<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1994 COMMISSION FILE NUMBER 1-5706
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THE ACTAVA GROUP INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-0971455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 GEORGIA-PACIFIC CENTER, ATLANTA,
GEORGIA 30303
(Address of principal executive office) (ZIP Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 404/658-9000
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last report
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 AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK AS OF AUGUST 8, 1994 -- 18,335,186 SHARES OF COMMON STOCK.
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash................................................................ $ 14,015 $ 18,770
Short-term investments.............................................. 31,922 29,635
Receivables (less allowances for doubtful accounts of $8,768 in 1994
and $10,227 in 1993)............................................. 171,972 276,018
Current portion of notes receivable................................. 5,300 --
Inventories......................................................... 67,051 108,439
Prepaid expenses.................................................... 4,710 43,809
Future income tax benefits.......................................... 25,343 32,434
----------- ------------
Total current assets........................................ 320,313 509,105
Investment in Qualex.................................................. 142,832 --
Property, plant and equipment......................................... 113,455 474,235
Less allowances for depreciation.................................... (44,351) (198,881)
----------- ------------
69,104 275,354
Notes receivable from Triton Group Ltd................................ 19,226 26,726
Other assets.......................................................... 5,610 50,702
Long-term investments................................................. 15,473 26,611
Intangibles........................................................... 15,048 386,626
----------- ------------
Total assets................................................ $ 587,606 $1,275,124
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, accrued expenses and other current liabilities.... $ 116,121 $ 263,883
Notes payable....................................................... 100,447 135,114
Current portion of long-term debt................................... 4,604 6,665
----------- ------------
Total current liabilities................................... 221,172 405,662
Deferred income taxes................................................. 33,621 56,715
Long-term debt........................................................ 2,107 220,887
Subordinated debt..................................................... 187,787 190,551
Minority interest in photofinishing subsidiary........................ -- 205,395
Redeemable common stock............................................... 12,000 12,000
Stockholders' equity
Common stock (22,767,744 shares in 1994 and 1993)................... 22,768 22,768
Additional capital.................................................. 37,153 46,361
Retained earnings................................................... 178,876 236,334
Less treasury stock -- at cost (4,432,558 shares in 1994 and
5,132,558 in 1993)............................................... (107,878) (121,549)
----------- ------------
130,919 183,914
Total liabilities and stockholders' equity.................. $ 587,606 $1,275,124
========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE> 3
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1994 1993(A) 1994 1993(A)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $123,943 $112,753 $279,214 $212,454
Operating costs and expenses
Cost of products sold....................... 105,417 91,543 233,488 170,474
Selling, general and administrative
expenses................................. 21,493 18,567 48,930 37,594
Provision for doubtful accounts............. 728 1,449 978 1,721
-------- -------- -------- --------
Operating profit (loss).................. (3,695) 1,194 (4,182) 2,665
Interest (expense)............................ (7,463) (6,443) (14,822) (12,568)
Other (expense) -- net........................ 797 1,887 741 3,755
-------- -------- -------- --------
Loss before income taxes, discontinued
operations and cumulative effect of
change in accounting principle......... (10,361) (3,362) (18,263) (6,148)
Income taxes (benefit)........................ (188) 306 -- (1,139)
-------- -------- -------- --------
Loss from continuing operations.......... (10,173) (3,668) (18,263) (5,009)
Discontinued operations
Income (loss) from operations............... 1,748 3,711 (2,835) 1,852
(Loss) on disposal of business.............. (37,858) -- (37,858) --
-------- -------- -------- --------
Income (loss) from discontinued
operations............................... (36,110) 3,711 (40,693) 1,852
(Loss) before cumulative effect of change
in accounting principle................ (46,283) 43 (58,956) (3,157)
Cumulative effect of change in accounting
principle................................... -- -- -- (4,404)
-------- -------- -------- --------
Net income (loss)........................ $(46,283) $ 43 $(58,956) $ (7,561)
======== ======== ======== ========
Earnings (loss) per share of common stock
Continuing operations....................... $ (.56) $ (.22) $ (1.02) $ (.30)
Discontinued operations..................... (1.98) .22 (2.27) .11
Cumulative effect of change in accounting
principle................................ -- -- -- (.26)
-------- -------- -------- --------
Primary and fully diluted................ $ (2.54) $ -- $ (3.29) $ (.45)
======== ======== ======== ========
Cash dividends per common share.......... $ -- $ .09 $ -- $ .18
======== ======== ======== ========
Average common and common equivalent
shares................................. 18,197 16,820 17,918 16,683
======== ======== ======== ========
</TABLE>
- ---------------
(a) Restated for discontinued operations.
See Notes to Consolidated Financial Statements.
2
<PAGE> 4
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN
CASH
------------------------
SIX MONTHS ENDED
JUNE 30,
------------------------
1994 1993(A)
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations................................... $ (18,263) $ (5,009)
Cumulative effect of change in accounting principle............... -- 4,404
--------- --------
Loss before cumulative effect of change in accounting principle... (18,263) (605)
Items providing cash from operations.............................. 46,157 3,391
--------- --------
Net cash provided by continuing operations..................... 27,894 2,786
--------- --------
Income (loss) from discontinued operations.......................... (40,693) 1,852
Items providing cash from discontinued operations................. 29,363 41,886
--------- --------
Net cash provided (used) by discontinued operations............ (11,330) 43,738
--------- --------
Net cash provided by operating activities...................... 16,564 46,524
--------- --------
Cash flows from investing activities:
Purchases of investments (maturities over 90 days)................ (52,584) (11,633)
Sales of investments (maturities over 90 days).................... 51,232 9,543
Net sales of other investments (maturities less than 90 days)..... (935) 19,435
Payments for property, plant & equipment.......................... (19,552) (31,355)
Proceeds from disposals of property, plant & equipment............ 4,362 2,041
Collections on notes receivable................................... 483 927
Payments for purchases of businesses.............................. -- (21,243)
Payments from Triton Group Ltd.................................... 2,500 --
Payments for other intangibles.................................... -- --
Other investing activities -- net................................. (3,750) (7,217)
--------- --------
Net cash (used) by investing activities........................ (18,244) (39,502)
Cash flows from financing activities:
Net borrowings under short-term bank agreements................... (27,617) 13,895
Borrowings under other long-term debt agreements.................. 228,000 10,611
Payments on long-term debt agreements............................. (194,470) (21,376)
Payments of subordinated debt..................................... (3,000) (1,536)
Proceeds from issuance of Actava common stock..................... 4,462 --
Cash dividends paid by Qualex to minority interest................ (10,450) (7,714)
Cash dividends paid by The Actava Group........................... -- (3,076)
--------- --------
Net cash (used) by financing activities........................ (3,075) (9,196)
--------- --------
Decrease in cash.......................................... (4,755) (2,174)
Cash at beginning of year........................................... 18,770 20,792
--------- --------
Cash at June 30........................................... $ 14,015 $ 18,618
========= ========
</TABLE>
- ---------------
(a) Restated for discontinued operations.
See Notes to Consolidated Financial Statements.
3
<PAGE> 5
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair statement of
the results of operations and financial position for the interim periods
presented. All such adjustments are of a normal recurring nature. Operating
results for the six months ended June 30, 1994 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1994.
CHANGES IN ACCOUNTING PRINCIPLES
Change in Method of Accounting for Income Taxes
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes". Under Statement 109, the liability method is used
in accounting for income taxes: deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior to
the adoption of Statement 109, income tax expense was determined using the
deferred method: deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements and tax
returns and were measured at the tax rate in effect in the year the difference
originated.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The presentation of some items, such as
depreciation, has changed; however, the cumulative effect of the change in
accounting principle on pre-tax income from continuing operations, net income,
and the effective tax rate was not material.
Change in Method of Accounting for Postretirement Benefits
Effective January 1, 1993, the Company adopted FASB Statement No. 106,
"Accounting for Postretirement Benefits Other Than Pensions". The Company and
its subsidiaries provide group medical plans and life insurance coverage for
certain employees subsequent to retirement. The plans have been funded on a
pay-as-you-go (cash) basis. The plans are contributory, with retiree
contributions adjusted annually, and contain other cost-sharing features such as
deductibles, coinsurance and life-time maximums. The plan accounting anticipates
future cost-sharing changes that are consistent with the Company's expressed
intent to increase the retiree contribution rate annually for the expected
medical trend rate for that year. The coordination of benefits with medicare
uses a supplemental, or exclusion of benefits, approach.
As permitted by Statement 106, the Company elected to immediately recognize
the effect in the statement of operations for the first quarter of 1993 as a
$4,404,000 charge to net income as the cumulative effect of a change in
accounting principle. The annual net periodic postretirement benefit expense for
1993 decreased by $38,000 as a result of adopting the new rules. The annual net
periodic postretirement benefit expense for 1994 will be $240,000. The assumed
health care cost trend rate used to measure the expected cost of benefits by the
plan for 1993 was 14%, with 1% decrements to 6% in 2001 and years thereafter. A
7% discount rate per year, compounded annually, was assumed to measure the
accumulated postretirement benefit obligation as of December 31, 1993. A 1%
increase in the assumed health care cost trend rate would increase the
accumulated postretirement benefit obligation as of December 31, 1993, by 16%
and the net periodic postretirement benefit cost by 18%.
4
<PAGE> 6
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Change in Method of Accounting for Postemployment Benefits
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." The Company and its subsidiaries provide benefits to former or
inactive employees after employment but before retirement such as severance
benefits, disability-related benefits (including workers' compensation), and
continuation of health care benefits and life insurance coverage. The cumulative
effect as of January 1, 1994, of this change in accounting was not material.
Prior to January 1, 1994, the Company recognized the cost of providing some
postemployment benefits on a cash basis while substantially all other
postemployment benefits were accounted for in the Company's self-insurance
program. Under the new method of accounting, the Company will accrue benefits
when it becomes probable that such benefits will be paid and when sufficient
information exists to make reasonable estimates of the amounts to be paid. As
required by the Statement, prior year financial statements have not been
restated to reflect the change in accounting method.
Change in Method of Accounting for Certain Investments in Debt and Equity
Securities
The Company and its subsidiaries invest in various debt and equity
securities. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", which requires certain debt securities to be
reported at amortized cost, certain debt and equity securities to be reported at
market with current recognition of unrealized gains and losses, and certain debt
and equity securities to be reported at market with unrealized gains and losses
as a separate component of shareholders' equity. The Company adopted the
provisions of the new standard for investments held as of or acquired after
January 1, 1994. In accordance with the Statement, prior period financial
statements have not been restated to reflect the change in accounting principle.
The cumulative effect as of January 1, 1994, of adopting Statement 115 was not
material.
REDEEMABLE COMMON STOCK
Redeemable common stock represents 1,090,909 shares of common stock which
were issued in the acquisition of substantially all the assets and liabilities
of Diversified Products Corporation. These shares are subject to a right of
redemption at the option of the holder with an exercise date of February 17,
1995.
SALE OF SPORTS GROUP
On July 20, 1994 the Company entered into a definitive agreement with
Roadmaster Industries, Inc. (Roadmaster) to combine the Company's four sports
companies with Roadmaster in exchange for common stock of Roadmaster which would
represent an approximate 39% ownership interest in Roadmaster.
QUALEX INC. -- DISCONTINUED OPERATIONS
Qualex, Inc. is a photofinishing business formed in March 1988 by the
combination of Actava's photofinishing operations with the domestic
photofinishing operations of Eastman Kodak Company. Prior to June 30, 1994, the
Company owned 51% of the voting securities of Qualex and had the right to
designate a majority of the members of the Board of Directors of Qualex. As a
result of its voting control, the Company in prior periods consolidated the
accounts of Qualex and presented Kodak's portion of the ownership and equity in
the income of Qualex as a minority interest. During the second quarter of 1994,
a change of control of the Company occurred under the terms of the Shareholders
Agreement between the Company and Kodak relating to Qualex (the "Qualex
Shareholders Agreement"). The change of control occurred when John D. Phillips
was elected as President and Chief Executive Officer of Actava on April 19,
1994. As a result of this change of control and as required by the Qualex
Shareholders Agreement, the composition of the Board of Directors of Qualex was
changed and certain shares of voting preferred stock of Qualex held by the
Company were redeemed by Qualex on June 30, 1994. The effect of this redemption
was to reduce the Company's ownership
5
<PAGE> 7
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the voting securities of Qualex from 51% to 50%. Because of these changes,
the Company discontinued its practice of consolidating the accounts of Qualex
and began accounting for its ownership in Qualex under the equity method of
accounting effective as of June 30, 1994. The change in the accounting treatment
of the Company's interest in Qualex did not affect the net income or
shareholders' equity of the Company, but it reduced the Company's consolidated
total assets, liabilities, sales and costs and expenses because these specific
accounts of Qualex were no longer included with those of the Company.
FINANCIAL POSITION OF QUALEX
(000'S)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------- ------------
<S> <C> <C>
Cash and short-term investments.............................. $ -- $ 4,060
Net accounts receivable...................................... 82,272 69,015
Inventories.................................................. 28,078 29,381
Other assets................................................. 30,745 38,153
-------- ------------
Total current assets............................... 141,095 140,609
Net property, plant and equipment............................ 198,642 202,150
Other assets................................................. 40,632 30,413
Long-term investments........................................ 26,868 26,611
Intangibles.................................................. 367,188 371,106
-------- ------------
Total assets....................................... $774,425 $770,889
======== ==========
Current liabilities.......................................... $119,928 $130,845
Deferred income taxes........................................ 22,402 22,446
Long-term debt............................................... 260,167 217,987
Stockholders' equity......................................... 371,928 399,611
-------- ------------
Total liabilities and stockholders' equity......... $774,425 $770,889
======== ==========
</TABLE>
In June 1994, the Company decided to sell its interest in Qualex and
engaged in negotiations with Kodak regarding the sale of such interest.
Accordingly, the results of Qualex for all years presented are reported in the
accompanying statements of operations under discontinued operations. In the
second quarter of 1994, the Company provided for an anticipated loss of
$37,858,000 on the sale of its interest in Qualex. No income tax expenses or
benefits were recognized due to the Company's net operating loss carryforwards
and recognition of tax benefits in prior periods.
On August 12, 1994, Kodak purchased all of the Company's interest in Qualex
and obtained a covenant not to compete and related releases from the Company in
exchange for $50,000,000 in cash and a promissory note in the principal amount
of $100,000,000. The promissory note is payable in installments of $50,000,000
each, without interest, on February 13, 1995 and August 11, 1995. Because the
principal amount due under the note does not bear interest, the Company
discounted the value of the note to $92,832,000 and will record imputed interest
income of $7,168,000 over the term of the note.
6
<PAGE> 8
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective with the second quarter of 1994, the results of operations of
Qualex have been reclassified from income from continuing operations to income
from discontinued operations and are as follows:
RESULTS OF OPERATIONS OF QUALEX
(000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................... $185,563 $200,508 $333,970 $364,694
Operating expenses...................... 179,742 180,991 342,134 349,151
-------- -------- -------- --------
Operating profit (loss)................. 5,821 19,517 (8,164) 15,543
Interest (expense)...................... (4,633) (4,568) (8,582) (8,572)
Other income (expense).................. (38) 36 (439) (99)
-------- -------- -------- --------
Income before tax....................... 1,150 14,985 (17,185) 6,872
Income taxes (benefit).................. (2,346) 7,562 (11,514) 3,168
-------- -------- -------- --------
Net income (loss) from discontinued
operations before minority interest... 3,496 7,423 (5,671) 3,704
Minority interest....................... (1,748) (3,712) 2,836 (1,852)
-------- -------- -------- --------
Net income (loss) from discontinued
operations............................ $ 1,748 $ 3,711 $ (2,835) $ 1,852
======== ======== ======== ========
</TABLE>
ACQUISITIONS
On June 8, 1993, the Company acquired substantially all the assets of
Diversified Products Corporation ("DP") for a net purchase price consisting of
$11,629,500, the issuance of 1,090,909 shares of the Company's Common Stock
valued at $12,000,000, and the assumption or payment of certain liabilities
including trade payables and a revolving credit facility. The Company also
entered into an agreement which obligated the Company under certain conditions,
all of which have been satisfied, to repurchase the shares of Common Stock
issued in the acquisition for $12,000,000 at the option of the holder of such
shares. SEE "REDEEMABLE COMMON STOCK" in Notes to Consolidated Financial
Statements. The repurchase of such shares will not increase the cost of DP; any
payment pursuant to the Company's repurchase obligation will only affect the
manner in which the total purchase price is recorded by Actava. This transaction
was accounted for using the purchase method of accounting; accordingly, the
purchased assets and liabilities have been recorded at their estimated fair
value at the date of the acquisition. The purchase price resulted in an excess
of costs over net assets acquired of approximately $11,417,000. The results of
operations of the acquired business have been included in the consolidated
financial statements since the date of acquisition.
INVENTORIES
Inventory balances are summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------- ------------
<S> <C> <C>
Finished goods and goods purchased for resale.................. $ 64,554 $ 82,559
Raw materials and supplies..................................... 23,141 46,018
-------- ------------
87,695 128,577
Reserve for LIFO cost valuation................................ (20,644) (20,138)
-------- ------------
$ 67,051 $108,439
======== ==========
</TABLE>
Work in process is not considered significant.
7
<PAGE> 9
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER INCOME (EXPENSE) -- NET
Other income (expense) is summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------- ----------------
1994 1993 1994 1993
----- ------ ------- ------
<S> <C> <C> <C> <C>
Interest and investment income....................... $ 927 $1,440 $ 1,845 $3,762
Miscellaneous (expense) -- net....................... (130) 447 (1,104) (7)
----- ------ ------- ------
$ 797 $1,887 $ 741 $3,755
===== ====== ======= ======
</TABLE>
Early payment interest credit expense results from cash payments received
by Snapper from distributors prior to receivable due dates which reduce accrued
interest and increase miscellaneous (expense) -- net. The early payment interest
credit expense was $947,000 and $637,000 for the three month periods ended June
30, 1994 and 1993, respectively, and $2,110,000 and $1,778,000 for the six month
periods ended June 30, 1994 and 1993, respectively.
INCOME TAXES
Income tax expense is based upon statutory tax rates and book income or
loss adjusted for permanent differences between book and taxable income or loss.
The Company's businesses may have an annual effective tax rate which is above or
below statutory rates depending upon the amount of earnings from any short-term
tax advantaged investments and other items. For the six month period ended June
30, 1994, the Company's consolidated effective tax rate has decreased as
compared to the same prior period because the Company is not able to recognize a
tax benefit for its losses due to limitations from prior period recognition.
During the year, the Company provides for income taxes using anticipated
effective annual tax rates for all Company operations. The rates are based on
expected operating results for the year, estimated permanent differences between
book and tax income, and estimated utilization of any net operating loss
carryovers.
Effective January 1, 1993, the Company changed its method of accounting for
income taxes as required by FASB Statement No. 109, "Accounting for Income
Taxes" (See "Changes in Accounting Principles -- Change in Method of Accounting
for Income Taxes"). The adoption of Statement No. 109 did not have a material
effect on net income and the Company's effective tax rate.
LITIGATION
In 1991, three lawsuits were filed against the Company, certain of the
Company's current and former directors and Intermark, Inc., which owned
approximately 26% of the Company's Common Stock. One complaint alleged, among
other things, a long-standing pattern and practice by the defendants of misusing
and abusing their power as directors and insiders of the Company by manipulating
the affairs of the Company to the detriment of the Company's past and present
stockholders. The complaint sought monetary damages from the director
defendants, injunctive relief against the Company, Intermark and its current
directors, and costs of suit and attorneys' fees. The other two complaints
alleged, among other things, that members of the Company's Board of Directors
contemplate either a sale, a merger, or other business combination involving
Intermark and the Company or one or more of its subsidiaries or affiliates. The
complaints sought costs of suit and attorneys' fees and preliminary and
permanent injunctive relief and other equitable remedies, ordering the director
defendants to carry out their fiduciary duties and to take all appropriate steps
to enhance the Company's value as a merger/acquisition candidate. These three
suits were consolidated on May 1, 1991. While these actions are in their
preliminary stages, management currently believes the actions will not
materially affect the operations or financial position of the Company.
8
<PAGE> 10
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actava is a defendant in various other legal proceedings. However, the
Company is not aware of any action which, in the opinion of management, would
materially affect the financial position or results of operations of the
Company.
CONTINGENT LIABILITIES AND COMMITMENTS
Actava, on behalf of its Snapper division, has an agreement with a
financial institution which makes available to dealers floor plan financing for
Snapper products. This agreement provides financing for dealer inventories and
accelerates cash flow to Snapper's distributors and to Snapper. Under the terms
of the agreement, a default in payment by one of the dealers on the program is
non-recourse to both the distributor and to Snapper. However, the distributor is
obligated to repurchase any equipment recovered from the dealer and Snapper is
obligated to repurchase the recovered equipment if the distributor defaults. At
December 31, 1993 and 1992, there was approximately $23,000,000 and $20,000,000,
respectively, outstanding under these floor plan financing arrangements. At June
30, 1994 and 1993, there was approximately $31,000,000 and $25,000,000,
respectively, outstanding under these floor plan financing arrangements.
Actava is contingently liable under various guarantees of debt totaling
approximately $5,600,000. The debt is primarily Industrial Revenue Bonds which
were issued by former subsidiaries to finance their manufacturing facilities and
equipment, and is secured by the facilities and equipment. In addition, upon the
sale of the subsidiaries, Actava received lending institution guarantees of bank
letters of credit to support Actava's contingent obligations. There are no
material defaults on the debt agreements.
Actava is contingently liable under various real estate leases of former
subsidiaries. The total future payments under these leases, including real
estate taxes, is estimated to be approximately $8,600,000. The leased properties
generally have financially sound subleases.
At June 30, 1994, approximately $5,000,000 of Actava's cash and short-term
investments were pledged to secure a Snapper credit line. At August 12, an
additional $12,000,000 was pledged to secure a letter of credit issued with
regard to the Company's redeemable stock.
9
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Actava currently provides high-quality, brand-name consumer products
through distribution channels to retail markets across the United States. As a
result of the sale of its interest in Qualex, Actava presently operates in two
distinct businesses; lawn and garden equipment and sporting goods. Actava has
announced plans to combine its four sporting goods companies with Roadmaster.
During the second quarter of 1994, certain events occurred which resulted
in a change in the voting control of Qualex and a corresponding change in the
method of accounting for Actava's investment in Qualex from consolidation to the
equity method and the presentation of Qualex as a discontinued operation as of
June 1994. Also during the second quarter of 1994, the Company made a decision
to dispose of its interest in Qualex. On August 12, 1994, Actava sold its
investment in Qualex to Kodak. Accordingly, the results of Qualex for all
periods presented are reported in the accompanying consolidated statements of
operations as discontinued operations. See "Qualex Inc. -- Discontinued
Operations" in Notes to Consolidated Financial Statements.
Actava's Snapper Division manufactures Snapper(R) brand power lawnmowers,
lawn tractors, garden tillers, snow throwers, and related products, parts and
accessories and distributes blowers, string trimmers and edgers. The lawnmowers
include rear engine riding mowers, front engine riding mowers or lawn tractors,
and walk-behind mowers. Snapper also manufactures a line of commercial lawn and
turf equipment and markets a fertilizer line under the Snapper(R) brand.
Actava Sports companies manufacture, import and distribute products for a
broad cross-section of the sporting goods, fitness and leisure markets. Products
are sold under a variety of Actava companies' own brand names, as well as under
licenses from the National Football League, National Basketball Association,
Major League Baseball, The Walt Disney Company, Inc., Remington Arms Company,
Inc., The Keds Corporation (Keds(R) and Pro-Keds(R)), Body by Jake Licensing
Corporation (Body by Jake(R)), and numerous colleges and universities. On July
20, 1994, Actava and Roadmaster entered into a definitive agreement under which
the four Actava Sports companies will be combined with Roadmaster. Under the
terms of the agreement, and upon consummation of the transaction, Actava would
transfer its sporting goods companies to Roadmaster in exchange for
approximately 19.2 million shares of Roadmasters' common stock, which will
represent approximately 39% of Roadmaster's outstanding stock. The value of
Actava's investment in Roadmaster would be approximately $70.7 million based on
the $3.6875 closing price for Roadmaster common stock on June 30, 1994 and
approximately $75.5 million based on the $3.9375 closing price for Roadmaster
common stock on August 11, 1994. Completion of the transaction is subject to a
number of conditions, including approval by the shareholders of both Roadmaster
and Actava. Actava will account for this transaction by recording any gain or
loss on the transaction and by thereafter accounting for its investment in
Roadmaster under the equity method. The value of the Roadmaster common stock
received in the combination will be determined by its market price on the
closing date of the transaction. The book value of the Actava sporting goods
companies, as adjusted by certain debt which will be repaid to Actava as a
result of the transaction, as of June 30, 1994 was $70.7 million. Actava will
not classify the sporting goods companies as a discontinued operation due to the
interest retained by Actava as represented by its approximately 39% equity
investment in Roadmaster.
The following is a discussion of the operating results of each of the
continuing operations of the Company and the operating results and financial
position of the Company on a consolidated basis. Financial information
summarizing the operating performance of Qualex Inc., which is classified as a
discontinued operation, is presented in "Qualex Inc. -- Discontinued Operations"
in Notes to Consolidated Financial Statements.
