<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
The Actava Group Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Charter)
The Actava Group Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock of Roadmaster Industries, Inc.
(2) Aggregate number of securities to which transaction applies:
19,169,000
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$3.8125 per share of Roadmaster Common Stock
(4) Proposed maximum aggregate value of transaction:
$73,081,813
Set forth the amount on which the filing fee is calculated and state how it
was determined.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$14,616.36
(2) Form, Schedule or Registration Statement No.:
Schedule 14A (File No. 1-11996)
(3) Filing Party:
Roadmaster Industries, Inc.
(4) Date Filed:
August 24, 1994
<PAGE> 2
PRELIMINARY COPIES
(LOGO)
THE ACTAVA GROUP INC.
4900 GEORGIA PACIFIC CENTER
ATLANTA, GEORGIA 30303
Dear Stockholder:
Your Board of Directors cordially invites you to attend a Special Meeting
of Stockholders of The Actava Group Inc. ("Actava" ) to be held at the Georgia
Pacific Center Auditorium, 133 Peachtree Street, Atlanta, Georgia on December 2,
1994 at 10:00 a.m. local time. At this Special Meeting you will be asked to
consider and vote upon an Agreement and Plan of Reorganization dated as of July
20, 1994, a copy of which is included in the attached Proxy Statement, pursuant
to which Actava will transfer to Roadmaster Industries, Inc. ("Roadmaster") all
of the issued and outstanding capital stock of Diversified Products Corporation,
Hutch Sports USA Inc., Nelson/Weather-Rite, Inc., and Willow Hosiery Company,
Inc. (collectively, the "Sports Subsidiaries") in exchange for an aggregate of
19,169,000 shares of Common Stock, par value $0.01, of Roadmaster ("Roadmaster
Common Stock"). Following the consummation of the transaction, Actava will own
approximately 39.6% of the issued and outstanding shares of Roadmaster Common
Stock (based on the number of shares of Roadmaster Common Stock outstanding as
of the date of the attached Proxy Statement). The closing sale price of the
Roadmaster Common Stock on the American Stock Exchange on October 28, 1994 was
$3.75 per share. In connection with the transaction, four designees of Actava
will be elected to serve on Roadmaster's nine member Board of Directors.
YOUR BOARD OF DIRECTORS CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED THE
TERMS OF THE AGREEMENT AND PLAN OF REORGANIZATION AFTER CONCLUDING THAT THE
TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF ACTAVA AND ITS
STOCKHOLDERS AND ARE FAIR TO ACTAVA AND ITS STOCKHOLDERS FROM A FINANCIAL POINT
OF VIEW. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION.
On April 19, 1994, I was elected by your Board of Directors as Actava's
President and Chief Executive Officer. The Board of Directors has given me a
mandate to improve your company's operating results and to increase the value of
your investment in Actava. We have already taken several steps to accomplish
these goals. First, we negotiated with Roadmaster the transactions described in
the attached Proxy Statement. Second, on August 12, 1994, we sold our 50%
ownership interest in our photofinishing business, Qualex Inc., to Eastman Kodak
Company. Both of these transactions are designed to improve our operating
results and financial condition and to enable Actava to pursue new business
opportunities. On August 31, 1994, Actava entered into letters of intent
providing for a proposed combination of Actava with Orion Pictures Corporation,
MCEG Sterling Incorporated, and Metromedia International Telecommunications Inc.
(the "Proposed Metromedia Transaction"). Consummation of the Proposed Metromedia
Transaction is subject to a number of conditions, including completion of due
diligence investigations by each of the parties, negotiation and execution of
definitive agreements, the successful refinancing of the currently outstanding
indebtedness of Orion Pictures Corporation, and approval of the transaction by
Actava's Board of Directors and stockholders. None of these conditions has been
satisfied. Stockholders at this Special Meeting are only being asked to consider
and vote upon the Agreement and Plan of Reorganization with Roadmaster and the
transactions contemplated thereby as described in the attached Proxy Statement.
If the Proposed Metromedia Transaction is approved by Actava's Board of
Directors and if definitive agreements are executed by the parties thereto,
Actava will call a separate meeting of stockholders for the purpose of
considering and voting upon the Proposed Metromedia Transaction. Stockholders
will have an opportunity at the Special Meeting to comment on or to inquire
about the affairs of Actava that may be of interest to stockholders generally.
<PAGE> 3
Roadmaster is one of the largest manufacturers of bicycles in the United
States and is a leading manufacturer of fitness equipment and junior products.
The trademarks and brand names under which Roadmaster sells its products include
Roadmaster(R), Flexible Flyer(R), Vitamaster(R), MacGregor(R) and American
Playworld(R). The combination of the Sports Subsidiaries with Roadmaster will
create one of the largest manufacturers and suppliers of sporting goods products
in the United States, with approximately $750,000,000 in annual revenues, and
should enable the combined company to expand its product lines and achieve
economies of scale that are necessary for Roadmaster to be a low-cost producer
of competitively priced products.
Approval of the Agreement and Plan of Reorganization and consummation of
the transactions contemplated thereby by the stockholders of Actava is a
condition to the consummation of the transactions. Accordingly, it is important
that your shares be represented at the Special Meeting in order that the
presence of a quorum may be assured. Whether or not you plan to attend the
Special Meeting, you are urged to date, sign and mail the enclosed proxy card in
the envelope provided. If you later decide to attend the Special Meeting, you
may vote in person even if you have previously returned your proxy card.
Thank you for your support.
Sincerely,
John D. Phillips
------------------------------------
John D. Phillips
President and Chief Executive Officer
<PAGE> 4
THE ACTAVA GROUP INC.
4900 GEORGIA PACIFIC CENTER
ATLANTA, GEORGIA 30303
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 2, 1994
TO THE STOCKHOLDERS OF
THE ACTAVA GROUP INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of The Actava Group Inc., a Delaware corporation ("Actava"), will be
held on Friday, December 2, 1994, at 10:00 a.m., local time, at the Georgia
Pacific Center Auditorium, 133 Peachtree Street, Atlanta, Georgia 30303 for the
purpose of considering and acting upon the following:
1. A proposal to approve and adopt the Agreement and Plan of
Reorganization dated as of July 20, 1994 (the "Agreement"), by and among
Actava, Diversified Products Corporation ("Diversified Products"), Hutch
Sports USA Inc. ("Hutch"), Nelson/Weather-Rite, Inc.
("Nelson/Weather-Rite"), Willow Hosiery Company, Inc. ("Willow"), and
Roadmaster Industries, Inc. ("Roadmaster") and the consummation of the
transactions contemplated thereby. The Agreement, among other things,
provides that Actava will transfer to Roadmaster all of the issued and
outstanding shares of capital stock of Diversified Products, Hutch,
Nelson/Weather-Rite and Willow, in exchange for an aggregate of 19,169,000
shares of Common Stock, par value $0.01 per share, of Roadmaster.
2. The transaction of such other business as may properly come before
the Meeting or any adjournment thereof. The Board of Directors is not aware
of any other business that will be presented for consideration at the
Meeting.
The Board of Directors unanimously recommends that the stockholders vote
FOR the proposal to adopt and approve the Agreement and the transactions
contemplated thereby.
Only stockholders of record at the close of business on October 21, 1994,
will be entitled to notice of and to vote at the Meeting or any adjournment
thereof. The Meeting may be adjourned from time to time without notice other
than by announcement at the Meeting. A list of stockholders entitled to vote at
the Meeting will be available for inspection by any stockholder, for any reason
germane to the Meeting, during ordinary business hours, during the ten days
prior to the Meeting, at 4900 Georgia Pacific Center, Atlanta, Georgia 30303.
By Order of the Board of Directors
Walter M. Grant
-----------------------------------
Walter M. Grant
Secretary
Atlanta, Georgia
November 3, 1994
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING, REGARDLESS
OF THE NUMBER OF SHARES YOU HOLD, IN ORDER THAT A QUORUM MAY BE ASSURED. WHETHER
OR NOT YOU PLAN TO BE PRESENT AT THE MEETING IN PERSON, PLEASE COMPLETE, SIGN,
DATE AND MAIL THE ENCLOSED PROXY IN THE ACCOMPANYING RETURN ENVELOPE TO WHICH NO
POSTAGE NEED BE AFFIXED BY THE SENDER IF MAILED WITHIN THE UNITED STATES. IF YOU
RECEIVE MORE THAN ONE PROXY BECAUSE YOUR SHARES ARE REGISTERED IN DIFFERENT
NAMES OR ADDRESSES, EACH SUCH PROXY SHOULD BE SIGNED AND RETURNED TO ASSURE THAT
ALL OF YOUR SHARES WILL BE VOTED. THE PROXY SHOULD BE SIGNED BY ALL REGISTERED
HOLDERS EXACTLY AS THE STOCK IS REGISTERED.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.......................................................................... 1
Summary Information................................................................... 1
The Special Meeting................................................................. 1
The Exchange Transaction............................................................ 1
Vote Required....................................................................... 1
Effective Time of the Exchange Transaction.......................................... 2
Purpose and Reason for the Exchange Transaction..................................... 2
Certain Federal Income Tax Consequences............................................. 2
Regulatory Filings and Approvals.................................................... 3
Conduct of Business After the Exchange Transaction.................................. 3
Interests of Certain Persons in the Exchange Transaction............................ 3
Consents from Holders of Senior Notes of Roadmaster................................. 4
Required Amendments to Certificate of Incorporation and By-laws of Roadmaster....... 4
Dissenters' Rights.................................................................. 4
Board of Directors' Recommendation.................................................. 4
Information Regarding The Special Meeting............................................. 5
General............................................................................. 5
Vote By Proxy....................................................................... 5
Cost of Proxy Solicitation.......................................................... 5
Outstanding Shares and Voting Rights................................................ 5
The Exchange Transaction.............................................................. 6
Introduction........................................................................ 6
The Exchange Transaction............................................................ 6
Background of the Exchange Transaction.............................................. 6
Reasons for the Exchange Transaction; Board Recommendation.......................... 7
Management and Operations of Actava After the Exchange Transaction.................. 10
Management and Operations of Roadmaster After the Exchange Transaction.............. 10
Terms and Conditions of Agreement................................................... 11
Regulatory Filings and Approvals.................................................... 13
Consents from Holders of Senior Notes of Roadmaster................................. 14
Accounting Treatment................................................................ 14
Certain Federal Income Tax Consequences............................................. 14
Public Trading Market............................................................... 15
Interests of Certain Persons in the Exchange Transaction............................ 15
Registration Rights Agreement....................................................... 16
Shareholders Agreement.............................................................. 16
Environmental Indemnity Agreement................................................... 18
Dissenters' Rights.................................................................. 18
Conduct of Business of Actava After the Exchange Transaction........................ 18
Conduct of Business of Roadmaster After the Exchange Transaction.................... 19
Restated and Pro Forma Selected Financial Data of The Actava Group Inc. (Unaudited)... 20
Restated and Pro Forma Selected Financial Data (Unaudited) of The Actava Group Inc.... 21
Pro Forma Condensed Consolidated Financial Information (Unaudited).................... 22
General............................................................................. 22
Pro Forma Condensed Consolidated Statement of Continuing Operations................. 23
Pro Forma Condensed Consolidated Balance Sheet...................................... 25
Historical and Pro Forma Selected Consolidated Financial Data of Roadmaster
Industries, Inc..................................................................... 27
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Combined Financial Statements of Roadmaster Industries, Inc. and The Sports
Subsidiaries........................................................................ 29
Roadmaster Management's Discussion and Analysis of the Roadmaster Pro Forma Combined
Financial Statements................................................................ 35
Business Information Regarding Roadmaster............................................. 39
Business Information Regarding Actava and The Sports Subsidiaries..................... 41
General............................................................................. 41
Lawn and Garden Equipment........................................................... 41
The Sports Subsidiaries............................................................. 42
Recent Developments................................................................. 44
Election of John D. Phillips as Chief Executive Officer of Actava................ 44
Sale of Qualex................................................................... 44
Sale of Real Estate Investment................................................... 45
Proposed Metromedia Transaction.................................................. 45
Certain Transactions............................................................. 47
Stock Ownership of Actava............................................................. 47
Ownership of Actava Common Stock by Directors and Officers.......................... 47
Ownership of Actava Common Stock by Certain Holders................................. 48
Independent Auditors.................................................................. 49
Other Matters......................................................................... 49
Available Information................................................................. 49
Incorporation of Certain Documents by Reference....................................... 49
Financial Statements of The Sports Subsidiaries....................................... F-1
Financial Statements of Flexible Flyer................................................ F-29
</TABLE>
ii
<PAGE> 7
THE ACTAVA GROUP INC.
4900 GEORGIA-PACIFIC CENTER
ATLANTA, GEORGIA 30303
---------------------
PROXY STATEMENT, DATED NOVEMBER 3, 1994
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 2, 1994
---------------------
INTRODUCTION
This proxy statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of The Actava Group Inc. ("Actava" or the
"Company") for use at a Special Meeting of Stockholders (the "Meeting") to be
held on Friday, December 2, 1994, at 10:00 a.m., local time, and at any
adjournment or adjournments thereof, for the purposes set forth in the
accompanying Notice of Meeting and described in detail herein. This Proxy
Statement, together with a form of proxy, is first being mailed to stockholders
of record on or about November 3, 1994.
