
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Crosman shall be paid a commission
by the Company equivalent to 2.5% of net sales. In return for this
payment, Crosman shall provide the Company’s sales force at
its own expense, and bear all costs related to such sales force. As
the Company develops its own sales force over time, Crosman shall
be paid a commission by the Company equivalent to 2.5% of net sales
for any sales not initiated by salespeople employed by the Company.
For purposes of this paragraph, the salesperson servicing the
account when a shipment is made
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(h)
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Crosman shall initially provide all
warehousing services to the Company. The current Crosman warehouse
facilities shall be used, and Crosman will collect a fee from the
Company equivalent to 1.5% of net sales for the provision of such
services. This shall include warehouse space, personnel, supplies,
insurance, utilities, maintenance and any other costs necessary to
warehouse and ship the Company’s product. The Company will
lease its own warehouse space when it becomes necessary, at which
point the Company shall pay all costs required to operate a
shipping and warehouse facility, and Crosman will no longer receive
the fee noted in this section above. If the Company relocates over
an extended period of time, the above noted fee shall be reduced to
an amount acceptable to Crosman and those Members holding, in the
aggregate, 80% of the Capital Interest.
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(i)
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Crosman shall initially provide all
accounting, billing, collection, payroll and IT services and any
related administrative costs, in return for a payment from the
Company equivalent to 1.0
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