Lawn and Garden: Snapper's second quarter sales to distributors decreased
$18.8 million, or 25.3%, to $55.5 million in 1994 from $74.3 million in 1993.
Snapper's gross profit decreased $3.6 million, or 26.6% for the second quarter,
to $9.8 million in the 1994 period from $13.4 million in 1993. Sales for the six
month period ended June 30, 1994 decreased to $130.2 million from $142.9
million, an 8.9% decrease from the same 1993 period. Gross profit for the six
month period ended June 30, 1994 decreased by $986,000 or 3.6% to $26.5 million
from $27.5 million for the same period in the prior year. The sales decrease in
the second quarter and six month periods reflects the trend by Snapper
distributors and dealers to order products only as neded by
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<PAGE> 12
them to replenish retail inventories as required by actual consumer demand. The
25% decrease in sales in the second quarter, compared to the second quarter of
1993, also reflects the fact that in June 1993 Snapper began production and
shipment of products for the 1994 selling season, whereas in 1994 production for
the 1995 selling season will not begin until the third fiscal quarter. The
decrease in gross profit during the second quarter of 1994 is due to the lower
than prior year sales level of core products as well as higher margin
accessories. Also contributing to the decline in gross profit for the second
quarter and the slight decrease in the gross profit for the 1994 year-to-date
period when compared to the same 1993 periods was the impact in the 1994 periods
of the 1993 transfer or sale of inventory at four company owned domestic
distributors to independent distributors. During 1993 the Company closed three
Company-owned domestic distributors and sold one such distributor. Selling,
general and administrative expenses decreased by $1.7 million, or 14.7%, to
$10.2 million for the second quarter of 1994 from $11.9 million for the
comparable 1993 quarter, primarily due to the effect of lower second quarter
1994 sales on sales volume related expenses such as advertising. Selling,
general and administrative expenses increased by $699,000, or 3%, to $24.2
million from $23.5 million for the six month period ended June 30, 1994 compared
to the prior year period primarily due to special promotions for the period,
which were implemented to encourage distributors to sell aged inventory items to
dealers.
A slight operating loss of $328,000 was experienced for the second quarter
of 1994, compared to an operating profit of a $2.6 million for the second
quarter of 1993. The operating profit for the six month period ended June 30,
1994 of $2.4 million represents a $2.4 million decrease from the $4.8 million
operating profit for the same 1993 period.
Sporting Goods: Sales for Actava Sports increased by $30.0 million, or
78%, to $68.5 million for the second quarter of 1994 from $38.5 million for the
second quarter of 1993 and to $149.0 million from $69.5 million, a $79.5 million
or 114.4%, increase for the 1994 year-to-date period as compared to the same
period in 1993. This increase was primarily due to sales recorded by DP, which
was acquired by the Company in June 1993. Actava Sports, excluding DP,
experienced an increase in second quarter sales of $4.5 million, a 13.4%
increase, from $33.7 million for 1993 to $38.2 million for 1994. Actava Sports,
excluding DP, experienced an increase in year-to-date sales of $5.8 million, or
8.9%, from $64.8 million for 1993 to $70.6 million for 1994.
Gross profit increased $890,000, or 11.4%, from $7.8 million for the 1993
second quarter to $8.7 million for the second quarter of 1994. The gross profit
of Actava Sports, excluding DP, increased by $844,000 from the second quarter of
1993 to the comparable 1994 quarter. The gross profit for the 1994 year-to-date
period, when compared to the same 1993 period, increased from $14.5 million to
$19.2 million primarily due to a gross profit increase of $4.1 million
attributable to the inclusion of DP for the full six month period for 1994 as
compared to three weeks in 1993.
Selling, general and administrative expenses increased from $11.5 million
to $18.9 million for the first six months of 1993 and 1994, respectively. This
$7.4 million increase is primarily due to a $6.6 million increase in selling,
general and administrative expenses resulting from the inclusion of DP's
expenses for the full six month 1994 period compared to only three weeks for
1993. Selling, general and administrative expenses for the second quarter of
1994 increased by $3.0 million to $9.2 million from $6.2 million for the 1993
period. This 47.6% increase is primarily due to a $2.7 million increase
attributable to the inclusion of DP for the entire 1994 quarter compared to only
three weeks in the 1993 quarter.
Actava Sports experienced a $558,000 operating loss for the second quarter
of 1994, a $2.0 million decrease from the $1.5 million operating profit for the
1993 second quarter. The Actava Sports operating profit for the 1994
year-to-date period of $305,000 represents a $2.6 million, or 89.6%, decrease
from the $2.9 million operating profit reported for the same 1993 period. Both
the second quarter and year-to-date decreases are due to the inclusion of DP's
operations for the entire 1994 period as compared to three weeks for the 1993
period.
Consolidated Continuing Operations: Actava's consolidated sales
increased $11.2 million, or 9.9%, for the second quarter of 1994 as compared to
the second quarter of 1993, principally because of the inclusion of $25.5
million in sales from DP, which was acquired in June 1993, as partially offset
by the $18.8 million Snapper sales decrease. Actava's year-to-date consolidated
sales increase of $66.8 million, or 31.4%, from
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<PAGE> 13
$212.5 million for 1993 to $279.2 million for 1994 is primarily due to a $73.7
million increase attributable to DP, and a $5.8 million increase from all other
Actava Sports companies, partially offset by a $12.8 million decrease from
Snapper.
The 1994 second quarter consolidated gross profit percentage of 14.9%
represents gross profit dollars of $18.5 million, a $2.7 million decrease in
gross profit dollars as compared to the same 1993 quarter. The increase of $3.7
million to $45.7 million for 1994 year-to-date gross profit from $42.0 million
for 1993 represents a $3.7 million increase in gross profit dollars. The 1994
year-to-date gross profit percentage decreased to 16.4% from 19.8% for 1993.
The 1994 second quarter $1.4 million increase in consolidated selling,
general and administrative expenses to $22.2 million from $20.8 million for 1993
and the 1994 year-to-date increase of $8.6 million to $48.6 million from $40.0
million for 1993 are primarily due to the inclusion of DP, which was acquired in
June 1993, and a 1994 first quarter provision of $1.3 million for the settlement
of employment agreements.
Actava's consolidated operating loss from continuing operations for the
1994 second quarter of $3.7 million represents a $4.9 million decrease from the
$1.2 million 1993 second quarter operating profit. The 1994 year-to-date
consolidated operating loss of $4.2 million represents a decrease of $6.8
million from the $2.7 million 1993 year-to-date operating profit.
Interest expense for the second quarter of 1994 of $7.5 million is an
increase of $1.0 million from the second quarter of 1993. Interest expense for
the six months ended June 30, 1994 of $14.8 million is an increase of $2.3
million from the $12.5 million of interest expense for the same 1993 period.
These increases are primarily due to interest expense at DP, which was acquired
in June 1993, and higher average borrowings at Snapper and DP under the
revolving credit facilities established to provide working capital and higher
interest rates for the 1994 period. During the second quarter of 1994, Snapper
and all of the Actava Sports companies had separate credit lines in place, which
has substantially reduced their reliance on Actava for working capital needs.
Other income (net of other deductions) decreased by $1.1 million in the
second quarter of 1994 and by $3.0 for the 1994 year-to-date period when
compared to 1993. This decrease is primarily the result of a decrease in
investment income from lower investment levels due to liquidations of short-term
investments to fund corporate purposes such as the purchase of DP and DP's
initial working capital needs.
During the year Actava provides for income taxes using anticipated
effective annual tax rates. The rates are based on expected operating results
for the year and estimated permanent differences between book and taxable
income. As a result of the sale of Qualex, the Company will no longer include
any income tax expense related to Qualex in continuing operations because Qualex
is now reported as a discontinued operation rather than as a consolidated
subsidiary for financial reporting purposes and is still not included in the
Company's consolidated federal income tax return. See "Income Taxes" in Notes to
Consolidated Financial Statements.
Discontinued Operations: In 1988 the Company combined its photofinishing
operations with the domestic photofinishing operations of Kodak in a transaction
accounted for as a purchase, forming a jointly-owned company, Qualex. During the
second quarter of 1994, certain events occurred which resulted in a change in
the method of accounting for Actava's investment in Qualex and the presentation
of Qualex as a discontinued operation as of June 30, 1994. On August 12, 1994,
Actava sold its investment in Qualex to Kodak. Accordingly, the Qualex results
for all periods presented are reported in the accompanying consolidated
statements of operations as discontinued operations. A loss of $37.9 million for
loss on the disposal of discontinued operations and a loss of $2.8 million from
operations of discontinued operations is reflected in Actava's year-to-date net
loss as a result. See "Qualex Inc. -- Discontinued Operations" in Notes to
Consolidated Financial Statements.
Net Income (Loss):
Actava reported a loss from continuing operations of $10.2 million for the
second quarter of 1994, compared to a loss from continuing operations of $3.7
million for the second quarter of 1993. Actava's net loss of $46.3 million for
the second quarter of 1994 included a loss from discontinued operations of $36.1
million.
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<PAGE> 14
The Company's $43,000 of income for the second quarter of 1993 included income
of $3.7 million from discontinued operations. For the first six months of 1994,
Actava had a loss from continuing operations of $18.3 million, compared to a
loss from continuing operations of $5.0 million for the comparable 1993 period.
Actava also experienced a $40.7 million loss from discontinued operations for
the first six months of 1994, resulting in a net loss for the period of $59
million. Actava's $7.6 million net loss for the first six months of 1993
included income from discontinued operations of $1.8 million, and a loss from
the cumulative effect of a change in accounting principle of $4.4 million.
Changes in Accounting Principles: The Financial Accounting Standards Board
has issued Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Actava adopted the new method of accounting for income taxes on
January 1, 1993. Statement No. 109 affects the manner and rates at which
deferred income taxes are reflected on the balance sheet and, therefore,
possibly the amount of taxes reflected in the statement of operations. The
adoption of Statement No. 109 did not result in a material effect on net income
for the first quarter of 1993. See "Summary of Significant Accounting
Policies -- Changes in Accounting Principles" in Notes to Consolidated Financial
Statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions". Statement No. 106 requires the cost of postretirement
benefits to be recognized in the financial statements over an employee's active
working career. Actava adopted the new method of accounting for these benefits
as of January 1, 1993. The adoption of Statement No. 106 resulted in a charge to
net income of $4.4 million and was reported as the cumulative effect of a change
in accounting principle in the first quarter of 1993. See "Summary of
Significant Accounting Policies -- Changes in Accounting Principles" in Notes to
Consolidated Financial Statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits". Statement No. 112 requires the recognition of the cost of benefits to
be provided after employment, but before retirement, in the financial statements
over an employee's active working career. Actava adopted the new method of
accounting for these benefits as of January 1, 1994. The adoption of Statement
No. 112 will not result in a material impact on the Company's financial
statements when reported. See "Postemployment Benefits" in Notes to Consolidated
Financial Statements.
The Company and its subsidiaries invest in various debt and equity
securities. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires certain debt securities to be
reported at amortized cost, certain debt and equity securities to be reported at
market with current recognition of unrealized gains and losses, and certain debt
and equity securities to be reported at market with unrealized gains and losses
as a separate component of shareholders' equity. The Company adopted the
provisions of the new standard for investments held as of or acquired after
January 1, 1994. In accordance with the Statement, prior period financial
statements have not been restated to reflect the change in accounting principle.
The cumulative effect as of January 1, 1994, of adopting Statement 115 was not
material, See "Summary of Significant Accounting Policies -- Changes in
Accounting Principles" in Notes to Consolidated Financial Statements.
Financial Position: Actava's working capital, excluding Qualex, was $99.1
million at June 30, 1994 as compared to $93.7 million at December 31, 1993. The
increase is primarily due to changes in the Triton loan agreement which resulted
in classifying $5.0 million as a current note receivable. Cash and short-term
investments at Actava, excluding Qualex, increased by $1.6 million in the first
six months of 1994 to $45.9 million. At June 30, 1994, approximately $5.0
million of the Company's cash and short-term investments were pledged to secure
a Snapper credit line. In addition, subsequent to June 30, 1994, $12.0 million
was pledged to secure a letter of credit issued on August 12, 1994, with regard
to the Company's redeemable common stock. Approximately $16.2 million of cash
and short-term investments which were pledged to support outstanding letters of
credit at March 31, 1994 were released to Actava during the 1994 second quarter.
These letters of credit are now issued on an unsecured basis.
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<PAGE> 15
On August 12, 1994 the Company sold its interest in Qualex to Kodak. As a
result of this sale, the Company received, on August 12, 1994, cash of $50
million and will receive two additional payments of $50 million each in six
months and twelve months.
The Company has entered into a contract to sell a real estate investment
near Houston, Texas, which is known as Sienna Plantation. An investment group
has agreed to purchase the property from a partnership in which Actava has an
interest. Actava is expected to receive approximately $9.0 million in cash upon
consummation of the transaction. The purchase price is approximately equal to
Actava's book value and is expected to close in or before December 1994.
For the six month period ended June 30, 1994, cash flows of $16.6 million
were provided by operating activities while investing and financing activities
used $18.2 million and $3.1 million of cash, respectively. Cash flows of $27.9
million were provided by continuing operations while discontinued operations
used $11.3 million. For operations, accounts receivable decreased by $31.4
million, inventories decreased by $12.0 million, prepaid expenses decreased by
$10.9 million, and accounts payable and other similar items decreased by $14.2
million. Depreciation of $7.3 million and amortization of $213,000 are included
in determining cash flow provided by continuing operations.
Investing activities for the six months ended June 30, 1994 used $18.2
million of cash, including payments for property, plant and equipment (net of
disposals) of $15.2 million.
Financing activities for the six months ended June 30, 1994 used $3.1
million during the quarter with repayments under short-term bank agreements of
$27.6 million, net borrowings of $33.5 million under long-term debt agreements,
payments of $3.0 million for subordinated debt and payments of dividends by
Qualex prior to being discontinued to minority interest of $10.5 million.
Long-term debt, including the current portion, for Actava, excluding
Qualex, decreased from $3.3 million at December 31, 1993 to $3.0 million at June
30, 1994 due to payments thereon.
Actava's subordinated debt position, including the current portion, of
$191.5 million at June 30, 1994 reflects a decrease of $2.8 million from
year-end 1993. Subordinated debt is 98.4% of Actava's total long-term debt,
including the current portion, with the first significant maturity due in 1996.
The Company has a currency swap agreement with a financial institution in
order to eliminate exposure to foreign currency exchange rates for its 6% Senior
Subordinated Swiss Franc Bonds. A default by the financial institution that is a
party to the swap agreement would expose the Company to potential currency
exchange risk on the remaining bond interest and principal payments. The
approximate fair market value of the currency swap as of June 30, 1994, was
$15.0 million.
The Company is subject to various contingent liabilities and commitments.
These include a floor plan agreement entered into by Snapper under which
approximately $31.0 million and $25.0 million was outstanding at June 30, 1994
and 1993, respectively, various guaranties of debt totaling approximately $5.6
million, various real estate leases with estimated future payments of
approximately $8.6 million, various potential liabilities relating to
environmental matters, various other litigation matters and various pledges of
cash and short-term investments. See "Contingent Liabilities and Commitments" in
Notes to Consolidated Financial Statements.
On June 8, 1993, the Company acquired substantially all the assets of DP
for a net purchase price consisting of $11.6 million in cash, the issuance of
1,090,909 shares of the Company's Common Stock (the "Acquisition Shares") valued
at $12 million, and the assumption or payment of certain liabilities including
trade payables and a revolving credit facility. See "Acquisitions" in Notes to
Consolidated Financial Statements. The Company also entered into an agreement
providing the holder of the Acquisition Shares (the "Holder") with the right to
receive additional payments depending upon the value of the Acquisition Shares
over a period of not longer than one year from the purchase date. The agreement
gives the Holder the right under certain circumstances, to require the Company
to purchase the Acquisition Shares at a price equal to $11.00 per share. The
repurchase of the Acquisition Shares will not increase the cost recorded by
Actava for DP, but will affect the manner in which the total purchase price is
recorded by Actava. The right of the Holder
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<PAGE> 16
to receive additional payments of cash became exercisable after June 8, 1994 and
would have expired if not exercised on or before August 7, 1994. On August 3,
1994, the Holder agreed to extend the exercise date to February 17, 1995 in
exchange for a $435,000 fee and an irrevocable letter of credit in the amount of
$12.0 million which is available and payable to the Holder on and after February
17, 1995 upon demand and tender of the Acquisition Shares. Actava's debt
agreements contain covenants which, among other things, place restrictions upon
the amount of stock the Company may repurchase and dividends it may pay. The
repurchase of the Acquisition Shares may violate some of these covenants.
In November 1991, the Company entered into a Loan Agreement with its then
25.0% stockholder, Triton Group Ltd. ("Triton"), whereby Triton could borrow up
to $32.0 million from the Company secured by the stock in the Company owned by
Triton (the "Triton Loan"). The Triton Loan Agreement was modified in June 1993,
pursuant to the Plan of Reorganization filed by Triton in its Chapter 11
bankruptcy proceeding. The modification reduced the interest rate on the Triton
Loan, extended the maturity date from November 1994 to April 1997 and modified
the mandatory payment (margin call) provisions and the Stockholder Agreement
between Actava and Triton, as described in the Notes to the Consolidated
Financial Statements. As modified, the Triton Loan provided for quarterly
payments of interest only with no scheduled principal payments due until final
maturity in April 1997. In December 1993, Triton and Actava entered into a
further amendment to the Loan Agreement pursuant to which Triton made a
principal payment of $5.0 million plus accrued interest on the Triton Loan,
reducing the loan balance to approximately $26.7 million. In addition, the
December 1993 amendment provided for quarterly principal payments of $1.25
million commencing March 31, 1994 and modified the mandatory payment (margin
call) provisions of the loan. Triton has announced that on March 2, 1994, Triton
obtained a commitment from a bank which would enable Triton to prepay the entire
balance under the Loan Agreement, subject to the preparation of definitive
documents. Triton also announced that while the terms and cost of this new
financing would be less favorable than those of the existing arrangement, Triton
is willing to consider a refinancing as part of a broader strategy to enhance
the value of Actava. Triton has announced that the bank commitment, which was
originally scheduled to expire on June 30, 1994, has been extended until
September 30, 1994. As of June 30, 1994 the outstanding balance under the Triton
Loan was $24.2 million.
During the first and second quarters of 1994 the Company received cash
dividends from its subsidiaries of $12.0 million and $811,000, respectively. The
Company, excluding its operating subsidiaries and Snapper, had $63.4 million of
unpledged cash and short-term investments as of August 12, 1994. Such
subsidiaries, however, are restricted by financial covenants in their credit
agreements from paying the Company more than 70% of their net income as
dividends. The Company uses its existing cash and short-term investments, as
well as dividends from is subsidiaries and payments on the Triton Loan, to
provide for items such as operating expense payments and debt service. The
Company, excluding its subsidiaries and Snapper, has debt service payments
scheduled for the remainder of 1994 of approximately $10.4 million.
The credit agreements with Snapper and one of the Company's sporting goods
subsidiaries contain financial covenants (involving tangible net worth, book net
worth and other matters) which the Company must comply with to prevent a
default. A default under these credit agreements would have serious adverse
consequences, including the elimination of funding for the operations of Snapper
and the sporting goods company, as well as the prohibition on payment of any
dividends to the Company by these businesses. As a result of the loss incurred
by the Company in connection with the sale of Qualex, the Company obtained
financial covenant amendments from its lenders so that the Company would remain
in compliance with these covenants through August 31, 1994. It will be necessary
for the Company to negotiate additional amendments to these financial covenants
in order for the Company to be in compliance with these covenants after August
31, 1994. Management believes that it will be successful in negotiating these
additional amendments.
The Company's subsidiaries and division, excluding Qualex, had unused
borrowing capacity of approximately $47.7 million at June 30, 1994, under credit
agreements which are secured by assets such as accounts receivable or inventory.
The assets which serve as collateral are determined by reference to the
outstanding balance under the credit agreements and the qualification of the
assets as collateral as defined in the credit agreements; however, the assets
potentially available as collateral are, in the aggregate, $335.1 million.
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<PAGE> 17
On April 19, 1994, John D. Phillips was elected president and chief
executive officer of the Company. He was also elected to the Board of Directors
of the Company. Mr. Phillips succeeds Charles R. Scott, who had served as the
Company's president and chief executive officer since 1991. In connection with
the election of Mr. Phillips, Renaissance Partners, an investment partnership in
which Mr. Phillips serves as a general partner, purchased from the Company
700,000 shares of the Company's Common Stock for $4,462,500, representing a
price of $6.375 per share. Mr. Phillips also received an immediately vested
option to purchase 300,000 shares of the Company's Common Stock at a price of
$6.375 per share. This price represents the last sale price of the Company's
Common Stock on the New York Stock Exchange on April 11, 1994, the day before
the Company announced that it had received the investment and employment
proposals from Mr. Phillips. The Company has entered into a Registration Rights
Agreement with Renaissance Partners pursuant to which the Company has agreed to
register with Securities and Exchange Commission the 700,000 shares of Common
Stock purchased by Renaissance Partners.
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<PAGE> 18
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Due to the disposition by the Company on August 12, 1994 of its interest in
Qualex, any litigation to which Qualex was a party will be terminated as to the
Company's future involvement. This would include the lawsuit captioned
Photographic Concepts, Inc. v. Qualex Inc. previously disclosed in its Form 10-K
for the year ended December 31, 1993.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) An Annual Meeting of Shareholders of the Company was held on June 10,
1994.
The stockholders elected nine directors to serve for the ensuing year
and until their successors are duly elected and have qualified.
(b) Not Required
(c) The following were elected as directors:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
---------- --------------
<S> <C> <C>
John E. Aderhold........................................ 16,393,632 222,660
Michael E. Cahr......................................... 16,382,106 284,186
John M. Darden, III..................................... 16,400,103 216,189
John P. Imlay, Jr....................................... 16,401,811 214,481
Clark A. Johnson........................................ 16,395,540 220,752
Anthony F. Kopp......................................... 16,406,019 210,273
Richard Nevins.......................................... 16,387,445 208,847
John D. Phillips........................................ 16,405,200 211,092
Carl E. Sanders......................................... 16,394,436 221,856
</TABLE>
(d) Not Required
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S> <C>
2. Agreement and Plan of Reorganization dated as of July 20, 1994, by and among
The Actava Group Inc., Diversified Products Corporation, Hutch Sports USA
Inc., Nelson/ Weather-Rite, Inc., Willow Hosiery Company, Inc. and Roadmaster
Industries, Inc.
4.1 Amendment, dated as of August 15, 1994, to Finance and Security Agreement,
dated as of December 15, 1993, with respect to a revolving credit facility of
up to $50 million, between Diversified Products Corporation and ITT
Commercial Finance Corp. and the Provident Bank. A copy of this amendment is
not filed as the debt does not exceed 10% of the total assets of the
registered; however, registrant hereby agrees to furnish a copy of such
agreement to the commission upon request.
10. Employment Agreement dated July 19, 1994, between The Actava Group Inc. and
Charles R. Scott.
11. Computation of Earnings Per Share.
</TABLE>
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<PAGE> 19
(b) Two Forms 8-K have been filed during the quarter for which this report
is filed.
(i) On April 14, 1994, a Form 8-K was filed to report and provide as
exhibits a press release dated March 3, 1994 regarding 1993 results; a press
release dated March 3, 1994 regarding the Triton loan; and, a press release
dated March 16, 1994 regarding election of a new director and the Triton loan.
No financial statements were filed.
(ii) On May 4, 1994, a Form 8-K was filed to report and provide as
exhibits an employment agreement among the Company and John D. Phillips dated
April 19, 1994; an option agreement among the Company and John D. Phillips dated
April 19, 1994; and, a registration rights agreement among the Company,
Renaissance Partners and John D. Phillips dated April 19, 1994.
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<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
THE ACTAVA GROUP INC.
Registrant
/s/ FREDERICK B. BEILSTEIN, III
--------------------------------------
Frederick B. Beilstein, III
Senior Vice President, Treasurer and
Chief Financial Officer
Date: August 15, 1994
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EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JULY 20, 1994
BY AND AMONG
THE ACTAVA GROUP INC.,
DIVERSIFIED PRODUCTS CORPORATION,
HUTCH SPORTS USA, INC.,
NELSON/WEATHER-RITE, INC.,
WILLOW HOSIERY COMPANY, INC.,
AND
ROADMASTER INDUSTRIES, INC.
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TABLE OF CONTENTS
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ARTICLE I
THE EXCHANGES
Section 1.1 The Exchanges.........................................................
Section 1.2 Transfer of Shares....................................................
Section 1.3 Closing...............................................................
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ACTAVA
Section 2.1 Organization and Qualification........................................
Section 2.2 Authority; Non-Contravention; Approvals...............................
Section 2.3 Ownership of the Sports Subsidiaries Stock............................
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACTAVA AND THE SPORTS SUBSIDIARIES
Section 3.1 Organization and Qualification........................................
Section 3.2 Capitalization........................................................
Section 3.3 Subsidiaries..........................................................
Section 3.4 Authority; Non-Contravention; Approvals...............................
Section 3.5 Reports and Financial Statements......................................
Section 3.6 Absence of Undisclosed Liabilities....................................
Section 3.7 Absence of Certain Changes or Events..................................