SUMMARY INFORMATION
The following is a summary of certain information contained in this Proxy
Statement. This summary is not intended to be a complete statement of all
material features of the transactions described herein and is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Proxy Statement and the Annex attached hereto and the documents
incorporated by reference herein. STOCKHOLDERS ARE URGED TO READ THIS PROXY
STATEMENT AND THE ANNEX HERETO IN THEIR ENTIRETY.
THE SPECIAL MEETING
At the Meeting, the stockholders of Actava will be asked to consider and
vote upon a proposal to approve and adopt the Agreement and Plan of
Reorganization dated as of July 20, 1994 (the "Agreement") by and among Actava,
Diversified Products Corporation ("Diversified Products"), Hutch Sports USA Inc.
("Hutch"), Nelson/Weather-Rite, Inc. ("Nelson/Weather-Rite"), Willow Hosiery
Company, Inc. ("Willow") and Roadmaster Industries, Inc. ("Roadmaster") and
consummation of the transactions contemplated thereby. A copy of the Agreement
is attached to this Proxy Statement as Annex A and is incorporated herein by
reference. Diversified Products, Hutch, Nelson/Weather-Rite and Willow are
wholly-owned subsidiaries of Actava and are hereinafter referred to individually
as a "Sports Subsidiary" and collectively as the "Sports Subsidiaries." See "THE
EXCHANGE TRANSACTION."
THE EXCHANGE TRANSACTION
The Agreement provides that, subject to the approval of the Agreement and
the transactions contemplated thereby by the stockholders of Actava and
Roadmaster and the satisfaction of certain other conditions, Actava will
transfer to Roadmaster all of the issued and outstanding capital stock of the
Sports Subsidiaries in exchange for an aggregate consideration of 19,169,000
shares (the "Exchange Shares") of Common Stock, $.01 par value per share, of
Roadmaster ("Roadmaster Common Stock"). The transfer by Actava of the capital
stock of the Sports Subsidiaries in exchange for the Exchange Shares hereinafter
is referred to as the "Exchange Transaction." See "THE EXCHANGE TRANSACTION."
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Common Stock, $1.00 par value per share, of Actava ("Actava Common Stock")
outstanding on October 21, 1994 is required for approval and adoption of the
Agreement and consummation of the transactions contemplated thereby. As a
result,
<PAGE> 8
abstentions and broker non-votes will have the effect of a negative vote at the
Meeting. See "INFORMATION REGARDING THE SPECIAL MEETING -- Outstanding Shares
and Voting Rights."
EFFECTIVE TIME OF THE EXCHANGE TRANSACTION
The Exchange Transaction will become effective upon the closing of the
transactions as contemplated by the Agreement. The date of closing (the "Closing
Date") is expected to occur as soon as practicable following approval of the
Agreement and the transactions contemplated thereby by the stockholders of
Actava and Roadmaster.
PURPOSE AND REASONS FOR THE EXCHANGE TRANSACTION
The purpose of the Exchange Transaction is to improve Actava's operating
results and financial condition and to enable Actava to pursue other business
opportunities. The Board of Directors of Actava believes that the Exchange
Transaction will create more value for the Company's stockholders than the
Company could create by continuing to operate the Sports Subsidiaries. The
combination of Roadmaster and the Sports Subsidiaries will create one of the
largest manufacturers and suppliers of recreation and sporting goods products in
the United States with approximately $750 million in annual revenues. As a
result of the Exchange Transaction, the Company will own approximately 39.6% of
the outstanding stock of a combined enterprise with substantially larger annual
revenues and greater financial resources than the Sports Subsidiaries on an
individual or combined basis. The Company anticipates that the combined
enterprise, through expanded market share, expanded managerial resources,
increased utilization of plant production capacity and indirect manufacturing
and administrative cost savings due to the consolidation of certain functional
areas, will achieve over time an earnings level which will cause Actava's
minority interest in Roadmaster's earnings to be greater than the earnings that
could be achieved by the Sports Subsidiaries on a stand-alone basis. Since the
acquisition of Diversified Products in June 1993, the Company has been
supporting the working capital needs of Diversified Products through
intercompany cash advances. At June 30, 1994, these advances totaled $10
million. As a result of the Exchange Transaction, Actava will be repaid these
advances with interest over an 18 month period. The Company believes that this
time period is of shorter duration than the anticipated repayment period if
Diversified Products were to remain a wholly-owned subsidiary of the Company.
The Company believes that this accelerated cash repayment, as well as the
assumption by Roadmaster of approximately $39 million of notes payable relating
to working capital financing requirements of the Sports Subsidiaries, improves
the Company's immediate financial position and enhances its ability to pursue
other business opportunities as they arise. In addition, by virtue of its
ownership of 19,169,000 shares of Roadmaster Common Stock, the Company will
benefit from increases in the value of Roadmaster Common Stock. The Board of
Directors believes that such increases will occur as a result of the cost
savings and other benefits expected to be realized by Roadmaster as a result of
the Exchange Transaction. Although Actava has not made any formal
representations or legally binding commitments which would limit its ability to
purchase additional equity in Roadmaster, management of Actava intends to
acquire the Roadmaster Common Stock for investment as part of the disposition of
the Sports Subsidiaries and not for the purpose of obtaining control of
Roadmaster. Further, Actava has no current plans for acquiring additional shares
of Roadmaster Common Stock. Certain proposed changes to Roadmaster's Certificate
of Incorporation and By-Laws are expected to preserve the positions held by
existing members of Roadmaster's management. See "THE EXCHANGE
TRANSACTION -- Reasons for the Exchange Transaction" and "-- Conduct of Business
of Actava After the Exchange Transaction."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Exchange Transaction is intended to be a tax-free reorganization
pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended (the "Code"). See "THE EXCHANGE TRANSACTION -- Certain Federal Income
Tax Consequences."
2
<PAGE> 9
REGULATORY FILINGS AND APPROVALS
Consummation of the Exchange Transaction is contingent upon the expiration
of all waiting periods under the Hart-Scott-Rodino Antitrust Improvement Act of
1976, as amended (the "Hart-Scott-Rodino Act"). See "THE EXCHANGE
TRANSACTION -- Regulatory Filings and Approvals."
CONDUCT OF BUSINESS AFTER THE EXCHANGE TRANSACTION
Actava's management is attempting to redirect the Company's focus in order
to enhance stockholder value. In connection with these efforts, on August 12,
1994, the Company sold its 50% ownership interest in Qualex Inc. ("Qualex") to
Eastman Kodak Company ("Kodak") and, as a result, is no longer engaged in the
photofinishing business. In exchange for the Company's 50% ownership interest in
Qualex, as well as a covenant not to compete and related releases from the
Company, Kodak paid the Company $50 million in cash and agreed to pay the
Company an additional $100 million without interest in two equal installments on
February 13, 1995 and August 11, 1995. If the proposed Exchange Transaction is
approved, the Company will no longer own and operate the Sports Subsidiaries but
instead will own approximately 39.6% of the issued and outstanding shares of
Roadmaster Common Stock (based on the number of shares of Roadmaster Common
Stock outstanding as of the date of this Proxy Statement). The sales of the
Company's photofinishing and sporting goods businesses are expected to improve
the Company's operating results and financial condition and will enable the
Company to pursue new business opportunities. The Company is presently
evaluating new opportunities and strategies for enhancing stockholder value. On
August 31, 1994, the Company entered into letters of intent providing for a
proposed combination of the Company with Orion Pictures Corporation, MCEG
Sterling Incorporated, and Metromedia International Telecommunications Inc. (the
"Proposed Metromedia Transaction"). It is contemplated that the surviving entity
of the Proposed Metromedia Transaction would be a global media, entertainment
and communications company named Metromedia International Group, Inc. In the
event the Proposed Metromedia Transaction and the Exchange Transaction are
consummated, the surviving entity in the Proposed Metromedia Transaction will be
the successor to Actava's stock ownership in Roadmaster and to Actava's various
agreements with Roadmaster described herein. Consummation of the Proposed
Metromedia Transaction is subject to a number of conditions, including
completion of due diligence investigations by each of the parties, negotiation
and execution of definitive agreements, the successful refinancing of the
currently outstanding indebtedness of Orion Pictures Corporation, and approval
of the transaction by Actava's Board of Directors and stockholders. None of
these conditions has been satisfied. At the Meeting, Actava's stockholders will
only be asked to consider and vote upon the Agreement and the consummation of
the transactions contemplated thereby. No assurances can be given that the
Proposed Metromedia Transaction will be approved by Actava's Board of Directors
or that the parties to the Proposed Metromedia Transaction will successfully
negotiate and enter into definitive agreements. If these events occur, however,
Actava will call a separate meeting of stockholders for the purpose of
considering and voting upon the Proposed Metromedia Transaction. See "THE
EXCHANGE TRANSACTION -- Terms and Conditions of the Agreement," " -- Conduct of
Business of Actava After the Exchange Transaction" and "BUSINESS INFORMATION
REGARDING ACTAVA AND THE SPORTS SUBSIDIARIES -- Recent Developments."
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE TRANSACTION
Henry Fong, the Chief Executive Officer and a director of Roadmaster, and
Edward E. Shake, the Chief Operating Officer and a director of Roadmaster, will,
as of the Closing Date, become parties to employment agreements with Roadmaster
for a five-year term. In addition, Roadmaster will pay to Mr. Fong and Mr. Shake
a completion fee of $595,000 and $63,000, respectively, upon the consummation of
the Exchange Transaction. On the Closing Date, Actava will acquire certain
rights pursuant to the terms of a Shareholders Agreement entitling it to
nominate four persons to a nine-person Roadmaster Board of Directors and
requiring Actava to vote in favor of Roadmaster's nominees to the Roadmaster
Board of Directors. Roadmaster, Mr. Fong and Mr. Shake also will be parties to
the Shareholders Agreement and will be similarly obligated to vote for Actava's
nominees to the Roadmaster Board of Directors. Actava also will acquire certain
rights pursuant to a Registration Rights Agreement to require Roadmaster to
register, at either its or Actava's
3
<PAGE> 10
expense, the Exchange Shares and other shares of Roadmaster Common Stock that
Actava may acquire. See "THE EXCHANGE TRANSACTION -- Interests of Certain
Persons in the Exchange Transaction," "-- Shareholders Agreements," and
"-- Registration Rights Agreement."
CONSENTS FROM HOLDERS OF SENIOR NOTES OF ROADMASTER
In order to consummate the Exchange Transaction, Roadmaster will be
required to obtain the waiver or amendment of certain covenants and provisions
of the indenture of trust (the "Indenture") governing its outstanding 11 3/4%
Senior Subordinated Notes (the "Senior Notes"), principally the covenant
governing the circumstances under which Roadmaster may incur additional
indebtedness. See "THE EXCHANGE TRANSACTION -- Consents from Holders of Senior
Notes of Roadmaster."
REQUIRED AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BY-LAWS OF ROADMASTER
As a condition to consummation of the Exchange Transaction, Roadmaster will
be required to amend and restate its Certificate of Incorporation and By-laws.
Such amendments will, among other things, fix the number of directors of
Roadmaster at nine, require that all stockholder action be taken at an annual or
special meeting, provide for advance notice of nominations, require certain
super-majority votes under certain circumstances for the Board of Directors of
Roadmaster to remove its Chief Executive Officer or Chief Operating Officer, and
require supermajority voting by the stockholders to amend certain provisions of
the Certificate of Incorporation or By-laws. Among other things, the effect of
these amendments will be to require a two-thirds vote of the members of the
Board of Directors of Roadmaster to terminate Roadmaster's existing Chief
Executive Officer and Chief Operating Officer, except that the Board of
Directors will have the right to terminate such officers by a majority vote if
Roadmaster has not reported positive net income from continuing operations for
the preceding fiscal year.
DISSENTERS' RIGHTS
Actava's stockholders are not entitled to dissenters' rights of appraisal
or other dissenters' rights under Delaware law with respect to the Exchange
Transaction.
BOARD OF DIRECTORS' RECOMMENDATION
At the meeting held to consider the Agreement and the proposed consummation
of the transactions contemplated thereby, the members of the Board of Directors
of Actava carefully considered and unanimously approved the terms of the
Agreement as being in the best interests of Actava and its stockholders. See
"THE EXCHANGE TRANSACTION -- Reasons for the Exchange Transaction; Board
Recommendation."
THE BOARD OF DIRECTORS OF ACTAVA RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE PROPOSAL TO APPROVE THE AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY.
4
<PAGE> 11
INFORMATION REGARDING THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to holders of Common Stock of
Actava in connection with the solicitation of proxies by the Board of Directors
of the Company for use at the Meeting. Each copy of this Proxy Statement being
mailed or delivered to Actava's stockholders is accompanied by a proxy card and
the Notice of Special Meeting of Stockholders.
VOTE BY PROXY
All properly executed proxies in the form enclosed received in time for the
Meeting will be voted according to their voting rights in accordance with the
instructions contained thereon. If no choice is specified, proxies will be voted
FOR the approval and adoption of the Agreement and consummation of the
transactions contemplated thereby. The Board of Directors knows of no business
that will be presented for consideration at the Meeting other than the matters
described in this Proxy Statement.
Any person giving a proxy pursuant to this Proxy Statement may revoke it at
any time before it is voted at the Meeting or any adjournments thereof by filing
with the Secretary of the Company, at the address of the Company stated above, a
written notice of such revocation or by duly executing a proxy bearing a later
date. In addition, if a person executing a proxy is present at the Meeting, he
may, but need not, revoke his proxy, by notice of such revocation to the
Secretary of the Meeting, and vote his shares in person. Proxies, if in the form
enclosed, duly signed and received in time for voting, and not revoked before
they are voted, will be voted at the Meeting in accordance with the instructions
specified thereon.
COST OF PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited by the Company's directors, officers and regular employees, without
remuneration, in person or by telephone, facsimile transmission, telegram or
mail. It is anticipated that banks, brokerage houses and other custodians,
nominees and fiduciaries will forward soliciting material to beneficial owners
of stock entitled to vote at the Meeting, and such persons will be reimbursed
for out-of-pocket expenses incurred by them in connection therewith in
accordance with the regulations of the Securities and Exchange Commission (the
"Commission") and the New York Stock Exchange for sending proxies and proxy
materials to the beneficial owners of common stock.
Proxies furnished to employees who participate in the Company's employee
stock purchase plan, if returned by such employees, will represent voting
instructions to the plan trustee with respect to the shares credited to the plan
accounts of such employees.
OUTSTANDING SHARES AND VOTING RIGHTS
The Actava Common Stock presently is the Company's only class of securities
with general voting rights. Each share of Actava Common Stock is entitled to one
vote on each matter properly coming before the Meeting and cumulation of votes
is not permitted. Only stockholders of record as of the close of business on
October 21, 1994 (the "Record Date") will be entitled to vote at the Meeting. As
of the Record Date, the Company had a total of 18,368,326 shares of Actava
Common Stock issued and outstanding. Holders of 9,184,164 of the outstanding
shares, if present in person or represented by proxy, will constitute a quorum
at the Meeting. Abstentions and "broker non-votes" are counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
The Agreement and the consummation of the transactions contemplated thereby must
be approved by a majority of the issued and outstanding Common Stock.
Accordingly, abstentions and broker non-votes will have the effect of a "no"
vote in all cases.
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THE EXCHANGE TRANSACTION
INTRODUCTION
Actava, each of the Sports Subsidiaries and Roadmaster have entered into
the Agreement which provides that, subject to certain conditions, Actava will
transfer to Roadmaster all of the issued and outstanding shares of capital stock
of the Sports Subsidiaries in exchange for an aggregate of 19,169,000 shares of
Roadmaster Common Stock.
At the Meeting, the stockholders of Actava will be asked to consider and
vote upon a proposal to approve and adopt the Agreement and consummation of the
transactions contemplated thereby. All descriptions and summaries of, or
references to, the terms and conditions of the Agreement in this Proxy Statement
are qualified in their entirety by reference to the Agreement which is included
as Annex A hereto and incorporated herein by reference. Following the Exchange
Transaction, Actava will own approximately 39.6% of the issued and outstanding
shares of Roadmaster Common Stock (based on the number of shares of Roadmaster
Common Stock outstanding as of the date of this Proxy Statement).
THE EXCHANGE TRANSACTION
The Agreement provides that, subject to the approval of the Agreement and
the transactions contemplated thereby by the stockholders of Actava and
Roadmaster and the satisfaction of certain other conditions, Actava will
transfer to Roadmaster all of the issued and outstanding capital stock of the
Sports Subsidiaries in exchange for 19,169,000 shares of Roadmaster Common
Stock. See "-- Terms and Conditions of the Agreement."
BACKGROUND OF THE EXCHANGE TRANSACTION
General. In the first quarter of 1993, the former President and Chief
Executive Officer of Actava, Charles R. Scott, announced the Company's entry
into the life sports and leisure industry with the planned acquisition of
Diversified Products. On June 8, 1993, the Company completed its acquisition of
Diversified Products and in July 1993 the Company changed its name from Fuqua
Industries, Inc. to The Actava Group Inc. in order to clearly indicate its
intentions of becoming a significant participant in the life sports and leisure
industry.
In the first quarter of 1993, the Company also announced that it had
engaged Merrill Lynch & Company to assist in exploring alternatives that would
enable the Company to realize the fair value for its investment in its Snapper
division. The alternatives included a possible sale, joint venture, public or
private equity offering, or other type of transaction involving Snapper. In the
third quarter of 1993, the Company experienced disappointing financial results
at Snapper and anticipated declining results for the balance of the year. This
performance and the anticipated performance caused the Company to initiate
management changes at Snapper and caused a delay in the Company's efforts to
develop a long-term strategy to realize the fair value from its investment in
Snapper through the Merrill Lynch engagement. In the fourth quarter of 1993, the
Company suspended its engagement of Merrill Lynch because it believed that its
efforts to locate a purchaser or strategic partner or to engage in an equity
offering would result in a substantial distraction for Snapper's management,
distributors and dealers. The Company instructed Snapper management to devote
full time and attention to improving operating results.
In March 1994, the Company announced that its Board of Directors had
appointed a committee of independent directors to select a successor to Mr.
Scott, who at the time was 65 years of age. In April 1994, the Board of
Directors elected John D. Phillips as the Company's President and Chief
Executive Officer and successor to Mr. Scott. At that time, the Board directed
Mr. Phillips to improve the Company's liquidity and profitability prospects as
quickly as possible and to formulate other transactional approaches designed to
enhance stockholder value. In addressing the first directive, the Company sold
its interest in Qualex Inc. and entered into a contract to sell its Texas real
estate investment. These sales provided or will provide the Company with
financial stability through enhanced liquidity and will position the Company to
take advantage
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of new business opportunities while servicing its existing debt obligations. See
"BUSINESS INFORMATION REGARDING ACTAVA AND THE SPORTS SUBSIDIARIES -- Recent
Developments."
The Exchange Transaction. Soon after the election of Mr. Phillips, Actava
and Roadmaster began discussions with respect to the possible acquisition of the
Sports Subsidiaries by Roadmaster. On May 31, 1994, the senior management of
Actava and Roadmaster reached agreement on the basic terms of the Exchange
Transaction and the parties signed a non-binding letter of intent which provided
for the acquisition by Roadmaster of all of the issued and outstanding capital
stock of the Sports Subsidiaries in exchange for 19,169,000 shares of Roadmaster
Common Stock. After Roadmaster and Actava executed the letter of intent, the
Boards of Directors of the two companies directed their respective managements
to undertake due diligence investigations and to begin negotiating the terms of
a definitive agreement. From May 31, 1994 through July 20, 1994, Actava, the
Sports Subsidiaries and Roadmaster proceeded with their respective due diligence
reviews and negotiated the terms of the Agreement and the various ancillary
agreements. Actava's Board of Directors met on June 10, 1994 and received a
preliminary report on the proposed Exchange Transaction. On July 19, 1994,
Actava's Board of Directors met and reviewed the Agreement, which was
substantially complete, and approved the Agreement and the consummation of the
transactions contemplated thereby. The Board of Directors authorized the
officers of Actava to resolve certain outstanding issues and to execute the
Agreement. The Agreement was executed by all parties on July 20, 1994.
REASONS FOR THE EXCHANGE TRANSACTION; BOARD RECOMMENDATION
Actava. The proposed transfer of the Sports Subsidiaries to Roadmaster is
one component of a major effort being undertaken by the Company's management
during 1994 to improve the Company's operations and financial condition and to
enhance stockholder value. The Board of Directors of Actava believes that the
Exchange Transaction will create more value for the Company's stockholders than
the Company could create through its continued operation of the Sports
Subsidiaries. The combination of Roadmaster and the Sports Subsidiaries will
create one of the largest manufacturers and suppliers of recreation and sporting
goods products in the United States with approximately $750 million in annual
revenues. As a result of the Exchange Transaction, the Company will own
approximately 39.6% of the outstanding stock of a combined enterprise with
substantially larger annual revenues and greater financial resources than the
Sports Subsidiaries on an individual or combined basis. The Company anticipates
that the combined enterprise, through expanded market share, expanded managerial
resources, increased utilization of plant production capacity and indirect
manufacturing and administrative cost savings due to the consolidation of
certain functional areas, will achieve over time an earnings level which will
cause Actava's minority interest in Roadmaster's earnings to be greater than the
earnings that could be achieved by the Sports Subsidiaries on a stand-alone
basis. Since the acquisition of Diversified Products in June 1993, the Company
has been supporting the working capital needs of Diversified Products through
intercompany cash advances. At June 30, 1994, these advances totaled $10
million. As a result of the Exchange Transaction, Actava will be repaid these
advances with interest over an 18-month period. The Company believes that this
time period is of shorter duration than the anticipated repayment period if
Diversified Products were to remain a wholly-owned subsidiary of the Company.
The Company believes that this accelerated cash repayment, as well as the
assumption by Roadmaster of approximately $39 million of notes payable relating
to working capital financing requirements of the Sports Subsidiaries, improves
the Company's immediate financial position and enhances its ability to pursue
other business opportunities as they arise.
The Company has taken several steps, in addition to the proposed Exchange
Transaction, to enhance the Company's profitability, liquidity and stockholder
value. On August 12, 1994, the Company sold its 50% ownership interest in Qualex
to Kodak and, as a result, is no longer engaged in the photofinishing business.
In exchange for the Company's interest in Qualex and a covenant not to compete
and related releases from the Company, Kodak paid the Company $50 million in
cash and agreed to pay the Company an additional $100 million without interest
in two equal installments on February 13, 1995 and August 11, 1995. The Company
recorded a loss of $37,858,000 on the sale of its interest in Qualex and
classified Qualex's results of operations to discontinued operations along with
the loss upon disposition. Prior to June 30, 1994, Actava was
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<PAGE> 14
deemed to control Qualex because it owned 51% of the voting stock of Qualex, was
entitled to and elected a majority of the members of the Board of Directors of
Qualex, and had the ability through its control of the Board of Directors to
declare dividends, remove the executive officers of Qualex and otherwise direct
the management and policies of Qualex, except for policies relating to certain
designated actions requiring the consent of at least one member of the Board of
Directors of Qualex designated by Kodak. Because of these rights, the Company
believes that, under generally accepted accounting principles, it had effective
unilateral control of Qualex which was not temporary during the period from 1988
until the second quarter of 1994. As a result, the Company consolidated the
results of operations of Qualex with the results of operations of the Company
for periods ending prior to June 30, 1994.
Upon the formation of Qualex in 1988, the Company and Kodak entered into a
Shareholders Agreement (the "Qualex Shareholders Agreement") that provided,
among other things, for a reduction in the Company's voting control of Qualex
from 51% to 50% and for changes in the composition of the Board of Directors of
Qualex in the event of a "change in control" of the Company. The Qualex
Shareholders Agreement defined the term "change in control" to include a
"transaction or occurrence the effect of which is to give a person or group of
affiliated persons or entities the power to direct the management and policies"
of the Company.
In 1991, Charles R. Scott was elected President and Chief Executive Officer
of the Company. At the time of his election, Mr. Scott was also serving as
Chairman and Chief Executive Officer of a company that owned approximately 25%
of the Company's voting stock and was the Company's single largest stockholder.
Because Mr. Scott was serving at the same time as the chief executive officer of
both the Company and the Company's single largest stockholder, the Company and
Kodak agreed that a "change in control" of the Company had occurred for purposes
of the Qualex Shareholders Agreement. Despite this "change in control" of the
Company, Kodak agreed that the Company would continue to own 51% of the voting
control of Qualex and to elect a majority of the directors of Qualex. The Qualex
Shareholders Agreement, however, was amended to provide that Kodak had the right
to change the Company's control of Qualex on March 1, 1992 or on any subsequent
March 1. During the period from 1991 until the second quarter of 1994, the
Company did not believe that Kodak would exercise the right to change the
Company's control of Qualex, and Kodak, in fact, did not exercise this right on
March 1, 1992, 1993 or 1994.
Mr. Phillips was elected as President and Chief Executive Officer of the
Company on April 19, 1994. The Company did not believe that the election of Mr.
Phillips constituted a "change in control" of the Company as defined in the
Qualex Shareholders Agreement. This belief was based in part on the fact that
(i) Mr. Phillips beneficially owned less than 4% of the Company's voting stock
at the time of his election, (ii) Delaware corporate law, under which the
Company is governed, provides that the business and affairs of a corporation
shall be managed by and under the direction of the board of directors -- not the
president, and (iii) eight of the nine members of the Board of Directors of the
Company after the election of Mr. Phillips were serving as directors before the
election of Mr. Phillips. Kodak informed the Company that it believed that the
election of Mr. Phillips constituted a "change in control" of the Company under
the Qualex Shareholders Agreement and requested that changes be made in the
Company's voting control of Qualex and in the composition of the Board of
Directors of Qualex. The disagreement between the Company and Kodak as to
whether or not a "change in control" had occurred was resolved on June 8, 1994
when the Company agreed that it would not contest Kodak's interpretation of the
Qualex Shareholders Agreement. As a result, on June 30, 1994, the Company's
ownership of the voting stock of Qualex was reduced to 50% and the Company and
Kodak each became entitled to elect an equal number of members of the Board of
Directors of Qualex. Because of these changes affecting the Company's control of
Qualex, the Company discontinued its practice of consolidating the accounts of
Qualex and began accounting for its ownership in Qualex under the equity method
effective as of June 30, 1994. As a result, the Company's balance sheet,
effective as of June 30, 1994, no longer includes approximately $770 million of
Qualex's assets, including approximately $367 million of intangible assets, and
approximately $398 million of Qualex's liabilities, including approximately $211
million of long-term debt and approximately $57 million of working capital debt.