Section 3.8 Litigation............................................................
Section 3.9 Transfer Claims.......................................................
Section 3.10 No Violation of Law...................................................
Section 3.11 Compliance with Agreements............................................
Section 3.12 Taxes.................................................................
Section 3.13 Employee Benefit Plans; ERISA.........................................
Section 3.14 Investment Company Act................................................
Section 3.15 Labor Controversies...................................................
Section 3.16 Environmental Matters.................................................
Section 3.17 Certain Agreements....................................................
Section 3.19 Affiliate Transactions................................................
Section 3.20 Proxy Statement.......................................................
Section 3.21 Materiality...........................................................
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ROADMASTER
Section 4.1 Organization and Qualification........................................
Section 4.2 Capitalization........................................................
Section 4.3 Subsidiaries..........................................................
Section 4.4 Authority; Non-Contravention; Approvals...............................
Section 4.5 Reports and Financial Statements......................................
Section 4.6 Absence of Undisclosed Liabilities....................................
Section 4.7 Absence of Certain Changes or Events..................................
Section 4.8 Litigation............................................................
Section 4.9 Transfer Claims.......................................................
Section 4.10 No Violation of Law...................................................
Section 4.11 Compliance with Agreements............................................
Section 4.12 Taxes.................................................................
Section 4.13 Employee Benefit Plans; ERISA.........................................
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Section 4.14 Investment Company Act................................................
Section 4.15 Labor Controversies...................................................
Section 4.16 Environmental Matters.................................................
Section 4.17 Certain Agreements....................................................
Section 4.18 Properties............................................................
Section 4.19 Affiliate Transactions................................................
Section 4.20 Proxy Statement.......................................................
Section 4.21 Materiality...........................................................
ARTICLE V
CONDUCT OF BUSINESS PENDING THE EXCHANGES
Section 5.1 Conduct of Business by the Sports Subsidiaries Pending the
Exchanges.............................................................
Section 5.2 Conduct of Business by Roadmaster Pending the Exchanges...............
Section 5.3 Acquisition Transactions..............................................
Section 5.4 Access to Information.................................................
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Public Announcements..................................................
Section 6.2 Shareholders' Approval; Proxy Statement...............................
Section 6.3 Expenses..............................................................
Section 6.4 Agreement to Cooperate................................................
Section 6.5 Stock Exchange Listing................................................
Section 6.6 Insurance Coverage....................................................
Section 6.7 Releases..............................................................
Section 6.8 Additional Income Tax Matters.........................................
Section 6.9 Intercompany Accounts.................................................
Section 6.10 Employee Benefits Matters.............................................
Section 6.11 Financial Statements..................................................
Section 6.12 Products Liability....................................................
Section 6.13 Satisfaction of Indemnity With Roadmaster Common Stock................
Section 6.14 Certain Environmental Matters.........................................
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligation to Effect the Exchanges.........
Section 7.2 Conditions to Obligation of Actava to Effect the Exchanges............
Section 7.3 Conditions to Obligations of Roadmaster to Effect the Exchanges.......
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination...........................................................
Section 8.2 Effect of Termination.................................................
Section 8.3 Amendment.............................................................
Section 8.4 Waiver................................................................
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival..............................................................
Section 9.2 Brokers...............................................................
Section 9.3 Notices...............................................................
Section 9.4 Interpretation........................................................
Section 9.5 Miscellaneous.........................................................
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Section 9.6 Counterparts..........................................................
Section 9.7 Parties in Interest...................................................
Section 9.8 Schedules.............................................................
EXHIBITS
Exhibit A Opinion of Counsel to Roadmaster
Exhibit B Registration Rights Agreement
Exhibit C Shareholders Agreement
Exhibit D Employment Agreement for Henry Fong
Exhibit E Employment Term Sheet for Edward E. Shake
Exhibit F Roadmaster Restated Certificate of Incorporation
Exhibit G Roadmaster Amended and Restated By-laws
Exhibit H Environmental Indemnity Agreement
Exhibit I Opinion of Counsel to Actava
SCHEDULES
1.1 Allocation of Exchange Shares
2.2 (b) Actava Required Third Party Approvals
2.2 (c) Actava Required Statutory Approvals
2.3 Sports Subsidiaries Stock Encumbrances
3.2 (b) Sports Subsidiaries Preemptive Rights and Options
3.3 Subsidiaries of the Sports Subsidiaries
3.4 (b) Sports Subsidiaries Required Third Party Approvals
3.6 Sports Subsidiaries Undisclosed Liabilities
3.8 Sports Subsidiaries Litigation
3.10 Sports Subsidiaries Legal Compliance
3.11 Sports Subsidiaries Defaults
3.12 Sports Subsidiaries Tax Matters
3.13(a) Sports Subsidiaries Employee Benefits Plans
3.13(b) Sports Subsidiaries Employee Benefits Liabilities
3.13(c) Sports Subsidiaries Insurance Arrangements
3.15 Sports Subsidiaries Labor Controversies
3.16 Sports Subsidiaries Environmental Matters
3.17 Sports Subsidiaries Employment and Consulting Agreements
3.18(a) Sports Subsidiaries Property Matters
3.18(b) Sports Subsidiaries Intellectual Property
3.19 Sports Subsidiaries Affiliate Transactions
4.2 (b) Roadmaster Preemptive Rights and Options
4.3 Subsidiaries of Roadmaster
4.4 (b) Roadmaster Required Third Party Approvals
4.4 (c) Roadmaster Required Statutory Approvals
4.6 Roadmaster Undisclosed Liabilities
4.8 Roadmaster Litigation
4.10 Roadmaster Legal Compliance
4.11 Roadmaster Defaults
4.12 Roadmaster Tax Matters
4.13(a) Roadmaster Employee Benefits Plans
4.13(b) Roadmaster Employee Benefits Liabilities
4.13(c) Roadmaster Insurance Arrangements
4.15 Roadmaster Labor Controversies
4.16 Roadmaster Environmental Matters
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4.17 Roadmaster Employment and Consulting Agreements
4.18(a) Roadmaster Property Matters
4.18(b) Roadmaster Intellectual Property
4.19 Roadmaster Affiliate Transactions
5.1 Exceptions to Conduct of the Sports Subsidiaries Businesses
5.2 Exceptions to Conduct of Roadmaster Business
6.9 (e) Actava Intercompany Balances as of July 1, 1994
6.14 Description of Orbitron Parcel
9.2 Brokers Receiving Fees from Roadmaster
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as of July
20, 1994 (the "Agreement"), by and among The Actava Group Inc., a Delaware
corporation ("Actava"), Diversified Products Corporation, an Alabama corporation
("DP"), Hutch Sports USA, Inc., a Delaware corporation ("Hutch"),
Nelson/Weather-Rite Inc., a Delaware corporation ("NWR"), Willow Hosiery
Company, Inc., a New York corporation ("Willow"), and Roadmaster Industries,
Inc., a Delaware corporation ("Roadmaster"). DP, Hutch, NWR and Willow are
referred to herein individually as a "Sports Subsidiary" and collectively as the
"Sports Subsidiaries."
WHEREAS, Actava owns all of the issued and outstanding shares of the
capital stock of each of the Sports Subsidiaries (the "Sports Subsidiaries
Stock");
WHEREAS, the Boards of Directors of Actava and Roadmaster have approved the
exchange of the Sports Subsidiaries Stock for shares of Roadmaster's common
stock, $.01 par value ("Roadmaster Common Stock"), pursuant to this Agreement
(individually an "Exchange" and collectively, the "Exchanges") and the
transactions contemplated hereby upon the terms and subject to the conditions
set forth herein; and
WHEREAS, Actava, Roadmaster and each of the Sports Subsidiaries intend that
this Agreement constitute a plan of reorganization and that the separate
exchanges of all of the Sports Subsidiaries Stock by Actava solely for
Roadmaster Common Stock each qualify for federal income tax purposes as a
separate "reorganization" within the meaning of Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended (the "Code") with respect to DP,
Hutch, NWR and Willow;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE EXCHANGES
Section 1.1 THE EXCHANGES. Upon the terms and subject to the conditions
of this Agreement, at the Closing (as hereinafter defined), Actava shall
exchange the Sports Subsidiaries Stock for a total of 19,169,000 validly issued,
fully paid and nonassessable shares of Roadmaster Common Stock (the "Exchange
Shares"). The Exchange Shares shall be allocated in the manner set forth below
unless Actava and Roadmaster, prior to the Closing Date, have agreed on and
attached as Schedule 1.1 hereto an allocation of the Exchange Shares which is
different from that set forth below:
(a) all of the issued and outstanding shares of DP in exchange for
6,709,150 of the Exchange Shares;
(b) all of the issued and outstanding shares of Hutch in exchange for
5,654,855 of the Exchange Shares;
(c) all of the issued and outstanding shares of NWR in exchange for
4,061,902 of the Exchange Shares; and
(d) all of the issued and outstanding shares of Willow in exchange for
2,743,093 of the Exchange Shares.
Section 1.2 TRANSFER OF SHARES. At the Closing, Actava shall deliver to
Roadmaster certificates evidencing the Sports Subsidiaries Stock, duly endorsed
in blank or accompanied by duly executed stock transfer powers. At the Closing,
Roadmaster shall deliver to Actava certificates evidencing the Exchange Shares.
Section 1.3 CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Smith,
Gambrell & Russell, Suite 3100, Promenade II, 1230 Peachtree Street, Atlanta,
Georgia 30303, on the date on which the last of the conditions set forth in
Article VII hereof is
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fulfilled or waived, or at such other time and place as Actava and Roadmaster
shall agree (the date on which the Closing occurs being the "Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ACTAVA
Actava represents and warrants to Roadmaster as follows:
Section 2.1 ORGANIZATION AND QUALIFICATION. Actava is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. Actava is qualified to do business and is in good standing in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing will not, when
taken together with all other such failures, have a material adverse effect on
the business, condition (financial or other) or results of operations of Actava
and its subsidiaries, taken as a whole.
Section 2.2 AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Actava has full
corporate power and authority to enter into this Agreement and, subject to
obtaining the Actava Shareholders' Approval (if required and as defined in
Section 6.2(b)) and the Actava Required Statutory Approvals (as defined in
Section 2.2(c)), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement, and the consummation by Actava of the
transactions contemplated hereby, have been duly authorized by Actava's Board of
Directors and no other corporate proceedings on the part of Actava is necessary
to authorize the execution and delivery of this Agreement and the consummation
by Actava of the transactions contemplated hereby, except for obtaining the
Actava Shareholders' Approval (if required) and the Actava Required Statutory
Approvals. This Agreement has been duly and validly executed and delivered by
Actava, and, assuming the due authorization, execution and delivery hereof by
Roadmaster, constitutes a valid and binding Agreement of Actava enforceable in
accordance with its terms.
(b) The execution and delivery of this Agreement by Actava do not, and the
consummation by Actava of the transactions contemplated hereby will not as of
the Closing Date, violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Actava or any of
its subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or by-laws of Actava or any of its subsidiaries, (ii)
subject to obtaining the Actava Required Statutory Approvals and the receipt of
the Actava Shareholders' Approval (if required), any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any court or governmental authority applicable to Actava or any of its
subsidiaries or any of their respective properties or assets, or (iii) subject
to obtaining the required approvals set forth in Schedule 2.2(b) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which Actava or any of its subsidiaries is now a party or by which Actava or any
of its subsidiaries or any of their respective properties or assets may be bound
or affected, excluding from the foregoing clauses (ii) and (iii) such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances that would not,
in the aggregate, have a material adverse effect on the business, condition
(financial or other) or results of operations of Actava and its subsidiaries,
taken as a whole.
(c) Except for (i) the filings by Actava and Roadmaster required by Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the
"HSR Act"), and (ii) the required filings with or approvals set forth in
Schedule 2.2(c) (the filings and approvals referred to in clauses (i) and (ii)
are collectively referred to as the "Actava Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by Actava or the
consummation by Actava of the
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transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not, in the aggregate, have a material
adverse effect on the business, condition (financial or other) or results of
operations of Actava and its subsidiaries, taken as a whole.
Section 2.3 OWNERSHIP OF THE SPORTS SUBSIDIARIES STOCK. All of the shares
of Sports Subsidiaries Stock are validly issued, fully paid and nonassessable
and free of preemptive rights, and, except as set forth in Schedule 2.3, are
owned by Actava free and clear of any liens, claims, encumbrances, security
interests, equities, charges and options of any nature whatsoever. Except as set
forth in Schedule 2.3, there are no subscriptions, options, warrants, rights,
calls, contracts, voting trusts, proxies or other commitments, understandings,
restrictions or arrangements relating to the issuance, sale, voting, transfer,
ownership or other rights with respect to any shares of the Sports Subsidiaries
Stock, including any right of conversion or exchange under any outstanding
security, instrument or agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACTAVA AND THE SPORTS SUBSIDIARIES
Actava and the Sports Subsidiaries represent and warrant to Roadmaster as
follows:
Section 3.1 ORGANIZATION AND QUALIFICATION. Each Sports Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each Sports Subsidiary is qualified
to do business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing will not, when taken together with all
other such failures, have a material adverse effect on the business, condition
(financial or other) or results of operations of the Sports Subsidiaries and
their subsidiaries, taken as a whole. True, accurate and complete copies of each
Sports Subsidiary's certificate of incorporation and by-laws, in each case as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to Roadmaster.
Section 3.2 CAPITALIZATION. (a) The authorized capital stock of: (i) DP
consists of 1,000 shares of common stock, $1.00 par value per share, all of
which shares are issued and outstanding, and (ii) NWR consists of 1,000 shares
of common stock, $1.00 par value per share, all of which shares are issued and
outstanding, and (iii) Hutch consists of 1,000 shares of common stock, $1.00 par
value per share, all of which shares are issued and outstanding; and (iv) Willow
consists of 100,000 shares of common stock, $1.00 par value per share, of which
46,000 shares are issued and outstanding, and 10,000 shares of preferred stock,
$1.00 par value per share, of which 2,052 shares are issued and outstanding. All
of the issued and outstanding shares of Sports Subsidiaries Stock are validly
issued and are fully paid, nonassessable and free of preemptive rights. No
subsidiary of any Sports Subsidiary holds any shares of the capital stock of any
Sports Subsidiary.
(b) Except as set forth in Schedule 3.2(b) hereof, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating any Sports Subsidiary or any subsidiary of any
Sports Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of any Sports Subsidiary or
obligating any Sports Subsidiary or any subsidiary of any Sports Subsidiary to
grant, extend or enter into any such agreement or commitment. Except as set
forth in Schedule 3.2(b), there are no voting trusts, proxies or other
agreements or understandings to which any Sports Subsidiary or any subsidiary of
a Sports Subsidiary is a party or is bound with respect to the voting of any
shares of capital stock of any Sports Subsidiary.
Section 3.3 SUBSIDIARIES. Schedule 3.3 sets forth every subsidiary of
each of the Sports Subsidiaries and the jurisdiction of its incorporation. Each
direct and indirect corporate subsidiary of each of the Sports Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the requisite power and authority
to own, lease and operate its assets and
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properties and to carry on its business as it is now being conducted. Each
subsidiary of each of the Sports Subsidiaries is qualified to do business, and
is in good standing, in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not, when taken together with all such other failures, have a
material adverse effect on the business, condition (financial or other) or
results of operations of the Sports Subsidiaries and their subsidiaries, taken
as a whole. Except as set forth in Schedule 3.3, all of the outstanding shares
of capital stock of each corporate subsidiary of each of the Sports Subsidiaries
are validly issued, fully paid, nonassessable and except, with respect to wholly
owned subsidiaries, free of preemptive rights and those shares owned directly or
indirectly by the Sports Subsidiaries are owned free and clear of any liens,
claims, encumbrances, security interests, equities, charges and options of any
nature whatsoever. Except as set forth in Schedule 3.3, the Sports Subsidiaries
own directly or indirectly all of the issued and outstanding shares of the
capital stock of each of their corporate subsidiaries. Except as set forth in
Schedule 3.3, there are no subscriptions, options, warrants, rights, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions or arrangements relating to the issuance, sale, voting, transfer,
ownership or other rights with respect to any shares of capital stock of any
corporate subsidiary of any Sports Subsidiary, including any right of conversion
or exchange under any outstanding security, instrument or agreement. As used in
this Agreement, the term "subsidiary" shall mean any corporation, partnership,
joint venture or other entity of which the specified entity, directly or
indirectly, controls or which the specified entity (either acting alone or
together with its other subsidiaries) owns, directly or indirectly, more than
50% of the stock or other voting interests, the holders of which are, ordinarily
or generally, in the absence of contingencies (which contingencies have not
occurred) or understandings (which understandings have not yet been required to
be performed) entitled to vote for the election of a majority of the board of
directors or any similar governing body.
Section 3.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Each Sports
Subsidiary has full corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement, and the consummation by each Sports Subsidiary of
the transactions contemplated hereby, have been duly authorized by each Sports
Subsidiary's Board of Directors and no other corporate proceedings on the part
of any Sports Subsidiary are necessary to authorize the execution and delivery
of this Agreement and the consummation by the Sports Subsidiaries of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each Sports Subsidiary, and, assuming the due
authorization, execution and delivery hereof by Roadmaster, constitutes a valid
and binding agreement of each Sports Subsidiary, enforceable against each Sports
Subsidiary in accordance with its terms.
(b) The execution and delivery of this Agreement by each Sports Subsidiary
do not, and the consummation by each Sports Subsidiary of the transactions
contemplated hereby will not as of the Closing Date, violate, conflict with or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of any Sports Subsidiary or any of their subsidiaries under
any of the terms, conditions or provisions of (i) the respective charters or
by-laws of each Sports Subsidiary or any of their subsidiaries, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority applicable to any
Sports Subsidiary or any of their subsidiaries or any of their respective
properties or assets, or (iii) subject to obtaining the required approvals set
forth in Schedule 3.4(b) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which any Sports Subsidiary or any of
their subsidiaries is now a party or by which any Sports Subsidiary or any of
their subsidiaries or any of their respective properties or assets may be bound
or affected, excluding from the foregoing clauses (ii) and (iii) such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances that would not,
in the aggregate, have a material adverse effect on the business, condition
(financial or other) or results of operations of the Sports Subsidiaries and
their subsidiaries, taken as a whole.
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(c) Except as set forth on Schedule 2.2(c), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the execution and
delivery of this Agreement by the Sports Subsidiaries or the consummation by the
Sports Subsidiaries of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a material adverse effect on the business, condition (financial
or other) or results of operations of the Sports Subsidiaries and their
subsidiaries, taken as a whole.
Section 3.5 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1991,
Actava and each of its subsidiaries required to make filings under the
Securities Act of 1933, as amended (the "Securities Act") and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") have filed with the
Securities and Exchange Commission (the "SEC") all material forms, statements,
reports and documents (including all exhibits, amendments and supplements
thereto) required to be filed by them under each of the Securities Act, the
Exchange Act, and the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") and the respective rules and regulations thereunder, all of
which complied in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder, except where such
failure to file or non-compliance would not have a material adverse effect on
the business, condition (financial or other) or results of operations of the
Sports Subsidiaries and their subsidiaries, taken as a whole. Actava has
previously delivered to Roadmaster copies of its (a) Annual Reports on Form 10-K
for the fiscal year ended December 31, 1993 and for each of the two immediately
preceding fiscal years, including the exhibits and schedules thereto, all as
filed with the SEC, (b) Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994, including the exhibits and schedules thereto, as filed with the
SEC, (c) proxy and information statements, to the extent required, relating to
(i) all meetings of its shareholders (whether annual or special) and (ii)
actions by written consent in lieu of a shareholders meeting from January 1,
1991 until the date hereof, and (d) all other reports or registration statements
(which have been declared effective) including the exhibits and schedules
thereto, all as filed by Actava with the SEC since January 1, 1991 (other than
registration statements filed on Form S-8) (collectively, the "Actava SEC
Reports"). As of their respective dates, Actava SEC Reports did not contain any
untrue statement of a material fact or omit to state a material fact regarding
the Sports Subsidiaries required to be stated therein or necessary to make the
statements regarding the Sports Subsidiaries therein, in light of the
circumstances under which they were made, not misleading. Actava has also
delivered to Roadmaster copies of (X)(1) an audited balance sheet of each Sports
Subsidiary as of December 31, 1993 and, except with respect to DP, for each of
the two immediately preceding fiscal years, and the related audited statements
of income (excluding the income statement for the fiscal year ended December 31,
1991 which shall be unaudited), retained earnings, and cash flows for the years
then ended, and the related notes thereto and (2) an unaudited balance sheet of
DP as of June 7, 1993 and the related unaudited statements of income, retained
earnings, and cash flows for the period then ended, and audited balance sheets
as of June 27, 1992 and June 29, 1991 and the related audited statements of
income, retained earnings and cash flows for the years then ended (collectively,
the "Sports Subsidiaries Annual Financial Statements") and (Y) an unaudited
balance sheet of each Sports Subsidiary as of March 31, 1994, and the related
unaudited statements of income, retained earnings, and cash flows for the
three-month period then ended (the "Sports Subsidiaries Interim Financial
Statements"). The Sports Subsidiaries Annual Financial Statements and the Sports
Subsidiaries Interim Financial Statements are referred to herein collectively as
the "Sports Subsidiaries Financial Statements." The Sports Subsidiaries
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present in all material respects the
financial position of the Sports Subsidiaries and their subsidiaries, taken as a
whole, as of the dates thereof and the results of their operations and changes
in financial position for the periods then ended, subject, in the case of the
Sports Subsidiaries Interim Financial Statements or any of the unaudited
financial statements included in the Sports Subsidiaries Annual Financial
Statements, to normal year-end and audit adjustments and any other adjustments
described therein.
Section 3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
Actava's Annual Report on Form 10-K for the year ended December 31, 1993 and the
exhibits and schedules thereto (the "Actava 10-K"), Actava's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994 and the exhibits
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and schedules thereto (the "Actava 10-Q"), any Form 8-K filed by Actava after
December 31, 1993 (the "Actava 8-Ks") or in Schedule 3.6, neither the Sports
Subsidiaries nor any of their subsidiaries had at March 31, 1994, or has
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, (a) except liabilities,
obligations or contingencies (i) which are accrued or reserved against in the
Sports Subsidiaries Financial Statements or reflected in the notes thereto or
(ii) which were incurred after March 31, 1994 in the ordinary course of business
and consistent with past practices and (b) except for any liabilities,
obligations or contingencies which (i) would not, in the aggregate, have a
material adverse effect on the business, condition (financial or other) or
results of operations of the Sports Subsidiaries and their subsidiaries, taken
as a whole, or (ii) have been discharged or paid in full prior to the date
hereof.
Section 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the Actava 10-Q or the other Actava SEC Reports, from March 31, 1994 through the
date hereof, (i) there has not been any material adverse change in the business,
condition (financial or other) or results of operations of the Sports
Subsidiaries and their subsidiaries, taken as a whole and (ii) no Sports
Subsidiary has made any declaration, setting aside or payment of any dividend or
other distribution with respect to the Sports Subsidiaries Stock.
Section 3.8 LITIGATION. Except as disclosed in the Actava 10-K, the
Actava 10-Q, the Actava 8-Ks, the Sports Subsidiaries Financial Statements or
Schedule 3.8, there are no claims, suits, actions or proceedings pending or, to
the knowledge of Actava or any Sports Subsidiary, threatened against, relating
to or affecting the Sports Subsidiaries or any of their subsidiaries, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator, which could reasonably be expected, either alone
or in the aggregate with all such claims, actions or proceedings, to materially
and adversely affect the business, condition (financial or other) or results of
operations of the Sports Subsidiaries and their subsidiaries, taken as a whole.
Except as set forth in Schedule 3.8, neither the Sports Subsidiaries nor any of
their subsidiaries is subject to any judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
authority, or of any arbitrator which prohibits or restricts the consummation of
the transactions contemplated hereby or would have a material adverse effect on
the business, condition (financial or other) or results of operations of the
Sports Subsidiaries and their subsidiaries, taken as a whole.
Section 3.9 TRANSFER CLAIMS. No prior offer, issue, redemption, call,
purchase, sale, transfer, negotiation or other transaction of any nature or kind
with respect to any capital stock (including shares, offers, options, warrants,
or debt convertible into shares, options or warrants) of the Sports Subsidiaries
or any of their subsidiaries, or any corporation which has been merged into the
Sports Subsidiaries or any of their subsidiaries, has given or may give rise to
any claim or action by any person which is enforceable against any Sports
Subsidiary, and, to the knowledge of the Sports Subsidiaries, no fact or
circumstance exists which could give rise to any such claim or action on behalf
of any person, except for claims or actions which would not have, in the
aggregate, a material adverse effect on the business, condition (financial or
other) or results of operations of the Sports Subsidiaries and their
subsidiaries, taken as a whole.
Section 3.10 NO VIOLATION OF LAW. Except as disclosed in the Actava 10-K,
the Actava 10-Q, the Actava 8-Ks, the Sports Subsidiaries Financial Statements
or Schedule 3.10, neither the Sports Subsidiaries nor any of their subsidiaries
is in violation of or has been given notice or been charged with any violation
of any law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable environmental law, ordinance or regulation)
of any governmental or regulatory body or authority, except for violations
which, in the aggregate, do not have a material adverse effect on the business,
condition (financial or other) or results of operations of the Sports
Subsidiaries and their subsidiaries, taken as a whole. Except as disclosed in
the Actava 10-K, the Actava 10-Q, the Actava 8-Ks, the Sports Subsidiaries
Financial Statements or Schedule 3.10, as of the date of this Agreement, to the
knowledge of Actava and the Sports Subsidiaries no investigation or review by
any governmental or regulatory body or authority is pending or threatened, nor
has any governmental or regulatory body or authority indicated an intention to
conduct the same, other than, in each case, those the outcome of which, as far
as reasonably can be foreseen, will not have a material adverse effect on the
business, condition (financial or other) or results of operations of the Sports
Subsidiaries and their subsidiaries, taken as a whole. The Sports Subsidiaries
and their subsidiaries have all
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permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted (the "Sports Subsidiaries Permits"), except
for permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals the absence of which, alone or in the
aggregate, would not have a material adverse effect on the business, condition
(financial or other) or results of operations of the Sports Subsidiaries and
their subsidiaries, taken as a whole. The Sports Subsidiaries and their
subsidiaries (a) have duly and currently filed all reports and other information
required to be filed with any governmental or regulatory authority in connection
with the Sports Subsidiaries Permits, and (b) are not in violation of the terms
of any Sports Subsidiaries Permit, except for delays in filing reports or
violations which, alone or in the aggregate, would not have a material adverse
effect on the business, condition (financial or other) or results of operations
of the Sports Subsidiaries and their subsidiaries, taken as a whole.
Section 3.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed in the
Actava 10-K, the Actava 10-Q, the Actava 8-Ks, the Sports Subsidiaries Financial
Statements or Schedule 3.11, the Sports Subsidiaries and each of their
subsidiaries are not in breach or violation of or in default in the performance
or observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default under, (a)
the respective charters, by-laws or similar organizational instruments of the
Sports Subsidiaries or any of their subsidiaries or (b) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which the Sports Subsidiaries or any of
their subsidiaries is a party or by which any of them is bound or to which any
of their property is subject, which breaches, violations and defaults, in the
case of clause (b) of this Section 3.11, would have, in the aggregate, a
material adverse effect on the business, condition (financial or other) or
results of operations of the Sports Subsidiaries and their subsidiaries, taken
as a whole.
Section 3.12 TAXES. (a) Except as set forth on Schedule 3.12, each of the
Sports Subsidiaries and their subsidiaries has, or prior to the Closing Date,
will have (i) timely filed (or have or, prior to the Closing Date, will have
obtained valid extensions of time to file) with the appropriate governmental
authorities all Tax Returns required to be filed by them for all periods ending
on or prior to the Closing Date, other than those Tax Returns the failure of
which to file would not have a material adverse effect on the business,
condition (financial or other) or results of operations of the Sports
Subsidiaries and their subsidiaries, taken as a whole, and such Tax Returns are
true, correct and complete in all material respects, and (ii) duly paid in full
or made adequate provision for the payment of all Taxes for all periods ending
on or prior to the Closing Date, except where the failure to have paid or to
have made adequate provision for the payment of Taxes would not, in the
aggregate, have a material adverse effect on the business, condition (financial
or other) or results of operations of the Sports Subsidiaries and their
subsidiaries, taken as a whole. Except as set forth on Schedule 3.12, the
liabilities and reserves for Taxes reflected in the balance sheets contained in
the Sports Subsidiaries Financial Statements and in the Sports Subsidiaries
Interim Statements are adequate to cover all Taxes for all periods ending on or
prior to March 31, 1994, except where the inadequacy of such balance sheet
liabilities and reserves in covering all Taxes for all periods ending on or
prior to March 31, 1994 would not, in the aggregate, have a material adverse
effect on the business, condition (financial or other) or results of operations
of the Sports Subsidiaries and their subsidiaries, taken as a whole, and there
are no material liens for Taxes upon any property or assets of the Sports
Subsidiaries or their subsidiaries, except for liens for Taxes not yet due and
payable. There are no unresolved issues of law or fact arising out of a notice
of deficiency, proposed deficiency or assessment from the IRS or any other
governmental taxing authority with respect to Taxes of the Sports Subsidiaries
or their subsidiaries which, if decided adversely, singly or in the aggregate,
would have a material adverse effect on the business, condition (financial or
other) or results of operations of the Sports Subsidiaries and their
subsidiaries, taken as a whole.
(b) Except as set forth on Schedule 3.12, no waivers of statutes of
limitation with respect to Tax Returns have been given by or requested from the
Sports Subsidiaries or their subsidiaries. Except as set forth on Schedule 3.12,
neither the Sports Subsidiaries nor any of their subsidiaries, nor to the
knowledge of the Sports Subsidiaries any predecessor in interest to any of them,
has filed a consent to the application of Section 341(f) of the Code or filed,
or shall be deemed to have filed, any election under Section 338 or Section 197
of the Code. For Actava's taxable year ending December 31, 1993, each of the
Sports Subsidiaries and their
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subsidiaries, will have been a member of and will join in the filing of a
consolidated federal income tax return of an affiliated group of corporations,
as that term is defined in Section 1504(a) of the Code, of which Actava is the
common parent (the "Affiliated Group").
(c) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation, net
income, gross income, gross receipts, excise, premium, property, environmental,
sales, withholding, backup withholding, social security, occupation, stamp, use,
service, service use, license, lease, payroll, employment, workers'
compensation, franchise, severance, transfer and recording taxes, customs,
duties or other taxes, fees, assessments or charges of any kind whatever,
imposed by the United States, or any state, local or foreign government or
subdivision or agency thereof whether computed on a separate, consolidated,
unitary, combined or any other basis; and such term shall include any interest,
fines, penalties or additional amounts attributable or imposed or with respect
to any such taxes, charges, fees, levies or other assessments. For purposes of
this Agreement, the term "Tax Return" shall mean any return, report or other
document or information required to be supplied to a taxing authority in
connection with Taxes.
Section 3.13 EMPLOYEE BENEFIT PLANS; ERISA. (a) Schedule 3.13(a) hereof
lists all Employee Arrangements under which the Sports Subsidiaries could incur
any material liability (the "Material Subsidiary Arrangements"). For purposes of
the preceding sentence, the term "Employee Arrangement" shall, with respect to a
person, mean all plans, programs or arrangements providing any benefits to any
individual which is sponsored, maintained or contributed to by such person,
including employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended, ("ERISA"), any
arrangement involving shares of stock, or any other similar arrangements.
Schedule 3.13(a) hereto also separately lists all such Material Subsidiary
Arrangements which are "Multiemployer Plans" within the meaning of Section 3(37)
and 4001(3) of ERISA or "Multiple Employer Plans" within the meaning of Section
413(c) of the Code. For purposes of this Section 3.13, the term "ERISA
Affiliate" shall, with respect to the Sports Subsidiaries, mean any person or
entity required to be aggregated with the Sports Subsidiaries under Sections
414(b), (c), (m) or (o) of the Code.
(b) Except as disclosed in Schedule 3.13(b), (i) there is no liability (a)
under Title IV of ERISA, (b) arising out of any communication or failure to
communicate, or (c) by reason of the transactions contemplated by this
Agreement, with respect to any Employee Arrangement which would have a material
adverse effect on the business, condition (financial or other) or results of
operations of the Sports Subsidiaries and their subsidiaries, taken as a whole,
(ii) the current present value of all projected benefit obligations under each
of the Material Subsidiary Arrangements which is subject to Title IV of ERISA
did not, as of its latest valuation date, exceed the then current value of the
assets of such Employee Arrangement allocable to such benefit liabilities (based
upon actuarial assumptions used by the Pension Benefit Guaranty Corporation for
valuing benefits in single-employer plans on termination), (iii) each of the
Material Subsidiary Arrangements has been written, operated and administered in
all respects in accordance with applicable laws and regulations during the
period of time covered by the applicable statute of limitations, except where
noncompliance would not have a material adverse effect on the business,
condition (financial or other) or results of operations of the Sports
Subsidiaries and their subsidiaries, taken as a whole, (iv) each of the Material
Subsidiary Arrangements which is intended to be "qualified" within the meaning
of Section 401(a) of the Code has been determined by the IRS to be so qualified
(or if not, the remedial amendment period for filing an application for
determination has not yet expired) and such determination has not been modified,
revoked or limited by failure to satisfy any condition thereof, (v) there are no
liens arising under ERISA or the Code and there are no claims, suits, actions,
audits or proceedings pending or, to the knowledge of Actava or the Sports
Subsidiaries, threatened against, relating to or affecting any Employee
Arrangement or any person affiliated therewith which could have a material
adverse effect on the business, condition (financial or other) or results of
operations of the Sports Subsidiaries and their subsidiaries, taken as a whole,
and (vi) each Material Subsidiary Arrangement may be terminated at any time and
for any reason by one of the Sports Subsidiaries, an ERISA Affiliate of the
Sports Subsidiaries, or an officer or employee thereof.
(c) Schedule 3.13(c) separately sets forth a complete and accurate list and
description of all material insurance contracts or agreements, annuity
contracts, fidelity bonds and fiduciary liability policies, investment
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manager or investment advisory contracts, and administrative services contracts
or agreements with respect to all Material Subsidiary Arrangements.
Section 3.14 INVESTMENT COMPANY ACT. Actava, the Sports Subsidiaries and
each of their subsidiaries either (a) is not an "investment company", or a
company "controlled" by, or an "affiliated company" with respect to, an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended (the "Investment Company Act"), or (b) satisfies all conditions for
an exemption from the Investment Company Act, and, accordingly, neither Actava,
the Sports Subsidiaries nor any of their subsidiaries is required to be
registered under the Investment Company Act.
Section 3.15 LABOR CONTROVERSIES. Except as set forth in the Actava 10-K,
the Actava 10-Q, the Actava 8-Ks, the Sports Subsidiaries Financial Statements
or Schedule 3.15, (a) there are no significant controversies pending or, to the
knowledge of Actava and the Sports Subsidiaries, threatened between any Sports
Subsidiary or its subsidiaries and any representatives of any of their
employees, (b) to the knowledge of Actava and the Sports Subsidiaries there are
no organizational efforts presently being made involving any of the presently
unorganized employees of the any Sports Subsidiary or its subsidiaries, (c) the
Sports Subsidiaries and their subsidiaries have complied in all material
respects with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, immigration and the payment of social security and similar Taxes,
and (d) no person has, to the knowledge of Actava and the Sports Subsidiaries,
asserted that the Sports Subsidiaries or any of their subsidiaries is liable in
any material amount for any arrears of wages or any Taxes or penalties for
failure to comply with any of the foregoing, except for such controversies,
organizational efforts, noncompliance and liabilities which, singly or in the
aggregate, could not reasonably be expected to materially and adversely affect
the business, condition (financial or other) or results of operations of the
Sports Subsidiaries and their subsidiaries taken as a whole.
Section 3.16 ENVIRONMENTAL MATTERS. The Sports Subsidiaries and their
subsidiaries (i) have obtained all permits, licenses and other authorizations
and filed all notices which are required to be obtained or filed by the Sports
Subsidiaries or any of their subsidiaries for the operation of its business
under federal, state and local laws relating to pollution or protection of the
environment; (ii) are in compliance with all terms and conditions of such
required permits, licenses and authorizations; (iii) are in compliance with all
other applicable limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in those laws or
contained in any law, regulation, code, plan, order, decree, judgment, notice or
demand letter issued, entered, promulgated or approved thereunder, except, under
(i), (ii) or (iii) above, where noncompliance would not have a material adverse
effect on the business, condition (financial or other) or results of operations
of the Sports Subsidiaries and their subsidiaries, taken as a whole. Except as
disclosed on Schedule 3.16 or where it would not have a material adverse effect
on the business, condition (financial or other) or results of operations of the
Sports Subsidiaries and their subsidiaries, taken as a whole, there are no past
or present events, conditions, circumstances, activities, practices, incidents,
actions or plans which may interfere with or prevent continued compliance, or
which may give rise to any common law or statutory liability, or otherwise form
the basis of any claim, action, suit, proceeding, hearing or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic material or waste with respect to the Sports
Subsidiaries or any of their subsidiaries.
Section 3.17 CERTAIN AGREEMENTS. Except as set forth in the Actava 10-K,
the Actava 10-Q, the Actava 8-Ks or Schedule 3.17, and except for this
Agreement, as of the date hereof, neither the Sports Subsidiaries nor any of
their subsidiaries is a party to any oral or written (a) consulting or similar
agreement with any present or former director, officer or employee or any entity
controlled by any such person involving the payment of remuneration more than
$50,000 per annum or $200,000 in the aggregate, (b) agreement with any director,
officer or employee of the Sports Subsidiaries or any of their subsidiaries the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Sports Subsidiaries of the
nature contemplated by this Agreement, or (c) agreement with respect to any
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officer or employee of the Sports Subsidiaries or any of their subsidiaries
providing any term of employment or compensation guarantee extending for a
period longer than one year and for the payment of remuneration in excess of
$50,000 per annum or $200,000 in the aggregate.
Section 3.18 PROPERTIES. (a) Except as disclosed in Schedule 3.18(a), the
Sports Subsidiaries and their subsidiaries have good title to each of their
material properties set forth in the Sports Subsidiaries Financial Statements,
free and clear of all security interests, liens, encumbrances, encroachments and
condemnation notices, except liens for current Taxes not yet due and payable,
security interests securing indebtedness reflected in the Sports Subsidiaries
Financial Statements and imperfections of title and agreements of record which
do not materially detract from the value or materially interfere with the
current use of such properties.
(b) Schedule 3.18(b) sets forth a list of all patents, trademarks, service
marks, trade names and copyrights owned or licensed by the Sports Subsidiaries
or their subsidiaries that are material to the business of the Sports
Subsidiaries and their subsidiaries taken as a whole.
Section 3.19 AFFILIATE TRANSACTIONS. Except as set forth in Schedule
3.19, there are no contracts, agreements, understandings or arrangements
pursuant to which any goods or services are provided or obtained with any
director, officer or shareholder of any Sports Subsidiary, or with any person
related to or affiliated with any such person or with any company or other
organization in which any director, officer or shareholder of any Sports
Subsidiary, or any such person, has a direct or indirect financial interest.
Section 3.20 PROXY STATEMENT. If Actava Shareholders' Approval is
required, none of the information relating to the Sports Subsidiaries and their
subsidiaries included in the Actava Proxy Statement (as defined in Section 6.2)
will be false or misleading with respect to any material fact, or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except for information supplied or to be supplied by
Roadmaster and its subsidiaries in writing for inclusion therein, as to which no
representation is made, the Actava Proxy Statement will comply in all material
respects with the Securities Act and in the rules and regulations thereunder.
Section 3.21 MATERIALITY. The representations and warranties set forth in
this Article III would in the aggregate be true and correct even without the
materiality exceptions or qualifications contained therein except for such
exceptions and qualifications which, in the aggregate for all such
representations and warranties, are not materially adverse to the business,
condition (financial or other), results of operations of the Sports Subsidiaries
and their subsidiaries, taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ROADMASTER
Roadmaster represents and warrants to Actava and the Sports Subsidiaries as
follows:
Section 4.1 ORGANIZATION AND QUALIFICATION. Roadmaster is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. Roadmaster is qualified to do business and is in good standing
in each jurisdiction in which the properties owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing will not, when
taken together with all other such failures, have a material adverse effect on
the business, condition (financial or other) or results of operations of
Roadmaster and its subsidiaries, taken as a whole. True, accurate and complete
copies of Roadmaster's Certificate of Incorporation and By-laws, as in effect on
the date hereof, including all amendments thereto, have heretofore been
delivered to Actava.
Section 4.2 CAPITALIZATION. (a) The authorized capital stock of
Roadmaster consists of 60,000,000 shares of Roadmaster Common Stock and
10,000,000 shares of preferred stock, $.01 par value ("Roadmaster Preferred
Stock"). As of July 20, 1994, 29,419,444 shares of Roadmaster Common Stock and
no shares of
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Roadmaster Preferred Stock were issued and outstanding. All of the issued and
outstanding shares of Roadmaster Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Except for 3,586,222 shares
of Roadmaster Common Stock owned by Roadmaster Corporation, no subsidiary of
Roadmaster holds any shares of capital stock of Roadmaster.
(b) Except as set forth in Schedule 4.2(b) hereof, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement obligating Roadmaster or any subsidiary of Roadmaster to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of Roadmaster or obligating Roadmaster or any subsidiary of
Roadmaster to grant, extend or enter into any such agreement or commitment,
except for this Agreement. Except as set forth in Schedule 4.2(b), there are no
voting trusts, proxies or other agreements or understandings to which Roadmaster
or any subsidiary of Roadmaster is a party or is bound with respect to the
voting of any shares of capital stock of Roadmaster. The Exchange Shares will be
at the Closing duly authorized, validly issued, fully paid and nonassessable and
free of preemptive rights.
Section 4.3 SUBSIDIARIES. Schedule 4.3 sets forth every subsidiary of
Roadmaster and the jurisdiction of its incorporation. Each direct and indirect
corporate subsidiary of Roadmaster is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. Each subsidiary of Roadmaster is qualified to do business, and
is in good standing, in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not, when taken together with all such other failures, have a
material adverse effect on the business, condition (financial or other) or
results of operations of Roadmaster and its subsidiaries, taken as a whole.
Except as set forth in Schedule 4.3, all of the outstanding shares of capital
stock of each corporate subsidiary of Roadmaster are validly issued, fully paid,
nonassessable and except with respect to wholly owned subsidiaries, free of
preemptive rights, and those shares owned directly or indirectly by Roadmaster
are owned free and clear of any liens, claims, encumbrances, security interests,
equities, charges and options of any nature whatsoever. Except as set forth in
Schedule 4.3, Roadmaster owns directly or indirectly all of the issued and
outstanding shares of the capital stock of each of its corporate subsidiaries.
Except as set forth in Schedule 4.3, there are no subscriptions, options,
warrants, rights, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting, transfer, ownership or other rights with respect to any shares of
capital stock of any corporate subsidiary of Roadmaster, including any right of
conversion or exchange under any outstanding security, instrument or agreement.
Section 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Roadmaster has
full corporate power and authority to enter into this Agreement and, subject to
obtaining the Roadmaster Shareholder's Approval (as defined in Section 6.2(a)),
and the Roadmaster Required Statutory Approvals (as defined in Section 4.4(c)),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement, and the consummation by Roadmaster of the transactions
contemplated hereby, have been duly authorized by Roadmaster's Board of
Directors, and no other corporate proceedings on the part of Roadmaster are
necessary to authorize the execution and delivery of this Agreement and the
consummation by Roadmaster of the transactions contemplated hereby, except for
obtaining the Roadmaster Shareholder's Approval and the Roadmaster Required
Statutory Approvals. This Agreement has been duly and validly executed and
delivered by Roadmaster, and, assuming the due authorization, execution and
delivery hereof by Actava and the Sports Subsidiaries, constitutes a valid and
binding agreement of Roadmaster enforceable against it in accordance with its
terms.
(b) The execution and delivery of this Agreement by Roadmaster does not,
and the consummation by Roadmaster of the transactions contemplated hereby will
not as of the Closing Date, violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security
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interest, charge or encumbrance upon any of the properties or assets of
Roadmaster or any of its subsidiaries under any of the terms, conditions or
provisions of (i) the respective charters or by-laws of Roadmaster or any of its
subsidiaries, (ii) subject to obtaining the Roadmaster Required Statutory
Approvals and the Roadmaster Shareholders' Approval, any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to Roadmaster or
any of its subsidiaries or any of their respective properties or assets, or
(iii) subject to obtaining the approvals set forth in Schedule 4.4(b), any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which Roadmaster or any of its subsidiaries is now a party or by which
Roadmaster or any of its subsidiaries or any of their respective properties or
assets may be bound or affected, excluding from the foregoing clauses (ii) and
(iii) such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens, security interests, charges or encumbrances
that would not, in the aggregate, have a material adverse effect on the
business, condition (financial or other) or results of operations of Roadmaster
and its subsidiaries, taken as a whole.
(c) Except for (i) the filings by Roadmaster and Actava required by Title
II of the HSR Act, and (ii) the required filings with or approvals set forth in
Schedule 4.4(c) (the filings and approvals referred to in clauses (i) and (ii)
are collectively referred to as the "Roadmaster Required Statutory Approvals"),
no declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by Roadmaster or the
consummation by Roadmaster of the transactions contemplated hereby, other than
such declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a material adverse effect on the business, condition (financial
or other) or results of operations of Roadmaster and its subsidiaries, taken as
a whole.
Section 4.5 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1991,
Roadmaster and each of its subsidiaries required to make filings under the
Securities Act or the Exchange Act have filed with the SEC all material forms,
statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed by them under the Securities Act, the
Exchange Act and the Trust Indenture Act, and the respective rules and
regulations thereunder, all of which complied in all material respects with all
applicable requirements of the appropriate act and the rules and regulations
thereunder, except where such failure to file or non-compliance would not, in
the aggregate, have a material adverse effect on the business, condition
(financial or other) or results of operations of Roadmaster or its subsidiaries,
taken as a whole. Roadmaster has previously delivered to the Actava copies of
its (a) Annual Reports on Form 10-K for the fiscal year ended December 31, 1993
and for each of the two immediately preceding fiscal years, including the
exhibits and schedules thereto, all as filed with the SEC, (b) Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994, including the exhibits and
schedules thereto, as filed with the SEC, (c) proxy and information statements,
to the extent required, relating to (i) all meetings of its shareholders
(whether annual or special) and (ii) actions by written consent in lieu of a
shareholders meeting from January 1, 1991, until the date hereof, and (d) all
other reports or registration statements (which have been declared effective)
including the exhibits and schedules thereto, all as filed by Roadmaster with
the SEC since January 1, 1991 (other than registration statements filed on Form
S-8) (collectively, the "Roadmaster SEC Reports"). As of their respective dates,
the Roadmaster SEC Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements of Roadmaster included in
such reports (the "Roadmaster Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
present, in all material respects, the financial position of Roadmaster and its
subsidiaries on a consolidated basis as of the dates thereof and the results of
their operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
Section 4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
Roadmaster's Annual Report on Form 10-K for the year ended December 31, 1993 and
the exhibits and schedules thereto (the
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"Roadmaster 10-K"), or Roadmaster's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994 and the exhibits and schedules thereto (the
"Roadmaster 10-Q") or in Schedule 4.6, neither Roadmaster nor any of its
subsidiaries had at March 31, 1994, or has incurred since that date, any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, (a) except liabilities, obligations or contingencies (i) which
are accrued or reserved against in the Roadmaster Financial Statements or
reflected in the notes thereto or (ii) which were incurred after March 31, 1994
in the ordinary course of business and consistent with past practices and (b)
except for any liabilities, obligations or contingencies which (i) would not, in
the aggregate, have a material adverse effect on the business, condition
(financial or other) or results of operations of Roadmaster and its
subsidiaries, taken as a whole, or (ii) have been discharged or paid in full
prior to the date hereof.
Section 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the Roadmaster 10-Q or the other Roadmaster SEC Reports, from March 31, 1994
through the date hereof, (i) there has not been any material adverse change in
the business, condition (financial or other) or results of operations of
Roadmaster and its subsidiaries, taken as a whole, and (ii) Roadmaster has not
made any declaration, setting aside or payment of any dividend or other
distribution with respect to any of Roadmaster's capital stock.
Section 4.8 LITIGATION. Except as disclosed in the Roadmaster 10-K, the
Roadmaster 10-Q or Schedule 4.8, there are no claims, suits, actions or
proceedings pending or, to the knowledge of Roadmaster, threatened against,
relating to or affecting Roadmaster or any of its subsidiaries, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator, which could reasonably be expected, either alone
or in the aggregate with all such claims, actions or proceedings, to materially
and adversely affect the business, condition (financial or other) or results of
operations of Roadmaster and its subsidiaries, taken as a whole. Except as set
forth in Schedule 4.8, neither Roadmaster nor any of its subsidiaries is subject
to any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority or of any
arbitrator which prohibits or restricts the consummation of the transactions
contemplated hereby or would have a material adverse effect on the business,
condition (financial or other) or results of operations of Roadmaster and its
subsidiaries, taken as a whole.
Section 4.9 TRANSFER CLAIMS. No prior offer, issue, redemption, call,
purchase, sale, transfer, negotiation or other transaction of any nature or kind
with respect to any capital stock (including shares, offers, options, warrants,
or debt convertible into shares, options or warrants) of Roadmaster or any of
its subsidiaries, or any corporation which has been merged into Roadmaster or
any of its subsidiaries, has given or may give rise to any claim or action by
any person which is enforceable against Roadmaster or to the knowledge of
Roadmaster any of its subsidiaries, and, to the knowledge of Roadmaster, no fact
or circumstance exists which could give rise to any such claim or action on
behalf of any person, except for claims or actions which would not have, in the
aggregate, a material adverse effect on the business, condition (financial or
other) or results of operations of Roadmaster and its subsidiaries, taken as a
whole.