In addition to the sale of its interest in Qualex, the Company has entered
into an agreement to sell a real estate investment near Houston, Texas, together
with related development bonds, for $9 million in cash. The Company's real
estate investment is comprised of approximately 6,000 acres of land. It is
anticipated that the transaction will be completed on or before December 31,
1994.
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<PAGE> 15
In reaching its decision to approve the Agreement and the transactions
contemplated thereby, the Board of Directors consulted with the Company's
management and independently considered the material factors described below.
Based upon this review and a review of the business, operations and financial
condition of Roadmaster, the Board of Directors approved the Agreement and the
transactions contemplated thereby.
- The Board of Directors believes that the Exchange Transaction is in the
best interests of the Company and the Company's stockholders. As a result
of the Exchange Transaction, the Company will own approximately 39.6% of
the outstanding stock of a combined enterprise with substantially larger
annual revenues and greater financial resources than the Sports
Subsidiaries on an individual or combined basis. Furthermore, the combined
enterprise will have an expanded market share and significantly expanded
managerial resources than the Sports Subsidiaries now possess. It is
anticipated that cost reductions can be realized by taking advantage of
economies of scale, increasing utilization of production facilities and
improving the efficiency of operations through the combined expertise and
experience of the management of Roadmaster and the Sports Subsidiaries.
The Company will benefit from these cost savings through its significant
ownership interest in Roadmaster. Although the Company will have
representation on Roadmaster's Board of Directors at a level that the
Company believes to be appropriate in light of its stock ownership, the
Company will not have unilateral control of Roadmaster and with the
completion of the Exchange Transaction will relinquish unilateral control
of the Sports Subsidiaries.
- The transfer of the Sports Subsidiaries to Roadmaster will create a
larger and stronger competitor in the sporting goods industry. The Board
of Directors of the Company believes that Roadmaster, following the
Exchange Transaction, will be in a better position to pursue successfully
a strategy of internal growth coupled with the acquisition of
complimentary product lines and well established trade names. With respect
to internal growth, it is expected that the expanded customer base of the
combined organization will permit it to sell its products to a broader
range of customers and to offer wider product offerings to existing
customers of the Sports Subsidiaries and Roadmaster. It should be
recognized, however, that after the Exchange Transaction, Actava's
business risk will expand to include existing Roadmaster businesses as
well as a continuation of the business risk inherent in the Sports
Subsidiaries.
- The Board of Directors believes that the Exchange Transaction will create
more value for the Company's stockholders than the Company could create by
continuing to operate the Sports Subsidiaries. By virtue of its ownership
of 19,169,000 shares of Roadmaster Common Stock, the Company will benefit
from increases and will be negatively impacted by decreases in the value
of Roadmaster Common Stock. The Board of Directors believes that the value
of the Roadmaster Common Stock will increase over time as a result of the
cost savings and other benefits to be realized by Roadmaster as a result
of the Exchange Transaction.
The Board of Directors did not retain the services of a financial advisor
or obtain a fairness opinion in connection with its consideration of the
Exchange Transaction. After considering the advantages to the Company of the
Exchange Transaction as described above, and based on the recommendation of the
Company's management, the Board of Directors concluded that the cost of
retaining a financial advisor and obtaining a fairness opinion was not
justified.
Notwithstanding the expectations of Actava's Board of Directors and
management regarding the benefits to be realized from the Exchange Transaction,
including the Company's acquisition of a significant ownership interest in the
combined enterprise, no assurance can be given that (i) the combined enterprise
created by the Exchange Transaction will be able to realize the estimated cost
savings or to compete more effectively against certain other competitors in the
sporting goods industry, (ii) the value of the Roadmaster Common Stock to be
owned by the Company will increase, or (iii) the Exchange Transaction will
result in any improvement in the Company's profitability or any increase in the
Company's stockholder value. In analyzing the Exchange Transaction and in its
deliberations regarding approval of the Agreement and the transactions
contemplated thereby, the Board of Directors focused its inquiry and examination
on the potential advantages to the Company's stockholders, including enhanced
profitability and stockholder value. In this process, the Board of Directors
reviewed historical information provided by management of Roadmaster and the
Sports Subsidiaries
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concerning the financial performance, condition, business operations and
prospects of Roadmaster and the Sports Subsidiaries, the proposed structure of
the transaction, the terms of the Agreement and the other documents to be
executed in connection with the Exchange Transaction. The Board of Directors
determined that the Exchange Transaction represents a good opportunity for the
Company to acquire a significant ownership interest in one of the largest
domestic suppliers of recreation and leisure products to mass merchandisers and
to continue the process of redirecting the Company's focus to improve its
operations and financial condition and to enhance profitability and stockholder
value.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF DIRECTORS OF ACTAVA
UNANIMOUSLY APPROVED THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND
RECOMMENDS THAT THE STOCKHOLDERS OF ACTAVA VOTE "FOR" THE APPROVAL OF THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Roadmaster. In reaching its decision to approve the Agreement and the
transactions contemplated thereby, the Board of Directors of Roadmaster
consulted with its management team and advisors and independently considered a
number of factors, including those described above. The Board of Directors of
Roadmaster approved the Exchange Transaction based upon its independent review
of such factors and its review of the business, operations and financial
condition of the Sports Subsidiaries. The Board of Directors of Roadmaster also
considered a report and analysis of the Sports Subsidiaries prepared by Jeffries
& Co., Inc. Jeffries & Co., Inc. provided the Board of Directors of Roadmaster
with its opinion that the Exchange Transaction is fair to Roadmaster's
stockholders from a financial point of view.
MANAGEMENT AND OPERATIONS OF ACTAVA AFTER THE EXCHANGE TRANSACTION
Following consummation of the Exchange Transaction, Actava will continue to
be operated by its current management team and Board of Directors. The Company
is actively seeking to identify synergistic business combinations for its
Snapper division and would ultimately like for Snapper to operate as or as part
of a publicly held company in which the Company has an interest. Although the
Company would prefer to own an interest in a publicly held Snapper, the Company
is exploring other alternatives for Snapper including a possible sale or joint
venture or the continued operation of Snapper as a division or subsidiary. The
Company currently is not a party to any agreements with respect to any
acquisitions or business combinations regarding Snapper nor does it have any
immediate plans or agreements that would cause Snapper to become publicly owned.
The Company will retain and continue to operate Snapper unless and until an
alternative is identified that will create greater stockholder value in the
judgment of the Company's management and Board of Directors.
After the Board of Directors approved the Exchange Transaction, the
Company, on August 31, 1994, entered into letters of intent in connection with
the Proposed Metromedia Transaction. It is contemplated that the surviving
entity of the Proposed Metromedia Transaction would be a global media,
entertainment and communications company named Metromedia International Group,
Inc. Consummation of the Proposed Metromedia Transaction is subject to a number
of conditions, including completion of due diligence investigations by each of
the parties, negotiation and execution of definitive agreements, and approval of
the transaction by Actava's Board of Directors and stockholders. None of these
conditions has been satisfied. No assurances can be given that the Proposed
Metromedia Transaction will be approved by Actava's Board of Directors or that
the parties to the Proposed Metromedia Transaction will successfully negotiate
and enter into definitive agreements. See "Business Information Regarding Actava
and the Sports Subsidiaries -- Recent Developments."
MANAGEMENT AND OPERATIONS OF ROADMASTER AFTER THE EXCHANGE TRANSACTION
Following consummation of the Exchange Transaction, Roadmaster will
continue to be operated by its existing management team as well as by management
personnel from the Sports Subsidiaries. Henry Fong, the current Chief Executive
Officer of Roadmaster, will continue as Chief Executive Officer of Roadmaster,
and
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Edward E. Shake, the current Chief Operating Officer of Roadmaster, will
continue as its Chief Operating Officer. The Agreement provides that, as of the
Closing Date, the number of members of the Board of Directors of Roadmaster will
be fixed at nine persons, including the five existing directors of Roadmaster
and four additional directors to be designated by Actava prior to the Closing
Date. It is currently anticipated that John D. Phillips, who is President and
Chief Executive Officer of Actava, will be one of the persons designated by
Actava to serve as a director of Roadmaster. Actava has not identified the
remaining three persons that it will designate to serve as directors of
Roadmaster.
TERMS AND CONDITIONS OF THE AGREEMENT
Set forth below is a description of the principal terms and conditions of
the Agreement. The description is qualified in its entirety by reference to the
Agreement, a copy of which is attached hereto as Annex A and incorporated herein
by reference.
Conditions to the Exchange Transaction
MUTUAL CONDITIONS. The respective obligations of Actava and Roadmaster to
consummate the Exchange Transaction are subject to the satisfaction or waiver of
certain mutual conditions including the following:
1. All waiting periods under the Hart-Scott-Rodino Act shall have
expired or been terminated;
2. No injunction, order, decree or stay shall be in effect which
prevents the consummation of the Exchange Transaction;
3. The Agreement and the transactions contemplated thereby shall have
been approved by the requisite vote of the stockholders of Actava and
Roadmaster;
4. Certain amendments to the Certificate of Incorporation of
Roadmaster shall have been approved by the requisite vote of the Roadmaster
stockholders, including amendments to increase the number of authorized
shares of Roadmaster Common Stock, to fix the number of directors of
Roadmaster at nine, to require that all stockholder action be taken at an
annual or special meeting, to provide for advance notice of nominations, to
require certain super-majority votes under certain circumstances for the
Board of Directors of Roadmaster to remove its Chief Executive Officer or
Chief Operating Officer, and to require super-majority voting by the
stockholders to amend certain provisions of the Certificate of
Incorporation or By-laws;
5. All material consents or approvals of any person to the Exchange
Transaction shall have been obtained;
6. All consents or approvals of government agencies or bodies required
in connection with the Exchange Transaction shall have been obtained;
7. The Exchange Shares have been approved for listing on the New York
Stock Exchange or the American Stock Exchange, as the case may be, subject
to notice of issuance; and
8. Actava and Roadmaster shall have executed and delivered an
Environmental Indemnity Agreement relating to certain property presently
owned by Diversified Products. See " -- Environmental Indemnity Agreement"
below.
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<PAGE> 18
CONDITIONS TO OBLIGATIONS OF ACTAVA AND THE SPORTS SUBSIDIARIES. The
obligations of Actava and the Sports Subsidiaries to consummate the Exchange
Transaction are subject to the satisfaction or waiver of certain other
conditions, including the following:
1. The representations and warranties of Roadmaster made in the
Agreement shall be true and correct in all material respects as of the
Closing Date, and all covenants and agreements required to be performed by
Roadmaster prior to the Closing Date shall have been performed in all
material respects, and Roadmaster shall have delivered an officer's
certificate stating the foregoing;
2. A legal opinion of counsel to Roadmaster, substantially in the form
called for by the Agreement, shall have been received by Actava;
3. No material adverse change in the business, assets, prospects,
conditions or results of operations of Roadmaster shall have occurred;
4. Roadmaster shall have executed and delivered the Registration
Rights Agreement (see "-- Registration Rights Agreement" below);
5. Each of Roadmaster, Henry Fong and Edward E. Shake shall have
executed and delivered the Shareholders Agreement (see "-- Shareholders
Agreement" below);
6. Roadmaster shall have executed and delivered to Actava an
unconditional guarantee of certain intercompany indebtedness of Diversified
Products to another subsidiary of Actava in the amount of $10 million as of
September , 1994 (the "Diversified Products Note");
7. Four designees of Actava shall have been elected to the Roadmaster
Board of Directors;
8. Each of Henry Fong and Edward E. Shake shall have entered into
employment agreements with Roadmaster;
9. Actava shall have been released from any guarantee or assurance of
any obligation of the Sports Subsidiaries and their subsidiaries;
10. Actava shall have received certificates of insurance or other
evidence reasonably satisfactory to Actava that Roadmaster has obtained
certain insurance coverage for the Sports Subsidiaries;
CONDITIONS TO ROADMASTER'S OBLIGATIONS. Roadmaster's obligation to
consummate the Exchange Transaction is subject to the satisfaction and waiver of
certain other conditions, including the following:
1. The representations and warranties of Actava and the Sports
Subsidiaries made in the Agreement shall be true and correct in all
material respects as of the Closing Date, and all covenants and agreements
required to be performed by Actava and the Sports Subsidiaries prior to the
Closing Date shall have been performed in all material respects, and Actava
and the Sports Subsidiaries shall have delivered an officer's certificate
stating the foregoing;
2. A legal opinion of counsel to Actava and the Sports Subsidiaries,
substantially in the form called for by the Agreement, shall have been
received by Roadmaster;
3. No material adverse change in the business, assets, prospects,
conditions or results of operations of the Sports Subsidiaries shall have
occurred;
4. Actava shall have executed and delivered the Shareholders Agreement
(see "-- Shareholders Agreement" below);
5. All liens, claims, encumbrances, security interests, equities,
charges and options on the Sports Subsidiaries' stock shall have been
terminated or released; and
6. Roadmaster shall have received a certificate stating that no event
of default exists under the Diversified Products Note.