Section 4.10 NO VIOLATION OF LAW. Except as disclosed in the Roadmaster
10-K, the Roadmaster 10-Q or Schedule 4.10, neither Roadmaster nor any of its
subsidiaries is in violation of, or has been given notice or been charged with
any violation of any law, statute, order, rule, regulation, ordinance, or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any governmental or regulatory body or authority,
except for violations which, in the aggregate, do not have a material adverse
effect on the business, condition (financial or other) or results of operations
of Roadmaster and its subsidiaries, taken as a whole. Except as disclosed in the
Roadmaster 10-K, the Roadmaster 10-Q or Schedule 4.10, as of the date of this
Agreement, to the knowledge of Roadmaster no investigation or review by any
governmental or regulatory body or authority is pending or threatened, nor has
any governmental or regulatory body or authority indicated an intention to
conduct the same, other than, in each case, those the outcome of which, as far
as reasonably can be foreseen, will not have a material adverse effect on the
business, condition (financial or other) or results of operations of Roadmaster
and its subsidiaries taken as a whole. Roadmaster and its subsidiaries have all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted, (the "Roadmaster Permits"), except for
permits, licenses, franchises, variances, exemptions,
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orders, authorizations, consents and approvals the absence of which, alone or in
the aggregate, would not have a material adverse effect on the business,
condition (financial or other) or results of operations of the Roadmaster and
its subsidiaries, taken as a whole. Roadmaster and its subsidiaries (a) have
duly and currently filed all reports and other information required to be filed
with any governmental or regulatory authority in connection with the Roadmaster
Permits, and (b) are not in violation of the terms of any Roadmaster Permit,
except for delays in filing reports or violations which, alone or in the
aggregate, would not have a material adverse effect on the business, condition
(financial or other) or results of operations of the Roadmaster and its
subsidiaries, taken as a whole.
Section 4.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed in the
Roadmaster 10-K, the Roadmaster 10-Q or in Schedule 4.11, Roadmaster and each of
its subsidiaries are not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with lapse of time or action by a third party, could result in a default
under, (a) the respective charters, by-laws or other similar organizational
instruments of Roadmaster or any of its subsidiaries or (b) any contract,
commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond,
license, approval or other instrument to which Roadmaster or any of its
subsidiaries is a party or by which any of them is bound or to which any of
their property is subject, which breaches, violations and defaults, in the case
of clause (b) of this Section 4.11, would have, in the aggregate, a material
adverse effect on the business, condition (financial or other) or results of
operations of Roadmaster and its subsidiaries, taken as a whole.
Section 4.12 TAXES. Except as set forth on Schedule 4.12, Roadmaster and
its subsidiaries have, or prior to the Closing Date, will have (i) timely filed
(or have, or prior to the Closing Date, will have obtained valid extensions of
time to file) with the appropriate governmental authorities all Tax Returns
required to be filed by them for all periods ending on or prior to the Closing
Date, other than those Tax Returns the failure of which to file would not have a
material adverse effect on the business, condition (financial or other) or
results of operations of Roadmaster and its subsidiaries, taken as a whole, and
such Tax Returns are true, correct and complete in all material respects, and
(ii) duly paid in full or made adequate provision for the payment of all Taxes
for all periods ending on or prior to the Closing Date, except where the failure
to have paid or to have made adequate provision for the payment of Taxes would
not, in the aggregate, have a material adverse effect on the business, condition
(financial or other) or results of operations of Roadmaster and its
subsidiaries, taken as a whole. Except as set forth on Schedule 4.12, the
liabilities and reserves for Taxes reflected in the Roadmaster balance sheets
contained in the Roadmaster Financial Statements are adequate to cover all Taxes
for all periods ending on or prior to March 31, 1994, except where the
inadequacy of such balance sheet liabilities and reserves in covering all Taxes
for all periods ending on or prior to March 31, 1994 would not, in the
aggregate, have a material adverse effect on the business, conditions (financial
or other) or results of operations of Roadmaster and its subsidiaries, taken as
a whole, and there are no material liens for Taxes upon any property or assets
of Roadmaster or any subsidiary thereof, except for liens for Taxes not yet due
and payable. There are no unresolved issues of law or fact arising out of a
notice of deficiency, proposed deficiency or assessment from the IRS or any
other governmental taxing authority with respect to Taxes of the Roadmaster or
any of its subsidiaries which, if decided adversely, singly or in the aggregate,
would have a material adverse effect on the business, condition (financial or
other) or results of operations of Roadmaster and its subsidiaries, taken as a
whole. Except as set forth on Schedule 4.12, no waivers of statutes of
limitation with respect to Tax Returns have been given by or requested from
Roadmaster or its subsidiaries. Except as set forth on Schedule 4.12, neither
Roadmaster nor any of its subsidiaries, nor to the knowledge of Roadmaster any
predecessor in interest to any of them, has filed a consent to the application
of Section 341(f) of the Code or filed, or shall be deemed to have filed, any
election under Section 338 or Section 197 of the Code.
Section 4.13 EMPLOYEE BENEFIT PLANS; ERISA. (a) Schedule 4.13(a) hereof
lists all Employee Arrangements with respect to which Roadmaster could incur any
material liability (the "Material Roadmaster Arrangements"). For purposes of the
preceding sentence, the term "Employee Arrangements" shall have the meaning set
forth in Section 3.13(a) of this Agreement. Schedule 4.13(a) hereto also
separately lists all such Material Roadmaster Arrangements which are
"Multiemployer Plans" within the meaning of Sections 3(37) and 4001(3) of ERISA
or "Multiple Employer Plans" within the meaning of Section 413(c) of the Code.
For
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purposes of this Section 4.13, the term "ERISA Affiliate" shall, with respect to
Roadmaster, mean any person or entity required to be aggregated with Roadmaster
under Sections 414(b), (c), (m) or (o) of the Code.
(b) Except as disclosed in Schedule 4.13(b), (1) there is no liability (a)
under Title IV of ERISA, (b) arising out of any communication or failure to
communicate, or (c) by reason of the transactions contemplated by this
Agreement, with respect to any Employee Arrangement which would have a material
adverse effect on the business, condition (financial or other) or results of
operations of Roadmaster and its subsidiaries, taken as a whole, (2) the current
present value of all projected benefit obligations under each of the Material
Roadmaster Arrangements which is subject to Title IV of ERISA did not, as of its
latest valuation date, exceed the then current value of the assets of such
Employee Arrangement allocable to such benefit liabilities (based upon actuarial
assumptions used by the Pension Benefit Guaranty Corporation for valuing
benefits in single-employer plans on termination), (3) each of the Material
Roadmaster Arrangements has been written, operated and administered in all
respects in accordance with applicable laws and regulations during the period of
time covered by the applicable statute of limitations, except where
noncompliance would not have a material adverse effect on the business,
condition (financial or other) or results of operations of Roadmaster and its
subsidiaries, taken as a whole, (4) each of the Material Roadmaster Arrangements
which is intended to be "qualified" within the meaning of Section 401(a) of the
Code has been determined by the IRS to be so qualified (or if not, the remedial
amendment period for filing an application for determination has not yet
expired) and such determination has not been modified, revoked or limited by
failure to satisfy any condition thereof, (5) there are no liens arising under
ERISA or the Code and there are no claims, suits, actions, audits or proceedings
pending or, to the knowledge of Roadmaster, threatened against, relating to or
affecting any Employee Arrangement or any person affiliated therewith which
could have a material adverse effect on the business, condition (financial or
other) or results of operations of Roadmaster and its subsidiaries, taken as a
whole, and (6) each Material Roadmaster Arrangement may be terminated at any
time and for any reason by Roadmaster, an ERISA Affiliate of Roadmaster, or an
officer or employee thereof.
(c) Schedule 4.13(c) separately sets forth a complete and accurate list and
description of all material insurance contracts or agreements, annuity
contracts, fidelity bonds and fiduciary liability policies, investment manager
or investment advisory contacts, and administrative services contracts or
agreements with respect to all Material Roadmaster Arrangements.
Section 4.14 INVESTMENT COMPANY ACT. Roadmaster and each of its
subsidiaries either (a) is not an "investment company", or a company
"controlled" by, or an "affiliated company" with respect to, an "investment
company", within the meaning of the Investment Company Act or (b) satisfies all
conditions for an exemption from the Investment Company Act, and, accordingly,
neither Roadmaster nor any of its subsidiaries is required to be registered
under the Investment Company Act.
Section 4.15 LABOR CONTROVERSIES. Except as set forth in the Roadmaster
10-K, the Roadmaster 10-Q or Schedule 4.15, (a) there are no significant
controversies pending or, to the knowledge of Roadmaster, threatened between
Roadmaster or its subsidiaries and any representatives of any of their
employees, (b) to the knowledge of Roadmaster there are no organizational
efforts presently being made involving any of the presently unorganized
employees of Roadmaster and its subsidiaries, (c) Roadmaster and its
subsidiaries have complied in all material respects with all laws relating to
the employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, immigration and the payment of
social security and similar Taxes, and (d) no person has, to the knowledge of
Roadmaster, asserted that Roadmaster or any of its subsidiaries is liable in any
material amount for any arrears of wages or any Taxes or penalties for failure
to comply with any of the foregoing, except for such controversies,
organizational efforts, noncompliance and liabilities which, singly or in the
aggregate, could not reasonably be expected to materially and adversely affect
the business, condition (financial or other) or results of operations of
Roadmaster and its subsidiaries, taken as a whole.
Section 4.16 ENVIRONMENTAL MATTERS. Roadmaster and its subsidiaries (i)
have obtained all permits, licenses and other authorizations and filed all
notices which are required to be obtained or filed by Roadmaster or any of its
subsidiaries for the operation of its business under federal, state and local
laws relating to pollution
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or protection of the environment; (ii) are in compliance with all terms and
conditions of such required permits, licenses and authorizations; (iii) are in
compliance with all other applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in those laws or contained in any law, regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder, except, under (i), (ii) or (iii) above, where noncompliance
would not have a material adverse effect on the business, condition (financial
or other) or results of operations of Roadmaster and its subsidiaries taken as a
whole. Except as disclosed on Schedule 4.16 or where it would not have a
material adverse effect on the business, condition (financial or other) or
results of operations of Roadmaster and its subsidiaries taken as a whole, there
are no past or present events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or prevent continued
compliance, or which may give rise to any common law or statutory liability, or
otherwise form the basis of any claim, action, suit, proceeding, hearing or
investigation, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic material or waste with respect to Roadmaster
or any of its subsidiaries.
Section 4.17 CERTAIN AGREEMENTS. Except as set forth in the Roadmaster
10-K, the Roadmaster 10-Q, or Schedule 4.17, and except for this Agreement, as
of the date hereof, neither Roadmaster nor any of its subsidiaries is a party to
any oral or written (a) consulting or similar agreement with any present or
former director, officer or employee or any entity controlled by any such Person
involving the payment or remuneration of more than $50,000 per annum or $200,000
in the aggregate, (b) agreement with any director, officer or employee of
Roadmaster or any of its subsidiaries the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving Roadmaster of the nature contemplated by this Agreement, (c) agreement
with respect to any officer or employee of Roadmaster or any of its subsidiaries
providing any term of employment or compensation guarantee extending for a
period longer than one year and for the payment or remuneration in excess of
$50,000 per annum or $200,000 in the aggregate.
Section 4.18 PROPERTIES. (a) Except as disclosed in Schedule 4.18(a),
Roadmaster and its subsidiaries have good title to each of their material
properties set forth in the Roadmaster Financial Statements, free and clear of
all security interests, liens, encumbrances, encroachments and condemnation
notices, except liens for current Taxes not yet due and payable, security
interests securing indebtedness reflected in the Roadmaster Financial Statements
and imperfections of title and agreements of record which do not materially
detract from the value or materially interfere with the current use of such
properties.
(b) Schedule 4.18(b) sets forth a list of all patents, trademarks, service
marks, trade names and copyrights owned or licensed by Roadmaster or its
subsidiaries that are material to the business of Roadmaster and its
subsidiaries, taken as a whole.
Section 4.19 AFFILIATE TRANSACTIONS. Except as set forth in Schedule
4.19, there are no contracts, agreements, understandings or arrangements
pursuant to which any goods or services are provided or obtained with any
director, officer or shareholder of Roadmaster, or with any person related to or
affiliated with any such person or with any company or other organization in
which any director, officer or shareholder of Roadmaster, or any such person,
has a direct or indirect financial interest.
Section 4.20 PROXY STATEMENT. None of the information relating to
Roadmaster and its subsidiaries included in the Roadmaster Proxy Statement (as
defined in Section 6.2) will be false or misleading with respect to any material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except for information supplied or
to be supplied by Actava or the Sports Subsidiaries in writing for inclusion
therein, as to which no representation is made, the Roadmaster Proxy Statement,
and any supplements or amendments thereto, will comply in all material respects
with the Exchange Act and the Securities Act, as the case may be, and in each
case the rules and regulations thereunder.
Section 4.21 MATERIALITY. The representations and warranties set forth in
this Article IV would in the aggregate be true and correct even without the
materiality exceptions or qualifications contained therein
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except for such exceptions and qualifications which, in the aggregate for all
such representations and warranties, are not materially adverse to the business,
condition (financial or other), results of operations of Roadmaster and its
subsidiaries, taken as a whole.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE EXCHANGES
Section 5.1 CONDUCT OF BUSINESS BY THE SPORTS SUBSIDIARIES PENDING THE
EXCHANGES. Except as set forth in Schedule 5.1 hereof or as otherwise
contemplated by this Agreement, after the date hereof and prior to the Closing
or earlier termination of this Agreement, unless Roadmaster shall otherwise
agree in writing, the Sports Subsidiaries shall, and shall cause each of their
subsidiaries, to:
(a) Conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice.
(b) Not (i) amend or propose to amend their respective charters or
by-laws, or (ii) split, combine or reclassify their outstanding capital
stock or declare, set aside or pay any dividend or distribution payable in
cash, stock, property or otherwise; provided, however, the Sports
Subsidiaries shall be permitted to declare and pay to Actava prior to the
Closing a cash dividend in an aggregate amount not to exceed $300,000 less
accounting fees of independent certified public accountants previously
billed by Actava to the Sports Subsidiaries and collected by Actava with
respect to accounting work performed in connection with this Agreement for
the Sports Subsidiaries' fiscal years prior to 1992.
(c) Not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of their capital stock of any
class or any debt or equity securities convertible into or exchangeable for
such capital stock.
(d) Not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings or guarantees in
the ordinary course of business or (B) borrowings to refinance existing
indebtedness, (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock, other than as required by the
governing terms of such capital stock, (iii) make any acquisition of any
assets or businesses other than (A) the acquisitions described in Schedule
5.1 hereto, (B) expenditures for fixed or capital assets in the ordinary
course of business as contemplated in each Sports Subsidiaries capital
budget, (C) expenditures for inventory in the ordinary course of business
or (D) other acquisitions having a value (including the principal amount of
indebtedness assumed or acquired) of less than $1,000,000 individually and
$2,000,000 in the aggregate, (iv) sell any assets or businesses other than
(A) the sales described in Schedule 5.1 hereto, (B) sales in the ordinary
course of business or (C) other sales of less than $1,000,000 individually
and $2,000,000 in the aggregate or (v) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing.
(e) Use all reasonable efforts to preserve intact their respective
business organizations, keep available the services of their respective
present officers and key employees, and preserve the business relationships
with suppliers, distributors, customers, and others having business
relationships with them and not engage in any action, directly or
indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement.
(f) Not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or employees,
except in the ordinary course and consistent with past practice.
(g) Not adopt, enter into or amend any Material Subsidiary
Arrangement.
(h) Maintain insurance on its assets and its businesses in such
amounts and against such risks and losses as are consistent with past
practice.
Section 5.2 CONDUCT OF BUSINESS BY ROADMASTER PENDING THE
EXCHANGES. Except as set forth in Schedule 5.2 or as otherwise contemplated
hereby, after the date hereof and prior to the Closing Date or
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earlier termination of this Agreement, unless Actava shall otherwise agree in
writing, Roadmaster shall, and shall cause its subsidiaries to:
(a) Conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice.
(b) Not (i) amend or propose to amend their respective charters or
by-laws, or (ii) split, combine or reclassify their outstanding capital
stock or declare, set aside or pay any dividend or distribution payable in
cash, stock, property or otherwise, except for the payment of dividends or
distributions by a wholly owned subsidiary of Roadmaster.
(c) Not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of their capital stock of any
class or any debt or equity securities convertible into or exchangeable for
such capital stock, except that Roadmaster may issue shares upon exercise
of outstanding options in the ordinary course of its business and
consistent with its past practices.
(d) Not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings or guarantees in
the ordinary course of business or (B) borrowings to refinance existing
indebtedness, (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock, other than as required by the
governing terms of such capital stock, (iii) take or fail to take any
action which action or failure to take action would cause Actava to
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Exchanges, (iv) make any acquisition of any assets or
businesses other than (A) the acquisitions described in Schedule 5.2
hereto, (B) expenditures for fixed or capital assets in the ordinary course
of business as contemplated in Roadmaster's capital budget, (C)
expenditures for inventory in the ordinary course of business or (D) other
acquisitions having a value (including the principal amount of indebtedness
assumed or acquired) of less than $1,000,000 individually and $2,000,000 in
the aggregate, (v) sell any assets or businesses other than (A) the sales
described in Schedule 5.2 hereto, (B) sales in the ordinary course of
business or (C) other sales of less than $1,000,000 individually and
$2,000,000 in the aggregate or (vi) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing.
(e) Use all reasonable efforts to preserve intact their respective
business organizations, keep available the services of their respective
present officers and key employees, and preserve the business relationships
with suppliers, distributors, customers, and others having business
relationships with them and not engage in any action, directly or
indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement.
(f) Not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or employees,
except in the ordinary course and consistent with past practice.
(g) Not adopt, enter into or amend any Material Roadmaster
Arrangement.
(h) Maintain with financially responsible insurance companies
insurance on its assets and its businesses in such amounts and against such
risks and losses as are consistent with past practice.
Section 5.3 ACQUISITION TRANSACTIONS. After the date hereof and prior to
the Closing or earlier termination of this Agreement, unless the other party
shall otherwise agree in writing, neither Roadmaster nor Actava shall, nor shall
they permit any of their subsidiaries to, initiate, solicit, negotiate,
encourage, or provide confidential information to facilitate any proposal or
offer to acquire all or any substantial part of the business and properties of
Roadmaster or the Sports Subsidiaries and their respective subsidiaries, taken
as a whole, or all or any part of the capital stock of Roadmaster or the Sports
Subsidiaries, whether by merger, purchase of assets, tender offer or otherwise,
whether for cash, securities or any other consideration or combination thereof
(such transactions, exclusive of an acquisition of assets that do not constitute
substantially all of the assets of Roadmaster or the Sports Subsidiaries and
their respective subsidiaries taken as a whole, being referred to herein as
"Acquisition Transactions").
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Section 5.4 ACCESS TO INFORMATION. The Sports Subsidiaries and their
subsidiaries shall, and Actava shall cause the Sports Subsidiaries to, afford to
Roadmaster and its respective accountants, counsel, financial advisors and other
representatives (the "Roadmaster Representatives") and Roadmaster and its
subsidiaries shall afford to Actava and its accountants, counsel, financial
advisors and other representatives (the "Actava Representatives") full access
during normal business hours throughout the period prior to the Closing to all
of their respective properties, books, contracts, commitments and records
(including, but not limited to, the Tax Returns of the Sports Subsidiaries and
their subsidiaries) and employee compensation information, but not including any
records pertaining to confidential employee health, disciplinary or other
matters which are not legally relevant to the transactions contemplated by this
Agreement and, during such period, shall furnish promptly to one another (i) a
copy of each report, schedule and other document filed or received by any of
them pursuant to the requirements of federal or state securities laws or filed
by any of them with the SEC, and (ii) such other information concerning their
respective businesses, properties and personnel as Roadmaster or Actava, as the
case may be, shall reasonably request; provided that no investigation pursuant
to this Section 5.4 shall affect any representations or warranties made herein
or the conditions to the obligations of the respective parties to consummate the
Exchanges. The parties acknowledge that the information to be provided by one
party to the other under this Section 5.4, and which has been provided prior to
the execution and delivery of this Agreement, includes information which is
nonpublic, confidential or proprietary in nature. All of such information, in
whole or in part, together with any analyses, compilations, studies or other
documents prepared by any party, the Roadmaster Representatives, or the Actava
Representatives, which contain or otherwise reflect any such information is
hereinafter referred to as the "Information".
Each party hereby agrees as follows:
(a) The Information will be kept confidential and shall not, without
the prior mutual written consent of Roadmaster and Actava be disclosed by
any party, the Roadmaster Representatives, or the Actava Representatives,
in any manner whatsoever, in whole or in part, and shall not be used by any
party, the Roadmaster Representatives, or the Actava Representatives,
following any termination of this Agreement. Each party agrees to transmit
the Information only to its respective employees and representatives who
need to know the Information and who shall agree to be bound by the terms
and conditions of this Agreement. In any event, each party shall be
responsible for any breach of this Agreement by its respective employees or
representatives.
(b) Each party agrees to keep a record of the location of the
Information. If the Exchanges are not consummated, the Information, except
for that portion of the Information which consists of analyses,
compilations, studies or other documents prepared by each party's
respective employees and representatives, will be returned to the other
promptly upon request and no party shall retain any copies. That portion of
the Information, and all copies thereof, which consists of analyses,
compilations, studies or other documents prepared by each party's
respective employees and representatives will be destroyed.
(c) In the event any party becomes legally compelled to disclose any
of the Information, such party will provide to the other prompt notice so
that each other party may seek a protective order or other appropriate
remedy and/or waive compliance with the provisions of this Agreement. In
the event that such protective order or other remedy is not obtained, or
compliance with the provisions of this Agreement is waived, a party will
furnish only that portion of the Information which is legally required, and
to the extent requested by the other party, will exercise its best efforts
to obtain a protective order or other reliable assurance that confidential
treatment will be accorded the Information.
The term "Information" does not include information which (i) was known to
any party about the other prior to its disclosure, provided that Roadmaster,
Actava, or their Representatives lawfully obtained or developed such
information, (ii) becomes generally available to the public other than as a
result of a disclosure by Roadmaster, Actava, or their Representatives in
violation of this Agreement, or (iii) becomes available from a source other than
Roadmaster, Actava, or their Representatives, if the source is not bound by a
confidentiality agreement and such source lawfully obtained such information.
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ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect,
Actava and Roadmaster shall not, and shall cause their affiliates not to, issue
or cause the publication of any press release or any other announcement with
respect to the Exchanges or the transactions contemplated by this Agreement
without the consent of the other party, except where such release or
announcement is required by applicable law or pursuant to any listing agreement
with, or the rules or regulations of, any national securities exchange on which
securities of Actava or Roadmaster, are listed or traded.
Section 6.2 SHAREHOLDERS' APPROVAL; PROXY STATEMENT. (a) Roadmaster shall
promptly submit this Agreement and the transactions contemplated hereby for the
approval of its shareholders and, subject to the fiduciary duties of the Board
of Directors of Roadmaster under applicable law, shall use its best efforts to
obtain stockholder approval and adoption of this Agreement and the transactions
contemplated hereby (the "Roadmaster Shareholders' Approval"). Subject to the
fiduciary duties of the Board of Directors of Roadmaster under applicable law,
Roadmaster shall, through its Board of Directors, recommend to its shareholders
approval of the transactions contemplated by this Agreement. As soon as
practicable, Roadmaster shall file with the SEC under the Exchange Act, and
shall use its best efforts to have cleared by the SEC, a proxy statement (the
"Roadmaster Proxy Statement"), with respect to the approval of the Roadmaster's
stockholders referred to above. Roadmaster shall comply with all applicable
requirements of "Blue Sky" and state securities laws in connection with the
Exchanges and the issuance of the Exchange Shares prior to the Closing.
(b) If required, Actava shall submit this Agreement and the transactions
contemplated hereby for the approval of its shareholders and, subject to the
fiduciary duties of the Board of Directors of Actava under applicable law, shall
use its best efforts to obtain shareholder approval and adoption of this
Agreement and the transactions contemplated hereby (the "Actava Shareholders'
Approval"). Subject to the fiduciary duties of the Board of Directors of Actava
under applicable law, Actava shall, through its Board of Directors, recommend to
its shareholders approval of the transactions contemplated by this Agreement. If
Actava Shareholders' Approval is required, Actava shall file with the SEC under
the Exchange Act, and shall use its best efforts to have cleared by the SEC, a
proxy statement (the "Actava Proxy Statement"), with respect to the approval of
the Actava's shareholders referred to above.
Section 6.3 EXPENSES. Except as provided in Section 5.1(b) hereof as to
Actava, Actava shall be responsible for all costs and expenses incurred by
Actava and the Sports Subsidiaries in connection with this Agreement and
Roadmaster shall be responsible for all costs and expenses incurred by
Roadmaster in connection with this Agreement.
Section 6.4 AGREEMENT TO COOPERATE. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement, including using its reasonable
efforts to obtain all necessary or appropriate governmental or third party
waivers, consents and approvals and SEC "no-action" letters, to effect all
necessary registrations, filings and submissions (including, but not limited to,
filings under the HSR Act and any other submissions requested by the Federal
Trade Commission (the "FTC") or Department of Justice the ("DOJ")) and to lift
any injunction or other legal bar to the Exchanges (and, in such case, to
proceed with the Exchanges as expeditiously as possible).