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Amendment and Termination of the Agreement. The Agreement, including all
of the provisions referred to herein, may be amended or modified in writing by
the parties thereto or by action of Actava and Roadmaster at any time before the
Closing Date; provided, however, that if the amendment is one which requires
stockholder approval, such amendment will not be effective without such
approval. The Agreement may be terminated at any time prior to the Closing Date,
whether before or after approval by the stockholders of Actava or Roadmaster, by
the mutual consent of Actava and Roadmaster. In addition, Actava or Roadmaster
may terminate the Agreement (i) if the other fails to perform in any material
respect any covenant in the Agreement and does not cure such failure within 30
business days after the terminating party delivers written notice of the alleged
failure, or (ii) if any condition to the obligations of the non-performing party
is not satisfied (other than by reason of a breach by that party of its
obligations under the Agreement) and it reasonably appears that the condition
cannot be satisfied prior to December 31, 1994. The Agreement also may be
terminated by either Actava or Roadmaster if the Exchange Transaction has not
been consummated on or before December 31, 1994.
Upon termination of the Agreement in accordance with its terms, the
Agreement will become void and there will be no liability on the part of either
Actava, the Sports Subsidiaries or Roadmaster, except for certain expense and
confidentiality obligations and breakup fees, if any.
In the event that either Actava or Roadmaster refuses to consummate the
Exchange Transaction, either in breach of the Agreement or as a result of the
failure of such party to obtain the approval of its stockholders and such breach
or failure to obtain stockholder approval is the result of Actava's or
Roadmaster's decision to pursue or recommend to its respective stockholders an
alternative transaction with a third party, then the party that has refused or
is unable to consummate the Exchange Transaction is obligated to pay to the
other party a breakup fee of $1.5 million as liquidated damages. Upon such
payment there will be no further liability on the part of either Roadmaster or
Actava and the Sports Subsidiaries with respect to the Exchange Transaction,
except for certain expenses and confidentiality obligations.
Conduct of Business by Roadmaster and the Sports Subsidiaries Prior to the
Exchange Transaction. Except as otherwise provided in the Agreement, each of
Roadmaster and the Sports Subsidiaries have agreed, pending consummation of the
Exchange Transaction, to conduct their operations in the ordinary course of
business, consistent with past practice, and not enter into or cause their
subsidiaries to enter into certain material transactions unless agreed to by
Actava, in the case of a Roadmaster transaction, or agreed to by Roadmaster, in
the case of a Sports Subsidiary transaction. The Sports Subsidiaries will be
permitted to declare and pay to Actava, prior to the Closing Date, a cash
dividend in an aggregate amount of $300,000 less expenses of the Exchange
Transaction paid by the Sports Subsidiaries.
Agreement Not To Solicit Other Offers. Pursuant to the Agreement, Actava,
the Sports Subsidiaries and Roadmaster have agreed that they will not directly
or indirectly, solicit, encourage or participate in any way in discussions or
negotiations with, or provide any information or assistance to, any third party
regarding the acquisition or purchase of any of the shares of capital stock of
Roadmaster and its respective subsidiaries or the Sports Subsidiaries and their
respective subsidiaries, or any substantial part of the business or assets of
Roadmaster and its respective subsidiaries or the Sports Subsidiaries and their
respective subsidiaries. See "-- Amendment and Termination of the Agreement"
above.
Expenses. The Agreement provides that each of the parties will pay its
expenses incurred in connection with the Exchange Transactions.
REGULATORY FILINGS AND APPROVALS
Actava and Roadmaster have filed with the Federal Trade Commission the
appropriate applications for governmental and regulatory notices or approvals
required as a condition to the consummation of the Exchange Transaction. All
required regulatory approvals have been obtained.
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CONSENTS FROM HOLDERS OF SENIOR NOTES OF ROADMASTER
In connection with the Exchange Transaction, Roadmaster will indirectly
assume approximately $39.2 million of indebtedness of the Sports Subsidiaries
under finance and security agreements with various financial institutions. In
addition, Roadmaster will indirectly assume approximately $26.0 million of trade
payables and other accrued expenses incurred in the ordinary course of business
of the Sports Subsidiaries and approximately $10.0 million of indebtedness under
the Diversified Products Note.
The Indenture pursuant to which Roadmaster's Senior Notes were issued,
among other things, limits Roadmaster's ability to incur additional indebtedness
that exceeds an indebtedness ratio set forth in the Indenture. According to
Roadmaster's calculations, and accounting for the Exchange Transaction on a pro
forma basis, Roadmaster's indebtedness will exceed that allowed by the
Indenture. Consequently, a waiver from compliance with the applicable covenant
of the Indenture or an amendment to such Indenture provisions will be required
in order to consummate the Exchange Transaction.
ACCOUNTING TREATMENT
The accounting treatment of the Exchange Transaction for Actava will depend
upon the value of the Exchange Shares as of the Closing Date (the "Stock Value")
and Actava's book value in the Sports Subsidiaries as of the Closing Date as
adjusted for certain indebtedness owed by Diversified Products to an Actava
affiliate to be repaid following the Closing Date (the "Book Value"). If the
Stock Value exceeds the Book Value as of the Closing Date, no gain will be
realized by Actava for accounting purposes, and Actava will record the Exchange
Shares on its books at an amount equal to the Book Value. On the other hand, if
the Book Value exceeds the Stock Value as of the Closing Date, then Actava will
record a loss upon consummation of the Exchange Transaction in an amount equal
to the difference between the Book Value and the Stock Value. The Book Value of
the Sports Subsidiaries was $70.7 million as of June 30, 1994 and $70.5 million
as of August 31, 1994. The Stock Value would be approximately $70.7 million
based on the $3.6875 closing price for Roadmaster Common Stock on June 30, 1994
and approximately $71.9 million based on the $3.75 closing price for Roadmaster
Common Stock on September 30, 1994.
Actava has not accounted for the Sports Subsidiaries as discontinued
operations due to the interest in Roadmaster to be retained by Actava following
consummation of the Exchange Transaction. Actava will begin accounting for its
investment in Roadmaster under the equity method upon consummation of the
Exchange Transaction.
The Exchange Transaction will be accounted for by Roadmaster as a
"purchase" as that term is used under generally accepted accounting principles
for accounting and financial reporting purposes. A final determination of
required purchase accounting adjustments and of the fair market value of the
assets and liabilities of the Sports Subsidiaries has not been made. Following
consummation of the Exchange Transaction, Roadmaster will undertake a study to
determine the fair market value of the specific assets and liabilities of the
Sports Subsidiaries and will make appropriate purchase accounting adjustments.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain anticipated federal income tax
consequences of the Exchange Transaction to Actava. This summary is based on the
Code, regulations and rulings as now in effect or proposed thereunder, current
administrative rulings and practice, and judicial precedent, all of which are
subject to change. Any such change, which may or may not be retroactive, could
alter the tax consequences discussed herein.
If the Exchange Transaction occurs in accordance with the Agreement, it is
expected that the Exchange Transaction will constitute a "reorganization" for
federal income tax purposes under Section 368(a)(1)(B) of the Code, with the
following federal income tax consequences to the Company:
1. No gain or loss will be recognized by the Company as a result of
the receipt of the Exchange Shares in exchange for all of the issued and
outstanding capital stock of the Sports Subsidiaries.
14
<PAGE> 21
2. The tax basis of the Exchange Shares acquired by the Company will
be the same as its aggregate adjusted tax basis in the capital stock of the
Sports Subsidiaries.
3. The holding period of the Exchange Shares received by the Company
in the Exchange Transaction will include the holding period during which
the Company held the capital stock of the particular Sports Subsidiary
exchanged for such Exchange Shares.
4. No gain or loss will be recognized by the Company's stockholders as
a result of the receipt by the Company of the Exchange Shares in the
Exchange Transaction.
PUBLIC TRADING MARKET
The outstanding shares of Actava Common Stock are listed on The New York
Stock Exchange and the Pacific Stock Exchange (Symbol: ACT). On May 27, 1994,
the last business day preceding the public announcement of the proposed Exchange
Transaction, the high and low sales prices of Actava's Common Stock on The New
York Stock Exchange were $9.00 and $8.625, respectively. On October 28, 1994,
the high and low sales prices of Actava Common Stock on The New York Stock
Exchange were $9.125 and $9.00, respectively. There currently is no trading
market in the capital stock of the Sports Subsidiaries.
The outstanding shares of Roadmaster Common Stock are currently listed on
the American Stock Exchange (Symbol: RDM). Roadmaster is considering the filing
of an application to list its Common Stock on The New York Stock Exchange to
become effective on or before the Closing Date, but no application has been
filed and there are no assurances that the Roadmaster Common Stock will be
approved for listing on The New York Stock Exchange if an application is filed.
In the event the Roadmaster Common Stock is not listed on the New York Stock
Exchange, Actava and Roadmaster anticipate that the Exchange Shares will be
listed on the American Stock Exchange and that the listing of the existing
outstanding shares on the American Stock Exchange will be unaffected by
consummation of the Exchange Transaction. On May 27, 1994, the last business day
preceding public announcement of the proposed Exchange Transaction, the high and
low sales prices of the Roadmaster Common Stock on the American Stock Exchange
were $3.875 and $3.625, respectively. On October 28, 1994, the closing sales
price of the Roadmaster Common Stock was $3.75.
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE TRANSACTION
Certain members of Roadmaster's management and its Board of Directors have
interests in the Exchange Transaction that are in addition to the interests of
Roadmaster's stockholders generally. Henry Fong, who currently serves as
President, Chief Executive Officer and a director of Roadmaster, and Edward E.
Shake, who currently serves as Chief Operating Officer and a director of
Roadmaster, are each prospective parties to employment agreements with
Roadmaster to be dated as of the Closing Date. Pursuant to the employment
agreements, which will have five year terms, Mr. Fong and Mr. Shake will receive
annual salaries of $600,000 and $450,000, respectively.
In addition, Mr. Fong and Mr. Shake will be eligible to receive a
completion fee of $595,000 and $63,000, respectively, for their services in
connection with structuring and negotiating the Exchange Transaction. Prior to
the Exchange Transaction, Mr. Fong received no salary or other compensation from
Roadmaster other than directors' fees and fees paid in connection with and upon
completion of Roadmaster's acquisitions of various entities. The completion fees
for Mr. Fong and Mr. Shake are payable in 1995, contingent upon certain future
events, including the continued services of Mr. Fong and Mr. Shake and the
successful assimilation of the Sports Subsidiaries' businesses with Roadmaster's
businesses. Upon completion of the Exchange Transaction, Mr. Fong will be paid
an annual salary under his employment agreement. Roadmaster will pay additional
completion fees aggregating $42,000 to certain other officers of Roadmaster in
connection with the Exchange Transaction.
In connection with the Exchange Transaction, Roadmaster will amend and
restate its Certificate of Incorporation and By-laws to provide, among other
things, for certain super-majority voting requirements under certain
circumstances for the Board of Directors of Roadmaster to remove the Chief
Executive Officer and Chief Operating Officer. The effect of these amendments
will be to require a two-thirds vote of the
15
<PAGE> 22
members of the Board of Directors of Roadmaster to terminate Roadmaster's
existing Chief Executive Officer and Chief Operating Officer, except that the
Board of Directors will have the right to terminate such officers by a majority
vote if Roadmaster has not reported positive net income from continuing
operations for the fiscal year preceding the Board's election to terminate such
officers.
Pursuant to the Agreement, Actava, Roadmaster, Mr. Fong and Mr. Shake will
enter into a Shareholders Agreement that provides, among other things, that
Actava shall have the right to designate four individuals who will be elected to
Roadmaster's nine-member Board of Directors. It is anticipated that John D.
Phillips, the President and Chief Executive Officer of Actava, will be one of
the individuals designated by Actava to serve as a director of Roadmaster. The
Company has not identified the remaining three persons that it will designate
for election to Roadmaster's Board of Directors. The Shareholders Agreement also
provides that Actava will use its best efforts to cause the nomination for
election of the five directors designated by Roadmaster and will vote its shares
of Roadmaster Common Stock in favor of such designees. See "-- Shareholders
Agreement."
REGISTRATION RIGHTS AGREEMENT
As a condition to consummation of the Exchange Transaction, Roadmaster must
enter into a Registration Rights Agreement with Actava. Such Agreement will
grant to Actava and its affiliates and any transferee who acquires at least
1,000,000 of the Exchange Shares the right to require Roadmaster to register the
Exchange Shares and any other shares of Roadmaster Common Stock held by Actava
(collectively, "Registrable Stock") under the Securities Act of 1933, as amended
(the "Securities Act"). Registration may be demanded at any time during a
ten-year period beginning as of the Closing Date (the "Registration Period") by
the holders of at least 50% of the Registrable Stock if a "long-form"
registration statement (i.e., a registration statement on Form S-1, S-2 or other
similar form) is requested or by the holders of Registrable Stock with a value
of at least $500,000 if a "short-form" registration statement (i.e., a
registration statement on Form S-3 or other similar form) is requested.
Roadmaster is required to pay all expenses incurred (other than the expenses of
counsel, if any, for the holders of Registrable Stock and the expenses of
underwriters' counsel) for any two registrations requested by the holders of
Registrable Stock during the Registration Period. Roadmaster will become
obligated to pay the expenses of two additional registrations if Roadmaster is
not eligible to use a short-form registration statement to register the
Registrable Stock at any time during the Registration Period. All other
registrations will be at the expense of the holders of the Registrable Stock.