Section 6.5 STOCK EXCHANGE LISTING. Roadmaster shall use its reasonable
best efforts to cause the listing of all shares of Roadmaster Common Stock and
the Exchange Shares on the New York Stock Exchange (the "NYSE") prior to or
simultaneous with the Closing.
Section 6.6 INSURANCE COVERAGE. Roadmaster acknowledges and agrees that
all of the insurance policies in force naming the Sport Subsidiaries, any of
their subsidiaries or employees thereof as an insured or beneficiary or as a
loss payee or for which the Sports Subsidiaries or any of their subsidiaries has
paid or is obligated to pay all or part of the premiums shall be terminated as
of the Closing. Roadmaster agrees that it
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will arrange to provide, effective as of the Closing, insurance coverage for the
Sports Subsidiaries from responsible companies in such amounts and against such
risks as Roadmaster and its subsidiaries maintain in the ordinary course of
business.
Section 6.7 RELEASES. Roadmaster agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do or cause to be done, all things
necessary, proper or advisable to release Actava from any guaranty or assurance
of any obligation (payment or performance) of the Sports Subsidiaries and their
subsidiaries, including, without limitation, Actava's obligations under that
certain (a) Support Agreement, dated as of April 29, 1993, between Actava and
Sterling National Bank & Trust Company of New York (the "Support Agreement"),
(b) Guaranty (Arbitration), dated December 15, 1993, as amended, in favor of ITT
Commercial Finance Corp. and The Provident Bank (the "ITT Guaranty"), (c)
Limited Guaranty, dated October 13, 1992, in favor of First Union National Bank
of North Carolina (the "1992 First Union Guaranty"); and (d) Guaranty, dated
June 6, 1988, in favor of First Union National Bank of North Carolina (the "1988
First Union Guaranty"); provided, however, the parties agree that such actions
on the part of Roadmaster to obtain the release of Actava from any such guaranty
or assurance shall in no event include the contribution of cash to the Sports
Subsidiaries by Roadmaster where such funds would be required to be used by the
Sports Subsidiaries to satisfy their respective obligations to which any such
Actava guaranty or assurance relates. Roadmaster shall indemnify and reimburse
Actava for any and all claims, losses, liabilities, damages, costs (including
court costs), and expenses (including reasonable attorneys and accountants'
fees) incurred by Actava, its successors or assigns, and their respective
officers, employees, consultants and agents after the Closing as a result of any
guaranty or assurance of any obligation (payment or performance) of the Sports
Subsidiaries and their subsidiaries, including, without limitation, the ones
specifically set forth herein; provided, however, Roadmaster's indemnity
obligation set forth herein shall not apply to any liability or obligation
required to be, but which was not disclosed on the schedules to this Agreement.
Section 6.8 ADDITIONAL INCOME TAX MATTERS. (a) Each of the Sports
Subsidiaries will continue to join, for all taxable periods of such Sports
Subsidiaries ending on or before the Closing Date, as members of the Affiliated
Group filing a consolidated federal income tax return for federal income tax
purposes. Actava shall be responsible for preparing and filing such consolidated
federal income tax returns to be filed on behalf of the Affiliated Group for
such periods and shall timely pay or cause to be paid all federal income taxes
shown as due on such tax returns. Roadmaster agrees that it shall provide (or
shall cause its accountants and other representatives to provide) to Actava
within three (3) months after the Closing Date, the information, including but
not limited to internally prepared financial statements, tax work papers and
records relating to the Sports Subsidiaries, that is reasonably necessary or
related to Actava's preparation of the federal income tax returns of the Sports
Subsidiaries for the taxable period ending on the Closing Date which will be
included in the consolidated federal income tax return for the Affiliated Group
for its taxable year beginning January 1, 1994 which will be filed by Actava
(the "1994 Consolidated Return").
(b) Each of the Sports Subsidiaries will file their respective state or
local income or franchise tax returns based on the statutory filing requirements
of the jurisdictions in which they have filing responsibilities including, but
not limited to, filing on a combined, separate company or other statutory basis
as required by the particular jurisdiction. The returns will be filed based on
the statutorily defined tax period of the particular jurisdiction in which the
filing occurs. Such tax returns may, for example, include the period January 1,
1994 to the Closing Date or may include the period January 1, 1994 to December
31, 1994 depending on the particular jurisdiction's requirements. The Sports
Subsidiaries shall be responsible for preparing all their respective state or
local income or franchise tax returns that have a tax period of January 1, 1994
to the Closing Date and shall timely pay or cause to be paid all state or local
income or franchise taxes shown as due on such returns. The Sports Subsidiaries
shall also be responsible for preparing all their respective state or local
income or franchise tax returns that have a tax period of either the Closing
Date to December 31, 1994 or January 1, 1994 to December 31, 1994 and shall
timely pay or cause to be paid all state or local income or franchise taxes
shown as due on such returns. If a jurisdiction has a short period filing
requirement other than that described above, it is the intent of this Section
6.8(b) that the Sports Subsidiaries have all filing and payment responsibility
for the tax returns for both the first and second such short periods. Actava
agrees that it shall provide (or shall cause its accountants and other
representatives to provide) to the Sports Subsidiaries
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within three (3) months after the Closing Date, the information, including but
not limited to internally prepared financial statements, tax work papers and
records relating to the operations of the Sports Subsidiaries for the period
January 1, 1994 through the Closing Date, that is reasonably necessary or
related to the Sports Subsidiaries' preparation of all the state or local income
or franchise tax returns for which they have filing and payment responsibility
pursuant to this Section 6.8(b). Notwithstanding anything to the contrary in
this Section 6.8(b), for any taxable period ending on or before the Closing
Date, Actava shall be responsible (and the Sports Subsidiaries shall not be
responsible) for the payment of any state or local income or franchise taxes
related to or arising out of business conducted by any Actava entity other than
the Sports Subsidiaries and their subsidiaries.
(c) Roadmaster shall indemnify and hold harmless Actava against, all Taxes
with respect to the Sports Subsidiaries and their subsidiaries for any taxable
period ending on or before the Closing Date; provided, however, Actava will
indemnify and hold harmless Roadmaster and the Sports Subsidiaries against: (i)
any and all liability for or with respect to federal income taxes for any
taxable period ending on or before the Closing Date that is asserted against one
or more of the Sports Subsidiaries by reason of it being severally liable for
the entire federal income taxes of the Affiliated Group pursuant to Section
1.1502-6 of the Treasury Regulations; (ii) state or local income or franchise
tax liability related to or arising out of business conducted by any Actava
entity other than the Sports Subsidiaries and their subsidiaries for any taxable
period ending on or before the Closing Date; and (iii) state or local income or
franchise taxes of the Sports Subsidiaries for any taxable period ending on or
before the Closing Date but only after there have been one or more Adjustments
(as defined below) of such particular tax so that as adjusted, such particular
state or local income or franchise tax plus any penalties and interest thereon
(each such Adjustment plus the attributable penalties and interest being
hereinafter referred to as an "Actava Adjustment Amount"), as reduced by the Tax
Benefits (as defined and as calculated as set forth below) realized by the
Sports Subsidiaries, Roadmaster and its other subsidiaries in connection with
each such Adjustment in the manner described below, have exceeded on a
cumulative basis, the amount of such particular state or local income or
franchise tax to which each such Adjustment relates which has been accrued for
and relates solely to the taxable periods ending on or before the Closing Date
and which was reflected in the Sports Subsidiaries Financial Statements plus
$250,000.00 (each such particular accrued tax reflected on such financial
statements plus the single $250,000.00 amount, which applies on an aggregate
basis to all such Actava Adjustment Amounts and not to each Actava Adjustment
Amount, being hereinafter referred to as the "Actava Threshold"), all subject to
the provisions set forth below in this Section 6.8(c) governing the provisions
of the potential indemnity obligation created pursuant to this clause (iii).
Roadmaster shall also indemnify and hold harmless Actava against: (X) all
Taxes with respect to the Sports Subsidiaries and their subsidiaries for all
taxable periods beginning after the Closing Date, and (Y) state or local income
or franchise taxes of Roadmaster and its subsidiaries for any taxable period
ending on or before the Closing Date but only after there have been one or more
Adjustments of such particular tax so that adjusted, such particular state or
local income or franchise tax plus any penalties and interest thereon (each such
Adjustment plus the attributable penalties and interest being hereinafter
referred to as a "Roadmaster Adjustment Amount"), as reduced by the Tax Benefits
realized by Actava and its subsidiaries in connection with each such Adjustment
in the manner described below, have exceeded on a cumulative basis, the amount
of such particular state or local income or franchise tax which has been accrued
for and relates solely to the taxable periods ending on or before the Closing
Date and which was reflected in the Roadmaster Financial Statements plus
$250,000.00 (each such particular accrued tax reflected on such financial
statements plus the single $250,000.00 amount, which applies on an aggregate
basis to such Roadmaster Adjustment Amounts and not to each such Roadmaster
Adjustment Amount, being hereinafter referred to as the "Roadmaster Threshold"),
all subject to the provisions set forth below in this Section 6.8(c) governing
the provisions of the potential indemnity obligation created pursuant to this
clause (Y). Except for the Roadmaster obligation described in clause (Y) above
in the second sentence of this Section 6.8(c), any indemnity payable by
Roadmaster to Actava pursuant to this Section 6.8(c) shall be paid within ten
(10) days after Actava's written request therefor, or if later, ten (10) days
prior to the date the liability for Taxes upon which the indemnity is based is
required to be satisfied by Actava. Except for the Actava indemnity obligation
described in clauses (ii) and (iii) above in the first sentence of this Section
6.8(c), any indemnity payable by
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Actava to Roadmaster pursuant to this Section 6.8(c) shall be paid within ten
(10) days after Roadmaster's written request therefor, or if later, ten (10)
days prior to the date the liability for federal income taxes upon which the
indemnity is based is required to be satisfied by the Sports Subsidiaries.
To the extent that Roadmaster on the one hand, and Actava on the other
hand, shall be required to make any indemnity payment to the other party
pursuant to any of the provisions of this Section 6.8, all such indemnity
payments shall be treated by the parties as non-taxable adjustments to the
Exchanges; provided, that if, pursuant to a written opinion of independent
counsel of recognized standing selected by the party receiving the indemnity
payment and reasonably approved by the party making the indemnity payment, to
the effect that such indemnity payment is required to be included in the taxable
income of the party receiving the indemnity payment or its affiliates, then the
amount of any such indemnity payment shall include a "gross-up" for any federal,
state or local income or franchise taxes actually payable by the recipient of
such indemnity payment as a result of the receipt or accrual of such indemnity
payment (including such "gross-up"). Notwithstanding anything to the contrary in
this Section 6.8(c), the parties hereto agree that the party who is entitled to
receive any indemnity payment from another party pursuant to this Section 6.8(c)
shall have the right, exercisable in its sole discretion, to waive its right to
receive such indemnity payment in cash and also, solely in the case of any
indemnity payment Actava is entitled to receive from Roadmaster pursuant to
Section 6.8(c), Actava shall have the right to instead require Roadmaster to
satisfy such indemnity payment with Roadmaster Common Stock pursuant to the
provisions of Section 6.13 hereof, by notice to the party required to make such
payment.
As discussed above in clause (iii) in the first sentence of this Section
6.8(c) and in clause (Y) in the second sentence of this Section 6.8(c),
respectively, the parties hereto agree that in calculating the amounts that are
credited against and thereby reduce the Actava Threshold and the Roadmaster
Threshold that must be exhausted before either Actava or Roadmaster, as the case
may be, have the obligation to make indemnity payments to each other under the
above referenced provisions, each Actava Adjustment Amount and each Roadmaster
Adjustment Amount shall be reduced by the dollar amount of any Tax Benefits (as
defined and as calculated as set forth below) obtained in connection with such
Adjustment by the party seeking to reduce the applicable threshold of the other
party (hereinafter the "Indemnitee"). Each Actava Adjustment Amount or
Roadmaster Adjustment Amount, as the case may be, as reduced by the applicable
Tax Benefits realized by the Indemnitee shall be referred to hereinafter as the
"After-Tax Adjustment Amount." If the Tax Benefits are realized by the
Indemnitee in the same taxable period in which the Indemnitee seeks the
reduction of the other party's threshold as a result of an Adjustment, then the
Tax Benefits shall be taken into account by reducing each Actava Adjustment
Amount or each Roadmaster Adjustment Amount, as the case may be, by the full
dollar amount of the Tax Benefits in arriving at the After-Tax Adjustment
Amount. If the Tax Benefits are not realized by the Indemnitee in the same
taxable period in which Indemnitee seeks the reduction of the other party's
threshold but instead are realized by the Indemnitee in one or more future
taxable periods, then the reduction of each Actava Adjustment Amount or each
Roadmaster Adjustment Amount, as the case may be, shall be the amount which is
the present value of such Tax Benefits over the periods such Tax Benefits will
be realized by the Indemnitee using a discount rate equal to the "prime rate"
established by The Chase Manhattan Bank (National Association) from time to time
in its sole discretion as its prime rate of interest. Further, with respect to
the actual indemnity payments that shall be payable by either Actava or
Roadmaster to the other party if the Actava Threshold or the Roadmaster
Threshold is exceeded by one or more After-Tax Adjustment Amounts, Actava or
Roadmaster, as the case may be, shall only make indemnity payments to the other
party to the extent that one or more After-Tax Adjustment Amounts exceed the
Actava Threshold or the Roadmaster Threshold, as the case may be (before
considering any required "gross up" of such indemnity payment as discussed
above).
For purposes of this Section 6.8(c), the term "Tax Benefits" means any
credits, deductions or other tax benefits for federal income tax purposes the
Indemnitee is entitled to related to or arising out of an Actava Adjustment
Amount or Roadmaster Adjustment Amount, as the case may be. Further, it shall be
assumed that: (A) for purposes of calculating the dollar value of Tax Benefits
to the Indemnitee, the federal income tax rate applicable to the Indemnitee is
equal to 34%; (B) the Indemnitee would be able to utilize any Tax Benefits in
the taxable period such Tax Benefits were originally anticipated to be
available; and (C) the
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Indemnitee will realize the benefit of any credit, deduction, or other tax
benefit in the taxable period in which such credit deduction, or tax benefit
could first have been properly reflected on Indemnitee's federal income tax
return. For purposes of this Section 6.8(c), the term "Adjustment" means that an
item of deduction, credit, income or other item on a consolidated, combined,
unitary or separate tax return of the Sports Subsidiaries and their subsidiaries
on one hand, and Roadmaster and its subsidiaries on the other hand, with respect
to a particular state or local income or franchise tax, is adjusted as a result
of or in settlement of any audit, other administrative proceeding or judicial
proceeding or as a result of the filing of an amended tax return to reflect the
consequences of any determination made in connection with any such audit or
proceeding with respect to the applicable taxable periods. Any indemnity
payments by Actava pursuant to clause (iii) in the first sentence above and by
Roadmaster pursuant to clause (Y) in the second sentence above shall only be
made after the procedures for the verification of the documentation and
calculations described herein in this Section 6.8(c) have been completed. Each
party shall promptly notify the other party of any notice or audit or other
proceeding with respect to a potential Adjustment and shall include in such
notice the pertinent facts surrounding such potential Adjustment and shall
promptly provide the other party with copies of all correspondence with the
taxing authority as well as all decision documents executed by the party and the
taxing authority with respect to the final determination of any proposed
Adjustment.
Pursuant to the provisions of Sections 6.8(d) and (e), the party who would
bear indemnity responsibility for each such Adjustment shall have the absolute
right to control the proceedings relating to such Adjustment but shall share
information relevant to the potential indemnity obligation with the other party.
Whenever the Indemnitee proposes to reduce the Actava Threshold or the
Roadmaster Threshold, as the case may be, as the result of an Adjustment, the
Indemnitee shall provide the other party with all the necessary documentation
and calculations of the Actava Adjustment Amount or Roadmaster Adjustment
Amount, the applicable Tax Benefits and the present value of such Tax Benefits,
if applicable, all of which must be determined in arriving at the After-Tax
Adjustment Amount which the Indemnitee seeks to apply to reduce or to exceed the
Actava Threshold or the Roadmaster Threshold, as the case may be. The parties
shall endeavor to mutually agree on the calculations of the After-Tax Adjustment
Amounts and the amounts comprising it which determine whether and to what extent
either Actava or Roadmaster has an obligation to make indemnity payments to the
other party hereunder with respect to Adjustments. All notices and other written
communications pursuant to this Section 6.8(c) shall be made in the manner
provided for in Section 9.3 hereof. Prior to the Closing Date the parties agree
that Actava shall have the right to adjust the liabilities balances with respect
to state and local income or franchise taxes to properly reflect such
liabilities on the Sports Subsidiaries Interim Financial Statements and
Roadmaster shall also have the right to adjust the liabilities balances with
respect to state and local income or franchise taxes to properly reflect such
liabilities on the Roadmaster Financial Statements.
(d) The Sports Subsidiaries (and Roadmaster) shall have the right, in their
sole discretion, to direct and control the handling of all tax matters relating
to Taxes of the Sports Subsidiaries for the taxable periods ending before and
after the Closing Date to the extent the Sports Subsidiaries are liable for such
Taxes under this Agreement (and to the extent of Roadmaster's indemnity
obligation in favor of Actava under Section 6.8(c)), including but not limited
to the right to prosecute all administrative and judicial remedies, to settle
all issues, to enter into closing agreements, and to execute consents or waivers
extending the statute of limitations; Actava (and any successor or assign) shall
grant such powers of attorney to the Sports Subsidiaries (and Roadmaster) and
enter into such further documents as the Sports Subsidiaries (and Roadmaster)
may in their reasonable judgment consider necessary or appropriate to enable the
Sports Subsidiaries (and Roadmaster) to take all actions desired by the Sports
Subsidiaries (and Roadmaster) in connection with any of the foregoing matters.
Actava agrees that it shall not, nor shall it permit any other person, to waive
the provisions of any statute of limitations as such provisions may apply to the
assessment of income or franchise taxes for any taxable period ending on or
before the Closing Date. If any governmental body or authority shall commence an
examination, investigation, audit or other proceeding with respect to any Tax
Return covering the operations of Actava (or any predecessor thereof) for
taxable periods ending on or before the Closing Date, or shall give the Sports
Subsidiaries (and Roadmaster) or Actava a notice of deficiency, or advise either
of a proposed adjustment to income or franchise taxes, or assert any other claim
or demand concerning a taxable period covered by such Tax Return, then the
Sports Subsidiaries (and Roadmaster) or Actava shall promptly notify the other
parties of such claim or demand.
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(e) Actava shall have the right, in its sole discretion, to direct and
control the handling of all tax matters relating to: (A) the federal income
taxes of the Affiliated Group for all taxable periods whether before or after
the Closing Date such Affiliated Group has filed a consolidated federal income
tax return, including without limitation the taxable periods one or more of the
Sports Subsidiaries were members of such Affiliated Group filing a consolidated
return; and (B) for state or local income or franchise taxes of the Sports
Subsidiaries, for which Roadmaster and the Sports Subsidiaries may seek
indemnity from Actava under Section 6.8(c) hereof (by virtue of clauses (i),
(ii) and (iii) of the first sentence of Section 6.8(c) hereof) including but not
limited to the right to prosecute all administrative and judicial remedies, to
settle all issues, to enter into closing agreements, and to execute consents or
waivers extending the statute of limitations.
(f) All refunds of Taxes related to or arising out of business conducted by
the Sports Subsidiaries and their subsidiaries (together with any interest
thereon) received for or relating to any taxable period ending on or before the
Closing Date, shall belong to and be kept by or promptly paid to Actava if after
the Closing Date, such refund comes into the possession of Roadmaster, the
Sports Subsidiaries or any of their subsidiaries.
(g) Under Temporary Regulation ("Temp. Reg.") sec.1.197-1T, Actava may make
an election to apply the provisions of Section 197 of the Code to all eligible
Section 197 intangibles acquired by it and all the members of its Affiliated
Group after July 25, 1991, and on or before August 10, 1993 (hereinafter the
"Retroactive Election" as such election is defined under Temp. Reg.
sec.1.197-1T(a)) with respect to Actava's "election year" which, under Temp.
Reg. sec.1.197-1T(b)(5), is Actava's taxable year ended December 31, 1993
("Actava's Election Year"). Roadmaster acknowledges and agrees that Actava shall
only make the Retroactive Election for Actava's Election Year if Actava
determines in its sole discretion that making such Retroactive Election would
not result, with respect to any of the taxable years impacted by such
Retroactive Election, in any material adverse tax consequences to Actava, any of
the Sports Subsidiaries (while members of Actava's Affiliated Group), or any of
the other members of the Affiliated Group.
(h) Actava on the one hand, and the Sports Subsidiaries on the other hand,
shall provide each other with such assistance as may reasonably be requested by
each of them in connection with the preparation of any Tax Return, any audit or
other examination by any taxing authority, or any judicial or administrative
proceedings relating to the Taxes of the Sports Subsidiaries; provided, further,
that Actava shall provide the Sports Subsidiaries (and Roadmaster) access to
records and information with respect to the federal income taxes of the
Affiliated Group to the extent such information (i) is reasonably necessary to
the Sports Subsidiaries' preparation of its Tax Returns, and (ii) relates to
Taxes of the Sports Subsidiaries for which they are liable under this Agreement
(and for which Roadmaster has an indemnity obligation pursuant to Section 6.8(c)
hereof). Actava, the Sports Subsidiaries (and their subsidiaries) and Roadmaster
agree that they will each file their respective Tax Returns on the basis that
each of the Exchanges qualifies as a "reorganization" under Section 368(a)(1)(B)
of the Code.
(i) Upon consummation of the Exchanges, each of the Sports Subsidiaries
will cease to be members of the Actava Affiliated Group. Roadmaster and Actava
agree that to the extent that Actava or the Sports Subsidiaries (and their
subsidiaries) are eligible to make Tax elections that (A) impact the federal
income tax liability of Actava on the Affiliated Group's consolidated federal
income tax returns including without limitation, the 1994 Consolidated Return or
(B) otherwise affect the Taxes of the Sports Subsidiaries and their subsidiaries
for taxable periods ending on or before the Closing Date, Actava shall, except
as otherwise provided in this Agreement, have the right in its sole discretion
to make or not make all such elections.
Section 6.9 INTERCOMPANY ACCOUNTS. (a) Notwithstanding Section 5.1
hereof, the parties hereto agree that prior to the Closing Date, each of the
Sports Subsidiaries shall authorize, declare and pay an in-kind dividend to
Actava in an amount equal to and the form of the then outstanding intercompany
loans made by such Sports Subsidiary to Actava.
(b) The parties hereto agree that Actava shall calculate and charge to each
Sports Subsidiary an administrative service fee for the period from January 1,
1994 through the Closing Date. Such administrative service fee shall be
calculated in a manner consistent with prior years and shall be accrued by each
Sports Subsidiary.
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(c) The parties hereto agree that in no event shall Actava pay any cash to
the Sports Subsidiaries (or Roadmaster) at any time to compensate the Sports
Subsidiaries (or Roadmaster) for Actava's realization of any tax benefit with
respect to the Taxes of the Sports Subsidiaries.
(d) The parties further agree that other than amounts previously billed the
Sports Subsidiaries by Actava prior to the execution of this Agreement, Actava
shall not further bill the Sports Subsidiaries for their estimated respective
shares of the consolidated federal tax liability of the Affiliated Group for the
taxable year beginning January 1, 1994.
(e) Actava agrees it shall contribute to the capital of the respective
Sports Subsidiaries on or prior to the Closing Date the outstanding intercompany
payable amounts previously billed by Actava to the Sports Subsidiaries with
respect to consolidated federal income taxes and with respect to administrative
service fees. The parties agree that all other outstanding intercompany payable
amounts previously billed by Actava to the Sports Subsidiaries (whether billed
before or after the date hereof) shall be paid to Actava on the Closing Date or
if later, in the normal course of business. Actava and the Sports Subsidiaries
agree that such intercompany amounts shall be the result of arms-length
transactions. By way of description only, such amounts as of July 1, 1994 are as
set forth on Schedule 6.9(e).
Section 6.10 EMPLOYEE BENEFITS MATTERS. (a) Certain Post-Retirement
Benefits.
(i) Provision of Benefits. As of the date of execution of this
Agreement, the parties hereto have not reached agreement as to the
provision of Post-Retirement Benefits (if any) to employees and former
employees (and their dependents) of the Sports Subsidiaries on and after
the Closing Date, but the parties intend that such an agreement shall be
reached after the date of execution of this Agreement and prior to the
Closing Date, and shall continue their negotiations in good faith following
the execution of this Agreement. Notwithstanding whether such an agreement
is reached by the parties, the parties intend to consummate the Exchanges
and agree that Actava and/or the Sports Subsidiaries may amend or terminate
the provision of Post-Retirement Benefits provided under their respectively
sponsored plans at any time and for any reason, whether prior to, on or
after the Closing Date.