While no assurances can be given with respect to its qualification in the
future, Roadmaster currently is eligible to use a short-form registration
statement to register the Registrable Stock.
In addition to the demand registration rights described above, if
Roadmaster at any time proposes to register under the Securities Act any of its
securities for sale for its own account or for the account of any person,
subject to certain exceptions, it is required to provide the holders of
Registrable Stock with the opportunity to sell some or all of their Registrable
Stock pursuant to such registration. Roadmaster, however, is not required to
grant any concession or additional rights to any other person to secure the
right of any holder of Registrable Stock to participate in such incidental
registrations. In addition, Roadmaster will have the right at least once during
each twelve-month period to defer filing any demand registration statement for a
period of up to 90 days after a request for registration by the holders of the
requisite number of shares of Registrable Stock.
Any future registration rights granted by Roadmaster may not impair the
priority of the registration rights granted to the holders of Registrable Stock
but Roadmaster may grant registration rights that are substantially similar to
or that rank on a parity with the registration rights granted under the
Registration Rights Agreement.
SHAREHOLDERS AGREEMENT
Pursuant to the Agreement, Actava, Roadmaster, Henry Fong and Edward E.
Shake will enter into a Shareholders Agreement as of the Closing Date. Such
agreement will expire on the fifth anniversary of the Closing Date unless it is
earlier terminated in accordance with its terms. Pursuant to the Shareholders
16
<PAGE> 23
Agreement, the parties thereto will agree to take all necessary action to cause
Roadmaster's Board of Directors to be fixed at nine members during the life of
such agreement. Concurrently with the execution and delivery of the Shareholders
Agreement, four individuals designated by Actava (the "Actava Designated
Directors") will be elected by the existing Roadmaster Board of Directors to new
seats on Roadmaster's Board of Directors. Two of the four Actava Designated
Directors must be persons who are not employees, officers, or affiliates of
Roadmaster or Actava. The parties to the Shareholders Agreement are required to
use their best efforts to cause the nomination for election of the four Actava
Designated Directors and five directors designated by Roadmaster (the
"Roadmaster Designated Directors"). Three of the Roadmaster Designated Directors
also must be persons who are not employees, officers or affiliates of Roadmaster
or Actava. The Shareholders Agreement obligates the parties to use their best
efforts to cause at least one of the Actava Designated Directors to serve on
each committee of Roadmaster's Board of Directors and to cause at least two
Actava Designated Directors to serve on any committee which consists of five or
more members.
If, as a result of Actava's sale, transfer or assignment of Roadmaster
Common Stock, the number of shares of Roadmaster Common Stock owned by Actava is
reduced to a number less than 12,000,000 but equal to or more than 8,000,000,
then Actava will become entitled to designate only three members to Roadmaster's
Board of Directors; if the number of shares of Roadmaster Common Stock owned by
Actava is reduced to less than 8,000,000 but equal to or more than 5,000,000,
then Actava shall be entitled to designate only two members to Roadmaster's
Board of Directors; and if the number of shares of Roadmaster Common Stock owned
by Actava is reduced to less than 5,000,000 but equal to or more than 2,000,000,
then Actava shall be entitled to designate only one member to Roadmaster's Board
of Directors.
Subject to the limitations described above, the parties to the Shareholders
Agreement have agreed that they will at all times and upon every opportunity
affirmatively vote all of their shares of Roadmaster Common Stock to cause the
Board of Directors to be composed of five Roadmaster Designated Directors and
four Actava Designated Directors. In addition, Mr. Fong is obligated to use his
best efforts to cause Equitex, Inc. to support the nomination and election of
the Actava Designated Directors. Mr. Fong is the President and Chief Executive
Officer and a director of Equitex, Inc., which currently owns 17.3% of the
outstanding shares of Roadmaster Common Stock (10.5% after giving effect to the
issuance of the Exchange Shares).
Actava's obligation to support the nomination and election of the
Roadmaster Designated Directors will terminate if (i) Roadmaster has not
reported positive net income from continuing operations for its last fiscal
year, (ii) the Actava Designated Directors have not been nominated and supported
by the other parties to the Shareholders Agreement, or (iii) the Actava
Designated Directors have not been elected to, and are not then serving on, the
Roadmaster Board of Directors. The obligation of Roadmaster, Mr. Fong and Mr.
Shake to support the nomination and election of the Actava Designated Directors
will terminate if the Roadmaster Designated Directors have not been supported by
Actava or if the Roadmaster Designated Directors have not been elected to, and
are not then serving on, the Roadmaster Board of Directors.
In addition to the voting provisions, the Shareholders Agreement grants
Roadmaster a right of first refusal with respect to any proposed sale of the
Exchange Shares by Actava for as long as the Actava Designated Directors have
been nominated and elected to the Roadmaster Board of Directors. Such right of
first refusal will not apply to any proposed sale, transfer or assignment of
Exchange Shares to any person who would, after consummation of such transaction,
own less than ten percent (10%) of the outstanding shares of Roadmaster Common
Stock or to any sale of Exchange Shares pursuant to a registration statement
filed under the Securities Act if Actava has used its reasonable best efforts
not to make any sales pursuant to such registration statement to any single
purchaser or "Acquiring Person" who would after the consummation of such
transaction own ten percent or more of the outstanding shares of Roadmaster
Common Stock. "Acquiring Person" generally is defined to mean any person or
group which together with all affiliates is the owner or beneficial owner of
five percent or more of the outstanding shares of Roadmaster Common Stock. The
right of first refusal also would not apply to any proposed sale, transfer or
assignment of Exchange Shares to an affiliate of Actava.
In the event the parties to the Shareholders Agreement dispose of a portion
of their Roadmaster Common Stock, there can be no assurance that the nominees
designated by Roadmaster or Actava actually
17
<PAGE> 24
will be elected to Roadmaster's Board of Directors. In the event either the
Roadmaster Designated Directors or the required number of Actava Designated
Directors are not elected, then the Shareholders Agreement will be terminated.
ENVIRONMENTAL INDEMNITY AGREEMENT
Diversified Products owns approximately 123 acres of land in Opelika,
Alabama on which its primary manufacturing facility and other peripheral
facilities are located. On the southwestern corner of such land is a storage
area used to stockpile cement, sand, and mill scale materials (the "Materials
Storage Area") which were being used in connection with, or were a by product
of, Diversified Products' manufacture of exercise weights, a part of its product
line.
On November 13, 1991, the United States Environmental Protection Agency
("EPA") issued a "RCRA Facility Assessment -- Interim Final Report" ("RFA")
identifying solid waste management units at the Opelika facility. The RFA
identified 46 solid waste management units including the Materials Storage Area
and one area for further study at the Opelika plant site.
In June 1994, manufacture of exercise weights was discontinued by
Diversified Products at its facility in Opelika, Alabama, and Roadmaster began
producing exercise weights for Diversified Products on a contract basis at
Roadmaster's Olney, Illinois facility.
Since Diversified Products' facility at Opelika is not presently, nor in
the future is anticipated to be, used to manufacture and produce the weights and
in light of the identification of the Materials Storage Area as a solid waste
management unit, Roadmaster and Actava agreed that 17 acres of land on which the
Materials Storage Area is located will be conveyed, prior to the Closing Date,
by Diversified Products to a newly-formed, wholly-owned subsidiary of Actava
("Newco") along with any permits, licenses, and other authorizations held by
Diversified Products under federal, state and local laws governing pollution or
protection of the environment associated with such parcel. Simultaneously with
the Closing, Diversified Products will declare and pay to Actava an in-kind
dividend of all the outstanding capital stock of Newco, and Roadmaster and
Actava shall enter into an Environmental Indemnity Agreement (the "EIA") under
which Actava will indemnify Roadmaster for costs and liabilities resulting from
the presence on or migration of regulated materials from the Materials Storage
Area. The EIA does not apply to any existing environmental liability with
respect to the Opelika facility other than the Materials Storage Area and is
designed to limit any liability on the part of Roadmaster only for the Materials
Storage Area.
Diversified Products is currently in the process of applying for a
post-closure permit for a former chrome plating tank at the Opelika facility.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL
STATEMENT." It is anticipated that when Diversified Products receives its
post-closure permit from the Alabama authorities, the EPA will issue a permit to
Diversified Products requiring additional investigation of solid waste
management units at the Opelika facility (exclusive of the Materials Storage
Area) and, if necessary, requiring corrective action for releases of hazardous
materials. While no assurances can be given, it is anticipated that in
connection with any investigation and corrective action which is required at the
Materials Storage Area, federal and state environmental authorities will
acknowledge that Actava has retained ownership of this area, will issue a
separate permit with respect to such area, and will require Actava rather than
Roadmaster to undertake and finance any necessary investigation and corrective
action.
DISSENTER'S RIGHTS
Actava's stockholders are not entitled to dissenters' rights of appraisal
or other dissenters' rights under Delaware law with respect to the proposed
Exchange Transaction.
CONDUCT OF BUSINESS OF ACTAVA AFTER THE EXCHANGE TRANSACTION
Since April 1994, Actava's management has taken several steps to redirect
the Company's focus in order to improve the Company's operating results and
financial condition and to enable it to pursue other business
18
<PAGE> 25
operations. Following the Exchange Transaction, the Company will no longer be
directly involved in the sporting goods business but will own approximately
39.6% of the issued and outstanding shares of Roadmaster Common Stock. The
Company will continue to be engaged in the lawn and garden industry through
operation of its Snapper division, which manufactures Snapper brand power
lawnmowers, lawn tractors, garden tillers and snow throwers and distributes
blowers, string trimmers and edgers. The Company is exploring a number of
alternatives for realizing value from its investment in Snapper, including a
possible sale, joint venture, public offering or other action. The Company,
however, will retain and continue to operate Snapper unless and until an
alternative is identified that will create greater stockholder value in the
judgment of the Company's management and Board of Directors. Following the
Exchange Transaction, Actava intends to pursue new business opportunities and
strategies for enhancing stockholder value. On August 31, 1994, the Company
entered into letters of intent in connection with the Proposed Metromedia
Transaction. It is contemplated that the surviving entity of the Proposed
Metromedia Transaction would be a global media, entertainment and communications
company named Metromedia International Group, Inc. Consummation of the Proposed
Metromedia Transaction is subject to a number of conditions, including
completion of due diligence investigations by each of the parties, negotiation
and execution of definitive agreements, the successful refinancing of the
currently outstanding indebtedness of Orion Pictures Corporation, and approval
of the transaction by Actava's Board of Directors and stockholders. None of
these conditions has been satisfied. No assurances can be given that the
Proposed Metromedia Transaction will be approved by Actava's Board of Directors
or that the parties to the Proposed Metromedia Transaction will successfully
negotiate and enter into definitive agreements.
CONDUCT OF BUSINESS OF ROADMASTER AFTER THE EXCHANGE TRANSACTION
It is anticipated that Roadmaster, following the consummation of the
Exchange Transaction, will continue for a period of time to operate the Sports
Subsidiaries as wholly-owned subsidiaries. One or more of the Sports
Subsidiaries may, however, be consolidated with other Roadmaster operations or
subsidiaries to achieve operating efficiencies by consolidating overhead, in
connection with borrowing arrangements, or for other business reasons. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE PRO FORMA COMBINING FINANCIAL
STATEMENTS OF ROADMASTER."
19
<PAGE> 26
RESTATED AND PRO FORMA SELECTED FINANCIAL DATA
OF THE ACTAVA GROUP INC.
(UNAUDITED)
The following information sets forth the restated and pro forma selected
financial data of Actava for the year ended December 31, 1993 and the six months
ended June 30, 1994.
The restated pro forma selected financial data as of and for the year ended
December 31, 1993 and as of and for the six months ended June 30, 1994 reflects
the historical financial data of the Company as reported in the Company's
Consolidated Financial Statements included in the Company's Annual Report on
Form 10-K and the Company's Consolidated Financial Statements included in the
Company's Form 10-Q for the quarter ended June 30, 1994, as adjusted for the
Company's Form 8-K filed with the Securities and Exchange Commission (the
"Commission") on August 25, 1994 to report the sale of the Company's interest in
Qualex. In connection with the sale of Qualex, the Company received $50,000,000
in cash and a promissory note in the principal amount of $100,000,000. The
promissory note is payable in two 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. These amounts are reflected in the restated selected
income statement data as if the transaction had occurred as of January 1, 1993
and in the restated selected balance sheet data as if the transaction had
occurred on the date indicated. The Company believes that, under generally
accepted accounting principles, it had effective unilateral control of Qualex
which was not temporary during the period from 1988 until the second quarter of
1994.
The pro forma selected financial data for the year ended December 31, 1993
and the six months ended June 30, 1994 reflects the historical financial data
discussed above as adjusted for the Exchange Transaction. The Exchange
Transaction is reflected in the pro forma selected income statement data as of
January 1, 1993 and in the pro forma selected balance sheet data as if it had
been consummated on June 30, 1994.