(ii) Indemnification. Notwithstanding whether the parties agree as
provided in paragraph (i) above, Roadmaster and, after the Closing Date,
the Sports Subsidiaries, shall, jointly and severally, indemnify and hold
harmless Actava, the assigns, employees, agents, representatives, and
successors of Actava, each and every Actava Plan, and the agents,
employees, servants, independent contractors, attorneys, representatives,
actuaries, accountants, fiduciaries, administrators, administrative
committee(s) or other committee(s), and trustees of, or associated with,
each and every Actava Plan from any and all claims, losses, liabilities,
damages, costs (including court costs) and expenses (including reasonable
attorneys', actuaries' and accountants' fees) which arise by reason of, or
are in any way connected with, or which are or may be based in whole or in
part on, (x) the cost and expense of providing former employees of the
Sports Subsidiaries (or their dependents) with Post-Retirement Benefits,
and (y) the liability to provide employees (or their dependents) of a
Sports Subsidiary with Post-Retirement Benefits; provided, however, no such
right to indemnification shall exist with respect to Post-Retirement
Benefits which are required to be provided to such individuals under Code
sec.4980B and/or Part 6 of Title I of ERISA. If Post-Retirement Benefits
cease to be provided to employees or former employees (or their dependents)
of the Sports Subsidiaries prior to the Closing Date due to actions taken
by Actava or the Sports Subsidiaries, or if Roadmaster requests Actava or
the Sports Subsidiaries to cease providing Post-Retirement Benefits to
employees or former employees (or their dependents) of the Sports
Subsidiaries prior to the Closing Date, the indemnification of the
preceding sentence shall not, in the aggregate, exceed the sum of the
Post-Retirement Benefit Liability of each Sports Subsidiary determined
immediately prior to the effective date of such cessation of Post-
Retirement Benefits or, in the case of a request for cessation by
Roadmaster where cessation is not effectuated, as of the Closing Date.
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(iii) Definitions. For purposes of this subsection (a), the following
terms shall have the following meanings:
a) "Actava Plan" shall mean an employee welfare benefit plan (as
defined in ERISA sec.3(1)) sponsored and maintained by Actava providing
medical, dental, vision or death benefits to employees and/or former
employees (and/or their dependents).
b) "DP Plan" shall mean an employee welfare benefit plan (as
defined in ERISA sec.3(1)) sponsored and maintained by Actava providing
medical, dental, vision or death benefits to employees and/or former
employees (and/or their dependents).
c) "Post-Retirement Benefit Liability" shall mean, with respect to
a Sports Subsidiary, the liability as shown on the accounting books and
records of such Sports Subsidiary for Post-Retirement Benefits in
accordance with the requirements of Financial Accounting Standard 106
promulgated by the Financial Accounting Standards Board, with such
liability determined for such Sports Subsidiary as of the date which is
immediately prior to the date on which the appropriate plan which would
have the liability for providing Post-Retirement Benefits for such
Sports Subsidiary (the Actava Plan or the DP Plan, as applicable) is
amended as described in subparagraph (a) of paragraph (i) above.
d) "Post-Retirement Benefits" shall mean medical, dental, vision or
life insurance benefits provided to an employee (or his or her
dependents) after termination of the employee's employment.
(b) Division of COBRA Responsibilities.
(i) COBRA Responsibilities Under Actava Health Plan. With respect to
any qualified beneficiary covered under the Fuqua Industries, Inc. and
Affiliated Companies Health Plan (the "Actava Health Plan"), the Actava
Health Plan shall be responsible for the provision of any continuation
coverage required under Code sec.4980B and/or Part 6 of Title I of ERISA
due to the occurrence of a qualifying event with respect to such qualified
beneficiary while such qualified beneficiary was covered under the Actava
Health Plan.
(ii) COBRA Responsibilities Under DP Plan. With respect to any
qualified beneficiary covered under the Diversified Products Corporation
Medical Plan (the "DP Health Plan"), the DP Health Plan shall be
responsible for the provision of any continuation coverage required under
Code sec.4980B and/or Part 6 of Title I of ERISA due to the occurrence of a
qualifying event with respect to such qualified beneficiary while such
qualified beneficiary was covered under the DP Health Plan.
(iii) Definitions. For purposes of this subsection (b), the terms
"qualified beneficiary," "qualifying event," and "continuation coverage"
shall have the meanings specified in Code sec.4980B and/or Part 6 of Title
I of ERISA.
(c) Participation in Certain Plans.
(i) Actava Sponsored Plans. On or prior to the Closing Date, each of
the Sports Subsidiaries shall cease participation in, and shall (after the
payment of any contributions due) cease making contributions to, all
employee benefit plans (as defined in ERISA sec.3(3)) which are sponsored
by Actava or an ERISA Affiliate of Actava other than the Sports
Subsidiaries, except for the participation of NWR and Willow in The Actava
Group, Inc. Sports Group Profit Sharing Plan Profit Sharing Plan. Employees
of the Sports Subsidiaries participating in such employee benefit plans
shall cease active participation in, or coverage under, such plans
simultaneously with the cessation of participation by their employing
Sports Subsidiary; to the extent that such plans do not provide for such
cessation of participation or coverage at that time without the necessity
of an amendment to such plans, such plans shall be amended to so provide.
Any vested accrued or other benefits under such plans shall be paid to such
employees in accordance with the terms and provisions of such plans.
Roadmaster shall take whatever measures are necessary to ensure that all
employees of the Sports Subsidiaries presently participating in any health
care plan sponsored, maintained or contributed to by the Sports
Subsidiaries shall be able to participate (without preexisting
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condition limitations) as of the Closing date in a group health care plan
sponsored by Roadmaster or an affiliate of Roadmaster which is subject to
Part 6 of Title I of ERISA.
(ii) Sports Subsidiary Plans. On or prior to the Closing Date, Actava
and all ERISA Affiliates of Actava other than the Sports Subsidiaries shall
cease participation in, and shall (after the payment of any contributions
due) cease making contributions to, all employee benefit plans (as defined
in ERISA sec.3(3)) which are sponsored by a Sports Subsidiary. Employees of
Actava or any ERISA Affiliate of Actava participating in such employee
benefit plans shall cease active participation in, or coverage under, such
plans simultaneously with the cessation of participation by their employer;
to the extent that such plans do not provide for such cessation of
participation or coverage at that time without the necessity of an
amendment to such plans, such plans shall be amended to so provide. Any
vested accrued or other benefits under such plans shall be paid to such
employees in accordance with the terms and provisions of such plans. All
employees of Actava or any ERISA Affiliate of Actava other than the Sports
Subsidiaries shall become fully vested in their accrued benefits under the
Diversified Products Corporation Profit Sharing/401(k) Plan as of the
Closing Date.
(iii) Transfer of Sponsorship. As of the Closing Date, Roadmaster (or
an ERISA Affiliate thereof) shall assume the sponsorship of The Actava
Group, Inc. Sports Group Profit Sharing Plan, whether or not Roadmaster (or
such ERISA Affiliate) participates in such plan, and NWR and Willow shall
continue their participation in such plan as of the Closing Date. The
parties to this Agreement agree to take all actions necessary to effectuate
such transfer of sponsorship.
(iv) Definitions. For purposes of this subsection (c), the term ERISA
Affiliate shall, with respect to an entity, mean each other employer which
would be required to be aggregated with such entity under the provisions of
Code sec.414(b), (c), (m) or (o).
Section 6.11 FINANCIAL STATEMENTS. Prior to the Closing, Actava shall
deliver to Roadmaster (a) an audited income statement for the fiscal year ended
December 31, 1991 for each Sport Subsidiary (other than DP) and (b) an audited
balance sheet of DP as of June 7, 1993 and the related audited statements of
income, retained earnings and cash flows for the year then ended. The financial
statements delivered pursuant to this Section 6.11 shall have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto).
Section 6.12 PRODUCTS LIABILITY. (a) Actava shall indemnify Roadmaster
for:
(i) any losses, liabilities, damages, costs (including court costs),
and expenses (including reasonable attorneys and accountants' fees)
incurred by Hutch, NWR or Willow as a result of any products liability
claim against Hutch, NWR or Willow by consumers with respect to injuries
caused by alleged defects in products of Hutch, NWR or Willow and which
occurred on or prior to the Closing Date; and
(ii) any losses, liabilities, damages, costs (including court costs),
and expenses (including reasonable attorneys and accountants' fees) in
excess of $3,250,000 incurred by DP as a result of any products liability
claim against DP by consumers with respect to injuries caused by alleged
defects in products manufactured by DP on or prior to the Closing Date.
(b) Roadmaster shall notify Actava, in writing and as soon as practicable,
of any product liability claim for which it is entitled to indemnity pursuant to
Section 6.12(a), specifying in reasonable detail the nature of such claim and,
if known, the amount, or an estimate of the amount, of the liability arising
therefrom. Roadmaster shall provide to Actava as promptly as practicable
thereafter such information and documentation as may be reasonably requested by
Actava to support and verify such claim.
(c) Actava shall have the absolute right to manage and control the defense,
and all communications or proceedings related to such defense, of any products
liability claim for which Actava would be liable pursuant to Section 6.12(a),
including, without limitation, the right to manage and prosecute all
administrative and judicial remedies, settle all issues, enter into settlement
agreements, discontinue sales and distribution of, or recall, any such allegedly
defective products, and to execute consents or waivers extending the statue of
limitation with respect to any such claim. Roadmaster shall, and shall cause its
subsidiaries to, fully cooperate
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with Actava in the defense of any such claim and shall, and shall cause its
subsidiaries to, furnish such records, information and testimony, and attend
such conferences, discovery proceedings, hearings, trials and appeals, as may be
reasonably requested in connection therewith. Actava shall be subrogated to all
rights and remedies of Roadmaster or its subsidiaries with respect to any such
claim.
(d) Failure by Roadmaster or any of its subsidiaries to comply with any of
their obligations set forth in this Section 6.12 with respect to a products
liability claim for which Roadmaster is entitled to be indemnified against
pursuant to Section 6.12(a) shall release Actava from its obligation to
indemnify hereunder to the extent that Actava is prejudiced by any such failure.
Section 6.13 SATISFACTION OF INDEMNITY WITH ROADMASTER COMMON
STOCK. Notwithstanding anything to the contrary in this Agreement, the parties
agree that if Actava shall be entitled to any indemnity payment from Roadmaster
pursuant to the terms of this Agreement, including, without limitation, Section
6.8(c) hereof, Actava shall have the right exercisable in its sole discretion to
elect, by written notice to Roadmaster, to require Roadmaster to satisfy such
indemnity payment with Roadmaster Common Stock in lieu of paying cash. If such
election is made by Actava, Roadmaster shall substitute for the cash indemnity
payment an equal fair market value amount of consideration in the form of shares
of Roadmaster Common Stock. For purposes hereof, the value of the Roadmaster
Common Stock to be issued in substitution for the cash indemnity payment shall
be the average of the last sale price for the Roadmaster Common Stock as
reported on the AMEX or the NYSE, as the case may be, for the five (5)
consecutive trading days immediately prior to the date on which it is determined
under this Agreement that Actava is entitled to receive a cash indemnity
payment.
Section 6.14 CERTAIN ENVIRONMENTAL MATTERS. Prior to the Closing, DP
shall (i) form a wholly owned subsidiary ("Newco"), (ii) contribute to Newco
title to that certain parcel of real property described on Schedule 6.14 (the
"Orbitron Materials Storage Parcel"), along with any permits, licenses and other
authorizations held by DP under federal, state and local laws relating to
pollution or protection of the environment related to the Orbitron Materials
Storage Parcel, and (iii) declare and pay to Actava an in-kind dividend of all
the outstanding capital stock of Newco.
ARTICLE VII
CONDITIONS
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
EXCHANGES. The respective obligations of each party to effect the Exchanges
shall be subject to the fulfillment at or prior to the Closing (as provided
herein) of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the shareholders of
Roadmaster and, if required, by the shareholders of Actava.
(b) The Exchange Shares shall have been approved for listing on the
NYSE or AMEX subject to notice of issuance.
(c) The waiting period applicable to the consummation of the Exchanges
under the HSR Act shall have expired or been terminated.
(d) No preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Exchanges
shall have been issued and remain in effect (each party agreeing to use its
reasonable efforts to have any such injunction, order or decree lifted).
(e) No action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Exchanges.
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(f) All governmental consents, orders and approvals legally required
for the consummation of the Exchanges and the transactions contemplated
hereby, including, without limitation, approval (if required) by the FTC,
the DOJ and the SEC, shall have been obtained and be in effect at the
Closing.
(g) Actava, the Sports Subsidiaries or Roadmaster, as the case may be,
shall have received consents or waivers, or any necessary amendments, from
any parties to the agreements listed on Schedules 2.2(b), 3.4(b) and
4.4(b), in each case where the Exchanges, in the absence of or failure in
obtaining such consent, waiver or amendment, would result in a material
adverse effect on the business, condition (financial or other) or results
of operations of Actava, the Sports Subsidiaries or Roadmaster, as the case
may be, and their respective subsidiaries, taken as a whole.
Section 7.2 CONDITIONS TO OBLIGATION OF ACTAVA TO EFFECT THE
EXCHANGES. Unless waived by Actava, the obligation of Actava to effect the
Exchanges shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions:
(a) Roadmaster shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing, and the representations and warranties of Roadmaster
contained in this Agreement shall be true and correct in all material
respects on and as of (i) the date made and (ii) (except in the case of
representations and warranties expressly made solely with reference to a
particular date) the Closing Date, and Actava shall have received a
certificate of the President or a Vice President of Roadmaster to that
effect.
(b) Actava shall have received an opinion from Smith, Gambrell &
Russell, counsel to Roadmaster, dated the Closing Date, substantially in
the form set forth as Exhibit A hereto.
(c) Since the date hereof, (i) there shall have been no changes that
constitute, and (ii) no event or events shall have occurred which have
resulted in or constitute, a material adverse change in the business,
condition (financial or other) or results of operations of Roadmaster and
its subsidiaries, taken as a whole, including, without limitation, any
change or development with respect to matters disclosed to Actava or the
Sports Subsidiaries on the schedules to this Agreement or otherwise.
(d) Roadmaster shall have executed and delivered a Registration Rights
Agreement substantially in the form set forth as Exhibit B hereto.
(e) Roadmaster, Henry Fong and Edward E. Shake shall have executed and
delivered a Shareholders Agreement substantially in the form of Exhibit C
hereto (the "Shareholders Agreement").
(f) Roadmaster shall have executed and delivered to Actava an
unconditional guaranty, in form reasonably satisfactory to Actava, of that
certain Promissory Note executed by DP as of July 1, 1994, in favor of JCJ,
Inc. (the "DP Note").
(g) Four designees of Actava shall have been elected to the Roadmaster
Board of Directors.
(h) Henry Fong shall have entered into an Employment Agreement with
Roadmaster substantially in the form set forth as Exhibit D and Edward E.
Shake shall have entered into an Employment Agreement with Roadmaster
containing the terms set forth on Exhibit E.
(i) Actava shall have been released from any guaranty or assurance of
any obligation (payment or performance) of the Sports Subsidiaries and
their subsidiaries, including, without limitation, the Support Agreement,
the ITT Guaranty, the 1988 First Union Guaranty, and the 1992 First Union
Guaranty.
(j) Actava shall have received certificates of insurance or other
evidence reasonably satisfactory to Actava that Roadmaster has satisfied
its obligation to supply the insurance coverage as required in Section 6.6.
(k) The Restated Certificate of Incorporation of Roadmaster set forth
as Exhibit F and the Amended and Restated By-laws of Roadmaster set forth
as Exhibit G shall have been authorized, approved and be in full force and
effect.
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(l) Roadmaster shall have executed and delivered an Environmental
Indemnity Agreement substantially in the form set forth as Exhibit H (the
"Environmental Indemnity Agreement").
Section 7.3 CONDITIONS TO OBLIGATIONS OF ROADMASTER TO EFFECT THE
EXCHANGES. Unless waived by Roadmaster, the obligations of Roadmaster to effect
the Exchanges shall be subject to the fulfillment at or prior to the Closing of
the additional following conditions:
(a) Actava and the Sports Subsidiaries shall have performed in all
material respects their agreements contained in this Agreement required to
be performed on or prior to the Closing and the representations and
warranties of Actava and the Sports Subsidiaries contained in this
Agreement shall be true and correct in all material respects on and as of
(i) the date made and (ii) (except in the case of representations and
warranties expressly made solely with reference to a particular date) the
Closing Date, and Roadmaster shall have received a Certificate of the
President or of a Vice President of Actava and each of the Sports
Subsidiaries to that effect.
(b) Roadmaster shall have received an opinion from Long, Aldridge &
Norman, counsel to Actava, dated the Closing Date, substantially in the
form set forth as Exhibit I hereto.
(c) Roadmaster shall have received the opinion of Jeffries & Company,
Inc. to the effect that the Exchanges are fair from a financial point of
view to Roadmaster and its shareholders.
(d) Since the date hereof, (i) there shall have been no changes that
constitute, and (ii) no event or events shall have occurred which have
resulted in or constitute, a material adverse change in the business,
condition (financial or other) or results of operations of the Sports
Subsidiaries and their subsidiaries, taken as a whole, including, without
limitation, any change or development with respect to matters disclosed to
Roadmaster on the schedules to this Agreement or otherwise.
(e) Actava shall have executed and delivered the Shareholders
Agreement.
(f) The liens, claims, encumbrances, security interests, equities,
charges and options on the Sports Subsidiaries Stock which are set forth on
Schedule 2.3 shall have been terminated or released.
(g) Roadmaster shall have received a certificate from JCJ, Inc.
stating that as of the Closing Date, to JCJ, Inc.'s knowledge, no Event of
Default (as defined in the DP Note) exists under the DP Note.
(h) Actava and DP shall have executed and delivered the Environmental
Indemnity Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing, whether before or after approval by the shareholders of
Roadmaster and, if required, Actava:
(a) by mutual consent of Roadmaster and Actava.
(b) by either Roadmaster or Actava, so long as such party has not
breached its obligations hereunder (except for such breaches as are clearly
immaterial), after December 31, 1994, if the Exchanges shall not have been
consummated on or before December 31, 1994 (the "Termination Date").
(c) unilaterally by Roadmaster or Actava (i) if the other fails to
perform any covenant in any material respect in this Agreement, and does
not cure the failure in all material respects within 30 business days after
the terminating party delivers written notice of the alleged failure or
(ii) if any condition to the obligations of that party is not satisfied
(other than by reason of a breach by that party of its obligations
hereunder), and it reasonably appears that the condition cannot be
satisfied prior to the Termination Date.
Section 8.2 EFFECT OF TERMINATION. (a) In the event of termination of
this Agreement by either Roadmaster or Actava, as provided in Section 8.1, this
Agreement shall forthwith become void and there shall
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be no further obligation on the part of Actava, the Sports Subsidiaries,
Roadmaster or their subsidiaries (except as set forth in this Section 8.2(a) and
in Sections 5.4 and 6.3 which shall survive the termination). Nothing in this
Section 8.2(a) shall relieve any party from liability for any breach of this
Agreement.
(b) In the event that (i) either Actava or Roadmaster, in breach of this
Agreement, refuses to consummate the Exchanges as provided herein or (ii) either
Actava or Roadmaster is unable to consummate the Exchanges as a result of the
failure of such party to obtain the approval its shareholders, and in the event
such breach or failure to obtain shareholder approval is the result of Actava or
Roadmaster's decision to pursue, or recommendation to its shareholders of, an
alternative transaction with a third party (an "Alternative Transaction"), then
such party that has refused or is unable to consummate the Exchanges as a result
of an Alternative Transaction shall pay to the other party a fee of $1,500,000
(the "Break-up Fee"). The payment of the Break-up Fee by either party shall
constitute liquidated damages (it being acknowledged and agreed by both parties
that the other's damages in such event will be difficult to ascertain and that
the Break-up Fee is a reasonable and appropriate estimate of such damages) and
upon the payment of the Break-up Fee this Agreement shall terminate and
forthwith become void and there shall be no further right, liability or
obligation on the part of Actava, the Sport Subsidiaries, Roadmaster or their
subsidiaries (except as set forth in this Section 8.2(b) and in Sections 5.4 and
6.3 which shall survive the termination).
Section 8.3 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Exchanges by the shareholders of Roadmaster or, if required, Actava, but,
after any such approval, no amendment shall be made which by law requires
further approval by such shareholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
Section 8.4 WAIVER. At any time prior to the Closing, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 SURVIVAL. All representations and warranties in this
Agreement shall not survive the Closing. The covenants and agreements in this
Agreement shall survive the Closing until such covenants and agreements have
been performed.
Section 9.2 BROKERS. Actava represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Actava. Roadmaster represents
and warrants that, except for the fees described on Schedule 9.2, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Roadmaster.
Section 9.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent
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via overnight courier to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) If to Roadmaster:
Roadmaster Industries, Inc.
7315 East Peakview Avenue
Englewood, Colorado 80111
Attention: Mr. Henry Fong
with copies to:
Smith, Gambrell & Russell
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: David J. Harris, Esq.
(b) If to Actava or the Sports Subsidiaries, to:
The Actava Group Inc.
4900 Georgia-Pacific Center
133 Peachtree Street
Atlanta, Georgia 30303
Attention: Walter M. Grant, Esq.
with a copy to:
Long, Aldridge & Norman
One Peachtree Center
Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: Clay C. Long, Esq.
Section 9.4 INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.5 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
including, without limitation, that certain letter of intent, dated May 31,
1994, between Actava and Roadmaster and the confidentiality agreements, dated
May 5, 1994, between Actava and Roadmaster; (b) shall not be assigned by
operation of law or otherwise; and (c) shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Georgia (without giving effect to the provisions thereof relating to conflicts
of law).
Section 9.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 9.7 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 9.8 SCHEDULES. The parties acknowledge and agree that the
disclosure on certain schedules may be overinclusive, taking into consideration
the materiality standard that may be contained in the representation and
warranty with respect to such schedule, and the fact that any item or matter is
disclosed on a schedule shall not be deemed to set or establish a different
standard of materiality than the one set forth in such representation and
warranty.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
33
<PAGE> 39
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
ROADMASTER INDUSTRIES, INC.
By:
--------------------------------------
Its:
--------------------------------------
THE ACTAVA GROUP INC.
By:
--------------------------------------
Its:
--------------------------------------
DIVERSIFIED PRODUCTS CORPORATION
By:
--------------------------------------
Its:
--------------------------------------
HUTCH SPORTS USA, INC.
By:
--------------------------------------
Its:
--------------------------------------
NELSON/WEATHER-RITE, INC.
By:
--------------------------------------
Its:
--------------------------------------
WILLOW HOSIERY COMPANY, INC.
By:
--------------------------------------
Its:
--------------------------------------
34
<PAGE> 1
EXHIBIT 10
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") made and entered into this 19th day of July,
1994, effective as of the 19th day of April, 1994 (the "Effective Date"), by and
between THE ACTAVA GROUP INC. (hereinafter referred to as the "Company") and
CHARLES R. SCOTT (hereinafter referred to as "Scott").
BACKGROUND
Scott has served as President and Chief Executive Officer of the Company
since February 1991 and has been a member of the Board of Directors of the
Company (the "Board") since 1989. At its meeting on April 19, 1994, the Board
elected John D. Phillips ("Phillips") to replace Scott as President and Chief
Executive Officer of the Company. Scott resigned as a director of the Company,
but was retained as an employee of the Company upon the terms and conditions
outlined in this Agreement, which terms and conditions were approved by the
Board at meetings held on April 19 and June 10, 1994. The purposes of this
Agreement are (i) to document the terms of Scott's continued employment with the
Company; (ii) to avoid conflicts between this Agreement and the various other
agreements, plans and arrangements between Scott and the Company so as to avoid
unintended consequences; and (iii) to supersede and replace the Post-Employment
Consulting Agreement between the Company and Scott dated as of July 24, 1991, as
amended by the First Amendment thereto dated as of December 14, 1993.
NOW, THEREFORE, for and in consideration of the mutual covenants and
conditions hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs Scott as an employee of the
Company, and Scott hereby accepts employment with the Company on the terms and
conditions set forth in this Agreement. Scott shall continue to serve as a
Senior Officer of the Company during the period beginning on April 19, 1994 and
ending on December 31, 1994 (the "Officer Period"). During the period beginning
on January 1, 1995 and ending on December 31, 1996 (the "Transition Period"),
Scott shall continue to serve as an employee of the Company, but shall not be an
officer of the Company. As a condition to his continued employment during the
Transition Period, Scott shall execute and deliver to the Company, effective as
of January 1, 1995, an Unconditional Release in the form attached hereto as
Exhibit A (the "Release Agreement"). Scott's employment with the Company shall
continue in accordance with the terms of this Agreement until midnight on
December 31, 1996 at which time his employment will terminate; provided,
however, the Company may terminate Scott's employment hereunder prior to
midnight on December 31, 1996 for an uncured breach of this Agreement by Scott
as more specifically provided in Paragraph 13 hereof.
2. SERVICES. During his employment under this Agreement, Scott shall
report to and perform such services as may be reasonably requested by the Chief
Executive Officer of the Company. Scott shall not be required to devote his full
and exclusive time, energy and skill to the business of the Company, but will be
permitted to accept employment with another person or entity or to perform
consulting assignments for other persons or entities provided that Scott
continues to perform his duties and responsibilities under this Agreement. Scott
will not be required to perform services which will require him to reside in a
location away from his then principal residence for any extended period of time.
3. COMPENSATION. The Company shall pay Scott an annual base salary of
$625,000 (the "Base Salary") during both the Officer Period and the Transition
Period. The Base Salary will be paid in accordance with the Company's normal
payroll practices. The Base Salary shall be reduced as provided in Section 7
below in the event that Scott earns or receives any Earned Income (as defined in
Section 7 below) from any source other than the Company during the Officer
Period or the Transition Period.