The pro forma selected restated financial data reflects, in the opinion of
the Company, all adjustments necessary for a fair presentation of the
information set forth herein. This data should be read in conjunction with, and
is qualified in its entirety by, the Company's Consolidated Financial Statements
on Form 10-K for the year ended December 31, 1993 and the notes thereto, the
Company's Consolidated Financial Statements on Form 10-Q for the quarter ended
June 30, 1994 and the notes thereto, the Company's Form 8-K filed with the
Commission on August 25, 1994, and the Pro Forma Financial Information, and the
Combined Financial Statements of the Sports Subsidiaries included elsewhere in
this Proxy Statement or incorporated herein by reference. The pro forma selected
financial data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that
actually would have occurred, nor is it necessarily indicative of future
operating results or financial position. See "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
20
<PAGE> 27
THE ACTAVA GROUP INC. AND SUBSIDIARIES
RESTATED AND PRO FORMA SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SIX MONTHS ENDED JUNE 30,
YEAR ENDED DECEMBER 31, 1993 JUNE 30, 1993 1994
----------------------------- ------------- -----------------------------
RESTATED(1) PRO FORMA RESTATED(1) RESTATED(1) PRO FORMA
------------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $ 465,812 $ 224,960 $ 212,454 $ 279,214 $ 130,169
Gross profit........... 64,341 30,829 41,980 45,726 25,467
Loss from continuing
operations........... (44,548) (41,696) (5,009) (18,263) (14,053)
Net loss............... (48,952) N/A (9,413) (18,263) N/A
Loss per common share:
Primary -- continuing
operations........ (2.60)(2) (2.43)(2) (0.30)(2) (1.02)(2) (0.78)(2)
Primary -- net
loss.............. (2.85) N/A (0.56) (1.02) N/A
Cash dividends declared
per common share..... 0.36 0.36 0.18 0.00 0.00
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993 JUNE 30, 1994
----------------------------- -----------------------------
RESTATED(1) RESTATED(1) PRO FORMA
------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........... 696,374 591,606 522,231
Total current
liabilities.......... 272,740 225,172 154,897
Subordinated debt...... 190,551 187,787 187,787
Redeemable common
stock................ 12,000 12,000 12,000
Long term debt and
other long term
liabilities.......... 37,169 35,728 36,628
------------- ------------- ---------
Total
liabilities.. 512,460 460,687 391,312
Book value............. 183,914 130,919 130,919
Book value per common
share:
Primary.............. 10.72(2) 7.31 7.31
</TABLE>
- ---------------
(1) Restated financial data reflects the pro forma effects of the sale of the
Company's 50% interest in Qualex. Income statement data has been restated
to reflect the sale of Qualex as if it had occurred on January 1, 1993 and
Balance Sheet Data reflects Actava's sale of Qualex as if it had occurred
on the date indicated. Pro forma information relating to the sale of Qualex
is incorporated herein by reference from Actava's Form 8-K filed on August
25, 1994.
(2) The impact of common stock equivalents is not reflected due to their
anti-dilutive effect.
21
<PAGE> 28
THE ACTAVA GROUP INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
GENERAL
The following unaudited pro forma condensed consolidated financial
information sets forth, for the respective periods and as of the dates
indicated, the results of operations and the financial position of the Company
after giving effect to the proposed Exchange Transaction, as if the transaction
had been consummated as of the respective dates included. Restated financial
information reflects the financial statements as adjusted for the classification
of Qualex's operating results to discontinued operations and as adjusted for the
sale of the Company's 50% interest in Qualex as described in the Company's Form
8-K filed with the Commission on August 25, 1994. This unaudited pro forma
financial information should be read in conjunction with the Company's audited
and unaudited historical consolidated financial statements and notes thereto
which are incorporated by reference herein. The unaudited pro forma financial
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that actually would
have occurred if the Exchange Transaction had been consummated as of such dates
in accordance with the assumptions set forth below, nor is it necessarily
indicative of future operating results or financial position.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF CONTINUING OPERATIONS
The following unaudited pro forma condensed consolidated statements of
continuing operations for the year ended December 31, 1993 and for the six
months ended June 30, 1994 present the operating results of the Company as if
the Exchange Transaction had occurred at January 1, 1993. The statements are
based on the previously described financial information of the Company for the
respective periods and the pro forma adjustments described in the notes thereto.
22
<PAGE> 29
THE ACTAVA GROUP INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
(2)
THE
(1) SPORTS PRO FORMA
RESTATED SUBSIDIARIES ADJUSTMENTS PRO FORMA
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................... $465,812 $240,852 $ 224,960
Costs and Expenses
Costs of products sold.................... 401,471 207,340 194,131
Selling, general and administrative....... 88,975 34,510 54,465
-------- ------------ ----------- ---------
Total operating expenses.......... 490,446 241,850 248,596
-------- ------------
Operating loss.............................. (24,634) (998) (23,636)
Interest expense.......................... 26,811 3,392 23,419
$ 900(4)
Equity in net loss of equity investee..... 705(3) 1,605
Other (income) expense, net............... (5,462) 67 (5,529)
-------- ------------ ----------- ---------
Loss before income taxes, discontinued
operations and cumulative effect of change
in
accounting principle...................... (45,983) (4,457) (1,605) (43,131)
Income taxes (benefit)...................... (1,435) 2,324 2,324(5) (1,435)
-------- ------------ ----------- ---------
Loss from continuing operations............. $(44,548) $ (6,781) $(3,929) $ (41,696)
======== ========= ========= ========
Average common shares:
Primary................................... 17,163(6) 17,163(6)
Loss per share of common stock:
Primary -- loss from continuing
operations............................. $ (2.60)(6) $ (2.43)(6)
</TABLE>
- ---------------
(1) Restated financial data reflects the pro forma effects of the sale of the
Company's 50% interest in Qualex. The financial data has been restated to
reflect the sale of Qualex as if it had occurred on January 1, 1993. Pro
forma information relating to the sale of Qualex is incorporated herein by
reference from Actava's Form 8-K filed on August 25, 1994.
(2) Represents the combined operations of Diversified Products and Subsidiary,
Nelson/Weather-Rite and Subsidiary, Hutch and Willow.
(3) Represents the Company's equity in the unaudited pro forma net loss of
Roadmaster for the year ending December 31, 1993.
(4) Reflects amortization expense of $900,000 relating to the excess of the
carrying amount of Actava's equity investment in Roadmaster of
approximately $36 million over Actava's portion of the underlying net
assets of Roadmaster. Amortization was calculated using the straight-line
method over 40 years.
(5) Represents elimination of income tax effect associated with the Sports
Subsidiaries.
(6) The impact of common stock equivalents is not reflected due to their
anti-dilutive effect.
23
<PAGE> 30
THE ACTAVA GROUP INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
(2)
THE
(1) SPORTS PRO FORMA
RESTATED SUBSIDIARIES ADJUSTMENTS PRO FORMA
------------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales................................... $ 279,214 $149,045 $130,169
Costs and expenses
Costs of products sold.................... 233,488 128,786 104,702
Selling, general and administrative
expenses............................... 49,908 21,922 27,986
------------- -------- ----------- ---------
Total operating expenses.......... 283,396 150,708 132,688
Operating loss.............................. (4,182) (1,663) (2,519 )
Interest expense.......................... 14,822 2,570 12,252
$(217)(3)
Equity in net loss of equity investee..... 450(4) 233
Other expense (income), net............... (741) 210 (951 )
------------- -------- ----------- ---------
Loss before income taxes, discontinued
operations and cumulative effect of change
in accounting principle................... (18,263) (4,443) (233) (14,053 )
Income taxes (expense)...................... (191) (191)(5)
------------- -------- ----------- ---------
Loss from continuing operations............. $ (18,263) $ (4,634) $(424) $(14,053 )
=========== ======== =========== =========
Average common shares:
Primary................................... 17,918(6) 17,918 (6)
Loss per share of common stock:
Primary -- Loss from continuing
operations............................. $ (1.02)(6) $ (0.78 )(6)
</TABLE>
- ---------------
(1) Restated financial data reflects the pro forma effects of the sale of the
Company's 50% interest in Qualex. The financial data has been restated to
reflect the sale of Qualex as if it had occurred on January 1, 1993. Pro
forma information relating to the sale of Qualex is incorporated herein by
reference from Actava's Form 8-K filed on August 25, 1994.
(2) Represents the combined operations of Diversified Products and Subsidiary,
Nelson/Weather-Rite and Subsidiary, Hutch and Willow.
(3) Represents the Company's equity in the unaudited pro forma net income of
Roadmaster for the six months ending June 30, 1994.
(4) Reflects amortization expense of $450,000 relating to the excess of the
carrying amount of Actava's equity investment in Roadmaster of
approximately $36 million over Actava's portion of the underlying net
assets of Roadmaster. Amortization was calculated using the straight-line
method over 40 years.
(5) Represents elimination of income tax effect associated with the Sports
Subsidiaries.
(6) The impact of common stock equivalents is not reflected due to their
anti-dilutive effect.
24
<PAGE> 31
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The unaudited pro forma condensed consolidated balance sheet gives effect
to the Exchange Transaction as if it had occurred on June 30, 1994. The
unaudited pro forma condensed consolidated balance sheet is based on previously
described financial information of the Company as of June 30, 1994 and the pro
forma adjustments described in the notes thereto.
THE ACTAVA GROUP INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
(2)
THE
(1) SPORTS PRO FORMA
ACTAVA SUBSIDIARIES ADJUSTMENTS PRO FORMA
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash................................................. $ 64,015 $ 2,000 $ 62,015
Short-term investments............................... 31,922 31,922
Receivables, net..................................... 177,272 45,608 131,664
Inventories.......................................... 67,051 46,821 20,230
Prepaid expenses..................................... 4,710 2,356 2,354
Receivable from Eastman Kodak........................ 92,832 92,832
Income tax benefits.................................. 25,343 25,343
-------- ------------ ----------- ---------
Total Current Assets.......................... 463,145 96,785 366,360
Investment in Roadmaster Industries, Inc............... $70,545(3)(4) 70,545
Property, plant & equipment: .......................... 113,455 41,947 137(4) 71,645
Less allowances for depreciation..................... (44,351) (7,264) (37,087 )
-------- ------------ ----------- ---------
69,104 34,683 137 34,558
Notes receivable from Triton Group Ltd................. 19,226 19,226
Receivable from Diversified Products Corporation....... 10,000(3) 10,000
Other assets........................................... 5,610 340 5,270
Long-term investments.................................. 15,473 15,473
Intangibles, net....................................... 19,048 18,249 799
-------- ------------ ----------- ---------
Total Assets.................................. $591,606 $150,057 $80,682 $522,231
========= =========== =========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable, accrued expenses and other current
liabilities........................................ $120,121 $ 32,900 $ 1,865(4) $ 89,086
Notes Payable........................................ 100,447 39,240 61,207
Current portion of long-term debt.................... 4,604 4,604
-------- ------------ ----------- ---------
Total Current Liabilities..................... 225,172 72,140 1,865 154,897
Deferred Income Taxes.................................. 33,621 (900) 34,521
Long-Term debt......................................... 2,107 2,107
Subordinated Debt...................................... 187,787 187,787
Redeemable common stock................................ 12,000 12,000
Stockholders' Equity:
Common stock......................................... 22,768 51 51(3) 22,768
Additional capital................................... 36,310 81,471 81,471(3) 36,310
Retained earnings.................................... 179,719 (2,273) (2,273)(3) 179,719
Intercompany......................................... (432) (432)(3)
Less treasury stock -- at cost....................... (107,878) (107,878 )
-------- ------------ ----------- ---------
Total Stockholders' Equity.................... 130,919 78,817 78,817 130,919
-------- ------------ ----------- ---------
Total Liabilities and Stockholders' Equity.... $591,606 $150,057 $80,682 $522,231
========= =========== =========== ==========
</TABLE>
25
<PAGE> 32
Notes to Pro Forma Information
- ---------------
(1) Restated financial data reflects the pro forma effect of the sale of the
Company's 50% interest in Qualex as if the sale had occurred on June 30,
1994, including receipt of the first installment of proceeds from the sale
in the amount of $50 million. Pro forma information relating to the sale of
Qualex is incorporated herein by reference from Actava's Form 8-K filed
August 25, 1994.
(2) Represents the combined financial position of Diversified Products and
Subsidiary, Nelson/Weather-Rite and Subsidiary, Hutch and Willow. The
difference of $1.6 million between the amounts included in this Pro Forma
Condensed Consolidated Balance Sheet and the Combined Balance Sheet
included in the audited financial statements of the Sports Subsidiaries
relates to the ability of the Sports Subsidiaries, as one entity, separate
from Actava, to recognize an additional $1.6 million of deferred tax assets
recorded by the Sports Subsidiaries based on carryback opportunities and
the combined operating results of the Sports Subsidiaries on a separate
return basis.
(3) Represents adjustment to eliminate the effect of the Sports Subsidiaries
stockholders' equity accounts and record Actava's equity investment in
Roadmaster and a receivable due from Diversified Products. The receivable
due from Diversified Products represents remaining amounts payable by
Diversified Products to Actava in connection with intercompany advances
used by Diversified Products during 1993 to finance its operating
activities.
(4) Reflects adjustment to transfer amounts as an in-kind dividend from the
accounts of Diversified Products to Actava which are related to the
retention of certain real estate with a net book value of approximately
$137,000 and associated environmental liabilities of approximately
$1,865,000.
26
<PAGE> 33
HISTORICAL AND PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
OF
ROADMASTER INDUSTRIES, INC.