<PAGE> 2
4. BENEFITS DURING OFFICER PERIOD. Scott will continue to have the right
to participate in the following plans or arrangements based on his employment by
the Company hereunder as a Senior Officer through December 31, 1994:
(a) the Company's retirement plans;
(b) the Company's Employee Stock Purchase Plan;
(c) the right to payment of expenses under the Company's medical,
dental and vision plans, including the executive reimbursement plan;
(d) the right to payment of expenses under the Company's executive
financial and tax planning program;
(e) reimbursement of business expenses incurred by Scott in connection
with the business of the Company if such expenses are approved by the
Company's President and Chief Executive Officer; and
(f) other fringe benefits provided to Senior Officers of the Company
except those provided under any bonus plan or arrangement or under the
Days-Off Policy.
After the Officer Period, Scott shall receive the benefits and
reimbursements provided in Section 5 below during the Transition Period.
5. BENEFITS DURING TRANSITION PERIOD. During the Transition Period, Scott
agrees that he shall not be entitled to participate in and shall not participate
in any compensation or benefit plans or arrangements provided by the Company to
its employees, except as follows:
(a) Subject to the provisions of Section 7 hereof, during the
Transition Period the Company shall make available to Scott such medical,
dental and vision insurance coverage as may be provided to Scott and his
dependents by the Company immediately prior to January 1, 1995 (or such
Company medical insurance coverage which is consistent with the coverage in
place from time to time for executives of the Company). Scott will be
charged a premium equal to fifty percent (50%) of the Company's cost for
the medical insurance so provided. Upon expiration of the Transition
Period, to the fullest extent available pursuant to the continuation
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"), Scott shall be eligible for continuation coverage under COBRA,
and the Company may charge the maximum premium permitted under COBRA for
any remaining continuation coverage to which Scott is entitled.
(b) Subject to the provisions of Section 7 hereof, during the
Transition Period the Company shall also make available to Scott such life
insurance coverage, if any, as may be provided to Scott by the Company
immediately prior to January 1, 1995, provided, however, that Scott agrees
to pay fifty percent (50%) of the Company's cost of such coverage.
6. OTHER AGREEMENTS AND BENEFIT PLANS. Scott is a party to or beneficiary
of certain contracts and Company benefit plans, policies or arrangements which
shall be dealt with as follows:
(a) Post-Employment Consulting Agreement. The Post-Employment
Consulting Agreement between the Company and Scott, dated July 24, 1991, as
amended December 14, 1993, is replaced and superseded by this Agreement and
shall no longer have any force or effect.
(b) Indemnity Agreements. Scott is a party to an indemnity agreement
with the Company dated January 18, 1993 (the "Indemnity Agreement") and is
also entitled to indemnity and the benefit of exculpation of liability
under the provisions of the Company's Certificate of Incorporation and
Bylaws (collectively the "Corporate Documents"). The Indemnity Agreement
remains in full force and effect in accordance with its terms. Scott will
also continue to be provided all the indemnity benefits and coverage
afforded him as a director and officer (as the case may be) of the Company
including, but not limited to, coverage for any services Scott performs
under this Agreement. In addition, the Company agrees to indemnify and hold
Scott harmless under the provisions of the Corporate Documents against any
loss as
2
<PAGE> 3
defined in the Corporate Documents arising in connection with or related to
any services rendered by Scott under this Agreement.
(c) Retirement Plans. Scott is entitled to receive certain retirement
benefits under The Actava Group Inc. Retirement Plan (the "Pension Plan")
and The Actava Group Inc. Supplemental Retirement Plan (the "Supplemental
Plan") (collectively "Retirement Plans"). The Supplemental Plan shall be
amended to terminate Scott's participation in the Supplemental Plan after
December 31, 1994, and to reduce his retirement benefit thereunder in an
amount equal to the increase in his retirement benefits under the Pension
Plan resulting from his employment during the Transition Period. For the
purposes of the Retirement Plans, Scott's retirement date shall be the date
upon which Scott ceases to be an employee of the Company. Payment of his
retirement benefits shall commence as provided by the terms of the
Retirement Plans. To the extent permitted by law, the salary payable to
Scott pursuant to this Agreement shall constitute Compensation to Scott for
purposes of the Retirement Plans. The Company acknowledges that Scott's
benefits under the Retirement Plans are one hundred (100%) percent vested.
The intent of this Paragraph is to cause Scott's total retirement benefits
under the Retirement Plans to be equal to, but not to exceed, the
retirement benefits to which Scott would be entitled if he ceased to be an
employee of the Company on December 31, 1994.
(d) Stock Options. Scott is a party to four (4) option agreements
(the "Option Agreements"), whereby Scott has been granted the right to
acquire 135,500 shares of the Company's Common Stock (the "Options") as
follows:
<TABLE>
<CAPTION>
DATE OF OPTIONS
AGREEMENT GRANTED TYPE OF GRANT OPTION PRICE
- --------- -------- -------------- ------------
<S> <C> <C> <C>
2/18/92 40,000 Non-Qualified $ 14.50
3/31/93 45,500 Non-Qualified $ 13.75
1/18/94 48,120 ISO $ 8.3125
1/18/94 1,880 Non-Qualified $ 8.3125
--------
Total 135,500
</TABLE>
The Option Agreements shall remain in full force and effect in
accordance with their terms during the term of this Agreement, except that
the Option Agreements are hereby amended to provide that (i) all of the
Options will be fully vested and exercisable as of December 31, 1994; (ii)
the period during which Scott can exercise the Options shall extend through
the earlier of December 31, 1996, or ninety (90) days after the date Scott
ceases to be employed by the Company, provided that if Scott's employment
is terminated by death, his personal representative shall be entitled to
exercise the Options for twelve months after his death but not later than
December 31, 1996 and (iii) all of the Options shall expire at midnight on
December 31, 1996.
(e) 1994 Senior Officer Bonus Plan. Scott hereby waives and releases
any right he may have to receive a bonus from the Company for 1994 under
the 1994 Senior Officer Bonus Plan or any other bonus plan or arrangement
the Company may hereafter adopt for officers or senior officers of the
Company.
(f) Days Off. Scott and the Company agree that the Company shall have
no obligation to Scott under the Company's Days-Off Policy unless Scott
dies during the Officer Period. If Scott dies during the Officer Period,
the Company shall pay to Scott's estate an amount equal to the amount, if
any, to which Scott would have been entitled under the Days-Off Policy if
Scott had retired on the date of his death. Except as provided in this
paragraph, Scott shall not be entitled to receive any payments whatsoever
under the Company's Days-Off Policy, nor shall Scott continue to
participate in the Days-Off Policy. Notwithstanding the provisions of this
paragraph, the Company agrees that Scott is not required to devote his full
and exclusive time to the business of the Company during the term of his
employment under this Agreement and that Scott's Base Salary will not be
reduced as a result of his absence from the office (including, without
limitation, absence resulting from the sickness or disability of Scott).
(g) Retiree Medical Benefits. Following the termination of his
employment with the Company, Scott shall be entitled to receive retiree
medical benefits under the Company's health plan (the "Health
3
<PAGE> 4
Plan") if and to the extent that Scott is then eligible to receive such
benefits under the terms of the Health Plan as then in effect. Nothing
contained in this Agreement shall prevent the Company from amending the
Health Plan or eliminating or curtailing the eligibility requirements for
or the benefits available under the Health Plan.
7. EFFECT OF RE-EMPLOYMENT OR RECEIPT OF EARNED INCOME. (a) If at any time
during the Officer Period or the Transition Period Scott enters into
"Re-Employment" (as hereafter defined) or earns or receives any "Earned Income"
(as hereafter defined) from any source other than pursuant to this Agreement,
Scott shall immediately notify the Company in writing of such occurrence,
together with the amount of Earned Income received or earned and any insurance
coverage provided to Scott, and the following provisions shall apply:
(1) If Scott notifies the Company that he will earn Earned Income from
Re-Employment on a monthly basis equal to or in excess of the Base Salary,
then, within ten (10) days after receipt of such notification from Scott,
the Company shall pay Scott, in full satisfaction of all obligations under
Sections 3, 4 and 5 of this Agreement, an amount equal to fifty percent
(50%) of the remainder of: (A) the total Base Salary that Scott would have
received under this Agreement from the Effective Date through December 31,
1996, less (B) the Base Salary actually paid to Scott prior to
Re-Employment. Notwithstanding anything herein to the contrary, upon
payment by the Company of the amounts set forth in this Section 7(a)(1),
the Company shall cease to have any obligations under Sections 3, 4 and 5
of this Agreement.
(2) If Scott receives Earned Income but the provisions of Section
7(a)(1) above are not applicable, then Scott agrees to make a complete and
accurate report to the Company on or before the tenth day of each month
showing the amount of Earned Income received by Scott during the previous
month. Scott shall report such Earned Income on a Certificate Regarding
Earned Income in the form attached hereto as Exhibit B and incorporated
herein by reference. The Base Salary payable to Scott in each month in
which the Company receives such a report shall be reduced by the amount of
Earned Income received by Scott during the previous calendar month. At the
end of the Transition Period and only after Scott has reported to the
Company all Earned Income theretofore received for services rendered during
the Officer Period and the Transition Period, the Company shall pay Scott
an amount equal to fifty percent (50%) of the remainder of: (A) the total
Base Salary payable hereunder from the Effective Date through December 31,
1996, less (B) the sum of (i) the actual Base Salary paid to Scott during
the Officer Period and the Transition Period and (ii) any Earned Income
received by Scott during the Officer Period and the Transition Period and
not subtracted from the Base Salary pursuant to the previous sentence.
Scott shall immediately notify the Company of any change in the level of
Earned Income from Re-Employment that Scott is entitled to receive during
the Officer Period and the Transition Period. The provisions of Section
7(a)(1) above shall apply if the Earned Income from Re-Employment increases
to a level equal to or in excess of the Base Salary.
(b) If Scott at any time receives any Earned Income that has not previously
been reported to the Company pursuant to Section 7(a) hereof, then Scott shall
reimburse the Company within ten (10) days after receipt of such Earned Income,
for the amount by which the Base Salary previously paid by the Company to Scott
exceeds the Base Salary that would have been paid if the amount of such Earned
Income had been known and had been applied to reduce the Base Salary paid by the
Company to Scott for the period for which such Earned Income was paid as
required by Section 7(a) hereof. In connection with such reimbursement, Scott
shall provide the Company with a written notice setting forth the amount of such
Earned Income and the period for which such Earned Income was paid, and Scott
thereafter shall provide the Company with any other documentation relating to
such Earned Income that the Company may reasonably request.
(c) Provided COBRA requirements have been met, the Company's obligation to
provide insurance coverage to Scott and his dependents under Section 5(a) hereof
shall terminate as to any specific coverage if and when comparable coverage is
made available to Scott in connection with Re-Employment.
(d) As used herein, the term "Re-Employment" shall mean any engagement of
Scott's personal services by any one or more individuals or entities on a
full-time or substantially similar basis which Scott
4
<PAGE> 5
expects to continue on an ongoing basis. The term "Earned Income" as used herein
shall mean all compensation for personal services rendered by Scott during the
Officer Period or the Transition Period (other than pursuant to this Agreement),
whether in the form of currently received or deferred salaries, wages, fees,
commissions, bonuses, contingent compensation, any amounts deferred from income,
or similar items, but shall not include any stock, stock options or any other
fringe benefits. Notwithstanding the foregoing, Earned Income shall not include
any director's fees received by Scott from Pier 1 Imports, Inc. or the Bank of
California and shall not include fees from Scott's speaking engagements which
are paid to or donated to The Red Scott Family Foundation. Whenever this
Agreement refers to the receipt by Scott of any Earned Income, such reference
shall mean and include the payment of Earned Income to Scott, or Scott's spouse,
or other members of Scott's family or household, or an "Entity" (as defined
below), to the extent such Earned Income represents compensation for personal
services rendered by Scott during the Transition Period. As used in this
paragraph (d), the term "Entity" shall mean any corporation, partnership or
other legal entity in which Scott, Scott's spouse or other members of Scott's
family or household collectively own or possess more than fifty percent (50%) of
the equity or rights to profits or voting rights. Any Earned Income paid to an
Entity and subsequently paid to Scott, or Scott's spouse, or another member of
his family or household shall be counted only once for the purposes of Sections
7(a), 7(b), and 8 hereof.
(e) Within ten (10) days after receipt of written notice from the Company,
Scott shall provide the Company with (i) a copy of Scott's filed tax return for
any period included in the Officer Period or the Transition Period and (ii) any
other documentation relating to Scott's Earned Income reasonably requested by
the Company.
(f) The obligation of Scott to the Company to notify the Company of the
receipt of any Earned Income and pay any amount owed to the Company or submit
any information requested by the Company under Section 7 hereof shall remain in
full force and effect notwithstanding any termination or expiration of this
Agreement.
8. DEATH OR RETIREMENT. If Scott dies at any time during the Transition
Period and if the Company at the time of his death remains obligated to pay the
Base Salary to Scott, the Company shall pay Scott's estate in full satisfaction
of all obligations to Scott hereunder, an amount equal to one hundred percent
(100%) of the remainder of: (A) the total Base Salary that would have been paid
to Scott from January 1, 1995 if he had survived to December 31, 1996, less (B)
the actual Base Salary paid to Scott between January 1, 1995 and the date of
Scott's death and less (C) any Earned Income received by Scott during the
Transition Period.
9. FURTHER ASSURANCES. The Company agrees that it will, upon the request
of Scott, do, execute, acknowledge, deliver and perform at the Company's expense
all such further acts, amendments, meetings, documentation, agreements and
authorizations as may be reasonably required to effectuate and accomplish the
provisions of this Agreement.
10. REPRESENTATIONS AND WARRANTIES. The Company warrants and represents to
Scott that the execution and delivery by the Company of this Agreement, the
performance by the Company of its obligations thereunder, and the consummation
of the transactions contemplated thereby, have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement has been
duly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company.
11. STATUS OF THE PARTIES. Scott, in performance of any Services
hereunder, shall be acting as an employee of the Company. Except as specifically
detailed above, Scott does not desire to benefit from or participate in any
compensation or benefit plans, programs, or arrangements, given to or provided
by the Company for the benefit of other employees of the Company, including,
without limitation, the right to participate in or receive credit for service
under any "employee welfare benefit plan" or "employee pension benefit plan" (as
such terms are defined in the Employee Retirement Income Security Act of 1974)
notwithstanding the terms of such plan. Scott agrees that he will not contribute
to the Company's Employee Stock Purchase Plan during the Transition Period.
12. NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY. Scott shall regard
and treat each item constituting all or any portion of the Company trade secrets
and all confidential information as strictly
5
<PAGE> 6
confidential and wholly owned by the Company and will not, for any reason in any
fashion, either directly or indirectly, use, sell, disclose or distribute any
such item or information to any third party for any purpose other than in
accordance with Scott's performance of the services hereunder.
13. BREACH OR DEFAULT. Upon the occurrence of any breach or default in the
performance of any of Scott's duties or responsibilities hereunder, and Scott's
failure to cure such breach or default within thirty (30) days of receipt of
written notice thereof, all obligations of the Company hereunder to compensate
Scott or to provide benefits thereto shall immediately be terminated and
rendered null, void and of no further effect, after which the Company shall be
entitled to pursue any and all remedies available, at law or in equity, to
address Scott's breach or default hereunder. Upon the occurrence of any breach
or default in the performance of any of the Company's obligations hereunder and
the Company's failure to cure such breach or default within thirty (30) days
after receipt of written notice thereof, all of the Company's obligations
hereunder shall be immediately accelerated without any right of set off by the
Company for any Earned Income received by Scott subsequent to such breach or
default by the Company, and Scott shall be entitled to pursue any and all
remedies available, at law or in equity, to address the Company's breach or
default hereunder.
14. GOODWILL COVENANT. During the term of this Agreement, Scott covenants
and agrees to refrain from making detrimental statements or taking any action
detrimental to the business or goodwill of the Company.
15. GENERAL PROVISIONS. (a) Binding Effect and Assignability. The rights
and obligations under this Agreement shall inure to the benefit of and be
binding upon Scott, the Company and their successors and assigns. Neither this
Agreement, nor any rights or obligations of Scott herein shall be transferable
or assignable by Scott without the Company's prior written consent, and any
attempted transfer or assignment hereof by Scott not in accordance herewith
shall be void.
(b) Notices. Any notices or other communications required or permitted
hereunder shall be deemed to have been duly given on the date of service if
personally served or three (3) days after mailing if mailed by first class mail,
registered or certified, postage prepaid and addressed to the parties at their
addresses as set forth in the most current records of the Company or to such
other address as shall be designated by written notice issued pursuant hereto.
(c) Entire Agreement. This Agreement, together with the Release Agreement,
contains the entire agreement of the parties relating to the subject matter
hereof and supersedes any prior agreements or understandings, oral or written,
to the contrary.
(d) Waiver. The waiver of the breach of any term or condition of this
Agreement shall not be deemed to constitute the waiver of any other or
subsequent breach of the same or any other term or condition.
(e) Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
(f) Severability. The unenforceability or invalidity of any term,
provision or Section of this Agreement shall not affect the validity or
enforceability of the remaining terms, provisions, or Sections hereof, but such
remaining terms, provisions or Sections shall be construed and interpreted in
such a manner as to carry out fully the intent of the parties hereto.
(g) Modification. This Agreement shall not be modified or amended except
by a written instrument signed by an authorized representative of all parties
executing this Agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, Scott has executed this Agreement, and the Company has
caused its duly authorized corporate officer to execute this Agreement and affix
its seal hereto, all as of the Effective Date.
"Company"
THE ACTAVA GROUP INC.
JOHN D. PHILLIPS
-------------------------------------
John D. Phillips
President and Chief Executive Officer
"Scott"
CHARLES R. SCOTT [SEAL]
--------------------------------
Charles R. Scott
7
<PAGE> 8
EXHIBIT A
UNCONDITIONAL RELEASE
THIS UNCONDITIONAL RELEASE (the "Release") is made and entered into as of
this day of December, 1994, by CHARLES R. SCOTT ("Scott") in favor of THE
ACTAVA GROUP, INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, Scott is currently employed by the Company under the Employment
Agreement dated July , 1994 (effective as of April 19, 1994) between the
Company and Scott (the "Employment Agreement"); and
WHEREAS, the Company has required, as a condition to the continued
employment of Scott beyond December 31, 1994, under the Employment Agreement
that Scott execute and deliver this Release in favor of the Company;
NOW, THEREFORE, for and in consideration of the premises, the agreement of
the Company to continue to employ Scott under the Employment Agreement and for
other good and valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged, Scott hereby agrees as follows:
1. RELEASE. Except with respect to the Company's obligations pursuant to,
reflected in or contained in the Employment Agreement, any vested retirement
benefits applicable to Scott, those benefits, payments or other rights which
Scott is entitled to receive under any plan, agreement or arrangement as
indicated in the Employment Agreement, and any benefits earned by Scott after
the date of the Employment Agreement, Scott hereby unconditionally remises,
releases and forever discharges, to the fullest extent permitted by law, the
Company, its employees, officers, directors, agents, affiliates, subsidiaries
and each of them from all manner of actions, proceedings, causes of action,
claims, counterclaims, suits, debts, sums, monies, accounts, covenants,
agreements, promises, damages, losses or demands of whatever kind or nature from
the beginning of time to the present, whether known or unknown, in law or in
equity, which in the past, now or in the future arise, may arise or allegedly
arise or are in any way resulting from or in any manner connected with Scott's
employment by the Company and the termination of such employment by the Company.
In consideration of the additional benefits and consideration provided to Scott
under the Employment Agreement, Scott waives all claims and causes of action
against the Company and all damages, if any, that may be recoverable. This
release and waiver of all claims and damages includes, but is not limited to,
any tort or claim of contractual restriction relating to Scott's employment or
termination thereof, any claim of wrongful discharge, and all rights under
federal, state or local law prohibiting race, sex, age, religion, national
origin, handicap, disability or other forms of discrimination, including but not
limited to, Title VII of the Civil Rights Act of 1964, as amended, the Age
Discrimination in Employment Act, as amended, any state or local human rights
laws, Workers' Compensation laws, and the National Labor Relations Act, as
amended. Notwithstanding anything herein to the contrary, Scott does not release
any claims under the Age Discrimination in Employment Act that may arise as a
result of conduct occurring after the execution of this Release.
2. MISCELLANEOUS. This Release and the Employment Agreement embody the
entire agreement of the parties and supersede all prior agreements between the
parties hereto relating to the subject matter hereof. The unenforceability or
invalidity of any of the terms or provisions of this agreement shall not affect
the validity or enforceability of the remaining terms or provisions which shall
be interpreted and construed in such manner as to carry out fully the intention
of the parties hereto. This Release shall be construed and enforced in
accordance with the laws of the State of Georgia.
Scott represents and warrants that he has been encouraged to seek advice
from anyone his choosing regarding this Release, including his attorney,
accountant, or tax advisor, prior to his execution of this Release, that Scott
has been given the opportunity and sufficient time to seek such advice, and that
Scott fully understands the meaning and contents of this Release. SCOTT
UNDERSTANDS THAT HE MAY TAKE UP TO TWENTY-ONE (21) DAYS TO CONSIDER WHETHER OR
NOT HE DESIRES TO ENTER
<PAGE> 9
INTO THIS RELEASE. Scott further represents and warrants that he was not
coerced, threatened or otherwise forced to sign this Release, and that each
signature appearing hereinafter is genuine.
SCOTT UNDERSTANDS THAT HE MAY REVOKE THIS AGREEMENT BY NOTIFYING THE
COMPANY IN WRITING OF SUCH REVOCATION, WITHIN SEVEN (7) DAYS OF HIS EXECUTION OF
THIS AGREEMENT AND THAT THIS AGREEMENT IS NOT EFFECTIVE UNTIL THE EXPIRATION OF
SUCH SEVEN (7) DAY PERIOD OR JANUARY 1, 1995, WHICHEVER IS LATER. SCOTT
UNDERSTANDS THAT UPON THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD THIS RELEASE
WILL BE BINDING UPON SCOTT AND WILL BE IRREVOCABLE.
SCOTT UNDERSTANDS THAT BY EXECUTING THIS RELEASE SCOTT IS GIVING UP
POSSIBLE RIGHTS THAT HE MAY HAVE, AND THAT SCOTT DOES NOT HAVE TO SIGN THIS
RELEASE. THIS RELEASE HAS BEEN VOLUNTARILY AND KNOWINGLY EXECUTED BY SCOTT WITH
THE EXPRESS INTENTION OF EFFECTING THE EXTINGUISHMENT OF ANY AND ALL OBLIGATIONS
AND DAMAGES THAT THE COMPANY MAY OWE TO SCOTT AS PROVIDED HEREIN.
IN WITNESS WHEREOF, Scott has duly executed this Release in favor of the
Company under seal as of the day and year first above written.
"Scott":
--------------------------------------
Charles R. Scott
2
<PAGE> 10
EXHIBIT B
CERTIFICATE REGARDING EARNED INCOME
I, Charles R. Scott ("Scott"), hereby certify to The Actava Group Inc. (the
"Company") that the following constitutes all "Earned Income:" (as such term is
defined in the Employment Agreement dated as of , 1994, between Scott
and the Company) received by me whether directly or indirectly from any source
during the period from to :
<TABLE>
<S> <C> <C>
Amount of Earned Income: $
------------
Source:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
</TABLE>
IN WITNESS WHEREOF, the undersigned has set his hand as of this day of
, 199 .
"Scott"
--------------------------------------
Charles R. Scott
<PAGE> 1
EXHIBIT 11
THE ACTAVA GROUP INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1994 1993 1994 1993
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Income (loss) per share -- primary
Net (loss) available for common stock and common
stock equivalents............................... $(46,283) $ 43 $(58,956) $(7,561)
======== ======= ======== =======
Common stock and common stock equivalents
Weighted average Actava common shares outstanding
during the period, less stock in treasury....... 18,197 16,820 17,918 16,683
======== ======= ======== =======
(Loss) per share -- primary........................ $ (2.54) $ -- $ (3.29) $ (.45)
======== ======= ======== =======
Income (loss) per share -- assuming full dilution (a)
Net (loss) available for common stock and common
stock equivalents............................... $(46,283) $ 43 $(58,956) $(7,561)
Interest savings on assumed conversion of 6 1/2%
Convertible Debentures, net of income tax....... 827 827 1,654 1,654
-------- ------- -------- -------
Net income (loss) available for common
stock and common stock equivalents
assuming full dilution................... $(45,456) $ 870 $(57,302) $(5,907)
======== ======= ======== =======
Common stock and common stock equivalents............ 18,197 16,820 17,918 16,683
Shares issuable upon assumed conversion of 6 1/2%
Convertible Debentures............................. 1,802 1,802 1,802 1,802
-------- ------- -------- -------
Common stock and common stock equivalents assuming
full dilution...................................... 19,999 18,622 19,720 18,485
======== ======= ======== =======
Income (loss) per share -- assuming full dilution.... $ (2.27) $ .05 $ (2.91) $ (.32)
======== ======= ======== =======
</TABLE>
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(a) Fully diluted income (loss) per share is not used in 1994 and 1993 because
it exceeds primary earnings (loss) per share.