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
The following table sets forth historical and pro forma selected
consolidated financial data of Roadmaster for the year ended December 31, 1993
and the six months ended July 3, 1993 and July 2, 1994. The historical data for
the fiscal year ended December 31, 1993 has been derived from Roadmaster's
Consolidated Financial Statements incorporated herein by reference. The
historical selected consolidated financial data for the six-month periods ended
July 3, 1993 and July 2, 1994 are derived from Roadmaster's unaudited
consolidated financial statements and reflect, in the opinion of Roadmaster, all
adjustments necessary to present fairly the results for such periods (all of
which adjustments were of a normal recurring nature). The historical
consolidated financial data for the year ended December 31, 1993 and the six
months ended July 2, 1994 gives effect to the consummation of the acquisition by
Roadmaster in September 1993 of the Flexible Flyer Company ("Flexible Flyer").
The pro forma selected consolidated income statement data for the year ended
December 31, 1993 and the six months ended July 2, 1994 reflects the combined
operations of Roadmaster, Flexible Flyer and the Sports Subsidiaries as if the
acquisition of Flexible Flyer and the Exchange Transaction had occurred at the
beginning of the respective periods. The pro forma selected balance sheet data
has been prepared based on the historical balance sheets of Roadmaster and the
Sports Subsidiaries as of December 31, 1993 and June 30, 1994 and give effect to
the Exchange Transaction as though it was consummated at those respective dates.
The pro forma information also includes the results of operations for
Diversified Products Corporation and Subsidiary for the period from January 1,
1993 to June 7, 1993 prior to Actava's acquisition of Diversified Products. This
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Pro Forma Consolidated
Financial Statements and the Notes thereto, and the other financial data
incorporated by herein reference, and with the Pro Forma Combined Financial
Statements and the Notes thereto, and the other financial data concerning the
Sports Subsidiaries set forth elsewhere in this Proxy Statement. The unaudited
pro forma combined financial information is not necessarily indicative of actual
or future operating results or financial position that would have occurred or
will occur as a consequence of such transactions.
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL ROADMASTER PRO FORMA
ROADMASTER PRO FORMA SIX MONTHS ENDED SIX MONTHS
YEAR ENDED YEAR ENDED ------------------------- ENDED
DECEMBER 31, DECEMBER 31, JULY 3, JULY 2, JULY 2,
1993 1993 1993 1994 1994
------------ ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $ 312,160 $ 634,882 $ 132,652 $ 200,854 $ 349,899
Cost of sales............................ 262,890 555,435 113,454 172,079 300,865
------------ ------------ ----------- ----------- -----------
Gross profit............................. 49,270 79,447 19,198 28,775 49,034
Selling, general and administrative
expenses............................... 26,434 63,422 11,228 14,993 34,029
Bad debts................................ (59 ) 1,132 194 226 699
------------ ------------ ----------- ----------- -----------
Operating income......................... 22,895 14,893 7,776 13,556 14,306
Interest expense, net.................... 10,366 16,116 3,516 9,657 12,227
Other expense, net....................... 867 1,371 1,394 938 1,305
------------ ------------ ----------- ----------- -----------
Earnings (loss) before income tax expense
(benefit) and cumulative effect of
change in accounting principle......... 11,662 (2,594) 2,866 2,961 774
Net earnings (loss) from continuing
operations............................. $ 7,633 $ (1,608) $ 1,812 $ 1,835 $ 480
============ ============ ============ ============ ============
Net earnings (loss) from continuing
operations per common share:
Primary................................ $ .26 $ (.03) $ .06 $ .06 $ .01
============ ============ ============ ============ ============
Fully-diluted.......................... $ .25 $ N/A $ .06 $ .06 $ .01
============ ============ ============ ============ ============
</TABLE>
27
<PAGE> 34
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL ROADMASTER PRO FORMA
ROADMASTER PRO FORMA SIX MONTHS ENDED SIX MONTHS
YEAR ENDED YEAR ENDED ------------------------- ENDED
DECEMBER 31, DECEMBER 31, JULY 3, JULY 2, JULY 2,
1993 1993 1993 1994 1994
------------ ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average number of shares
outstanding:
Primary................................ 29,693,000 46,096,000 29,272,000 30,443,000 49,602,000
Fully-diluted.......................... 42,851,000 N/A 29,580,000 30,443,000 49,602,000
Book Value per common share:
Primary................................ $ .55 $ N/A $ .41 $ .70 $ 1.90
============ ============ ============ ============ ============
Fully-diluted.......................... $ .38 $ N/A $ .40 $ .70 $ 1.90
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AT JULY 2, 1994
AT DECEMBER 31, ----------------------
1993 ACTUAL PRO FORMA
---------------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................... $122,005 $101,372 $146,871
Total assets.................................................. 281,609 267,719 424,585
Total short-term debt......................................... 22,899 39,574 60,814
Long-term debt and other long-term liabilities (excluding
convertible debentures)..................................... 109,499 100,250 129,946
Convertible debentures........................................ 51,742 51,742 51,742
Total long-term debt and other long-term liabilities.......... 161,241 151,992 181,688
Stockholders' equity.......................................... 16,376 21,279 93,163
</TABLE>
28
<PAGE> 35
PRO FORMA COMBINED FINANCIAL STATEMENTS
OF
ROADMASTER INDUSTRIES, INC.
AND
THE SPORTS SUBSIDIARIES
The following unaudited pro forma combined financial information gives
effect to the consummation of (i) the acquisition of Flexible Flyer and (ii) the
Exchange Transaction. The pro forma combined financial statement of operations
for the year ended December 31, 1993 gives effect to such transactions as if
they had occurred on January 1, 1993 and combines the operations of Roadmaster,
Flexible Flyer and the Sports Subsidiaries for the year ended December 31, 1993
and Flexible Flyer for the period from January 1, 1993 to September 14, 1993.
The pro forma information also includes the results of operations of Diversified
Products Corporation and Subsidiary for the period from January 1, 1993 to June
7, 1993 prior to Actava's acquisition of Diversified Products. The pro forma
combined statement of operations for the six months ended July 2, 1994 gives
effect to such transactions as if they had occurred on January 1, 1994 and
combines the operations of Roadmaster for the six months ended July 2, 1994 with
the operations of the Sports Subsidiaries for the period from January 1, 1994 to
June 30, 1994. This pro forma combined financial information should be read in
conjunction with the Consolidated Financial Statements of Roadmaster and the
Financial Statements of the Sports Subsidiaries included elsewhere in this Proxy
Statement or incorporated herein by reference. The pro forma combined financial
information is not necessarily indicative of actual or future operating results
or financial position that would have occurred or will occur as a consequence of
such transactions. The pro forma combined financial information is presented
because Actava will acquire ownership of 39.6% of the outstanding Roadmaster
Common Stock as a result of the Exchange Transaction.
29
<PAGE> 36
ROADMASTER INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE SPORTS THE SPORTS
ROADMASTER SUBSIDIARIES SUBSIDIARIES
FOR SIX FOR SIX PRO FORMA PRO
MONTHS ENDED MONTHS ENDED ADJUSTMENTS FORMA(6)
JULY 2, 1994 JUNE 30, 1994 (UNAUDITED) (UNAUDITED)
------------ --------------- --------------- -----------
<S> <C> <C> <C> <C>
Net sales................................. $200,854 $ 149,045 $ 0 $ 349,899
Cost of sales............................. 172,079 128,786 0 300,865
------------ --------------- --------------- -----------
Gross profit.................... 28,775 20,259 0 49,034
Selling, general, and administrative
expenses................................ 14,993 21,449 (2,413)(1) 34,029
Bad debts................................. 226 473 0 699
------------ --------------- --------------- -----------
Operating income (loss)......... 13,556 (1,663) 2,413 14,306
------------ --------------- --------------- -----------
Interest expense.......................... 9,657 2,570 0 12,227
Other expense (income), net:
Other, net...................... 938 210 157(2) 1,305
------------ --------------- --------------- -----------
10,595 2,780 157 13,532
------------ --------------- --------------- -----------
Earnings (loss) before income tax
expense................................. 2,961 (4,443)(5) 2,256 774
Income tax expense (benefit).............. 1,126 191 (1,023)(3) 294
------------ --------------- --------------- -----------
Net earnings (loss) from
continuing operations......... $ 1,835 $ (4,634) $ 3,279 $ 480
=========== =========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
PRIMARY PRIMARY
---------- ----------
<S> <C> <C> <C> <C>
Net earnings from continuing operations
per common share:....................... $ 0.06 $ 0.01
========= =========
Weighted average number of shares
outstanding:............................ 30,433,000 49,602,000(4)
<CAPTION>
FULLY FULLY
DILUTED DILUTED
---------- ----------
<S> <C> <C> <C> <C>
Net earnings before cumulative effect of
change in accounting principle per
common share............................ $ 0.06 $ 0.01
========= =========
Weighted average number
of shares outstanding................... 30,433,000 49,602,000
</TABLE>
- ---------------
(1) Roadmaster's adjustment represents elimination of management fees of
$2,400,000 and elimination of legal fees and settlements related to prior
disputes between the companies of $163,000. The management fees allocated
to the Sports Subsidiaries are general corporate office costs incurred by
Actava which will not be incurred by Roadmaster going forward offset by
additional compensation expense under the employment agreements for Mr.
Fong and Mr. Shake of $150,000.
(2) Represents the amortization of goodwill and deferred acquisition costs over
40 years.
(3) Represents the equalization of tax expense/(benefit) based on the statutory
rate of 38%. Roadmaster believes that the realization of the deferred tax
asset is more likely than not.
(4) Includes the effect of 19,169,000 shares to be issued in connection with the
Exchange Transaction.
(5) Represents the combined operations of Diversified Products, Nelson/
Weather-Rite, Hutch and Willow. Earnings before income tax expense for the
Sports Subsidiaries, excluding Diversified Products were $1,712,000.
(6) Does not include transaction fees payable to Mr. Fong and Mr. Shake in the
aggregate amount of $655,000 before tax ($406,000 after tax) as these fees
are payable in 1995 contingent upon certain future events, including the
continued services of Mr. Fong and Mr. Shake and the successful
assimilation of the Sports Subsidiaries with Roadmaster's businesses.
30
<PAGE> 37
ROADMASTER INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE SPORTS
(2) (3)(4) SUBSIDIARIES
(1) THE DIVERSIFIED PRO FORMA (11)
FLEXIBLE FLYER SPORTS PRODUCTS ADJUSTMENTS PRO FORMA
ROADMASTER (UNAUDITED) SUBSIDIARIES (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------- -------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $312,160 $ 24,256 $240,852 $ 57,614 $ 0 $ 634,882
Cost of sales................ 262,890 21,023 207,340 64,182 0 555,435
---------- -------------- ------------ ----------- ----------- -----------
Gross profit........ 49,270 3,233 33,512 (6,568) 0 79,447
Selling, general, and
administrative expenses.... 26,434 1,115 33,939 5,582 (3,648)(5) 63,422
Bad debts.................... (59) 137 571 483 0 1,132
---------- -------------- ------------ ----------- ----------- -----------
Operating income
(loss)............ 22,895 1,981 (998) (12,633) 3,648 14,893
---------- -------------- ------------ ----------- ----------- -----------
Other expense (income), net:
Interest expense.... 10,366 1,496 3,392 862 0 16,116
Other, net.......... 867 124 67 0 313(6) 1,371
---------- -------------- ------------ ----------- ----------- -----------
11,233 1,620 3,459 862 313 17,487
---------- -------------- ------------ ----------- ----------- -----------
Earnings (loss) before income
tax expense and cumulative
effect of change in
accounting principle....... 11,662 361 (4,457)(7) (13,495) 3,335 (2,594)
Income tax expense
(benefit).................. 4,029 137 2,324 (2,026) (5,450)(8) (986)
---------- -------------- ------------ ----------- ----------- -----------
Net earnings from continuing
operations (loss).......... $ 7,633 $ 224 $ (6,781) $ (11,469) $ 8,785 $ (1,608)
========== ============ =========== =========== =========== ===========
<CAPTION>
PRIMARY PRIMARY
---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net earnings (loss) from
continuing operations per
common share............... $ 0.26 $ (0.03)
========== ===========
Weighted average number of
shares outstanding: ....... 29,693,000 46,096,000(9)(10)
<CAPTION>
FULLY
DILUTED
----------
<S> <C> <C> <C> <C> <C> <C>
Net earnings from continuing
operations per common
share...................... $ 0.25 N/A
==========
Weighted average number of
shares outstanding: ....... 42,851,000
</TABLE>
31
<PAGE> 38
- ---------------
(1) Represents the unaudited pre-acquisition, pro forma results of Flexible
Flyer operations from January 1, 1993 through September 14, 1993.
(2) Includes Diversified Products audited data from June 8, 1993 through
December 31, 1993.
(3) Unaudited data from January 1, 1993 through June 7, 1993 extracted from the
audited consolidated financial statements of Diversified Products for the
period from June 28, 1992 to June 7, 1993. For a discussion concerning the
timing of charges recorded for estimated environmental clean-up costs and
impairment of unamortized patents, see "ROADMASTER MANAGEMENT'S DISCUSSION
AND ANALYSIS OF THE ROADMASTER PRO FORMA COMBINED FINANCIAL STATEMENTS."
(4) The unaudited data from January 1, 1993 to June 7, 1993 does not include
the provision for potential environmental remediation costs of $5,865,000
or the writedown of unamortized patents totalling $15,944,981 as these
charges were deemed to be appropriately reflected in the period June 28,
1992 to December 31, 1992.
(5) Roadmaster's adjustment represents elimination of management fees of
$3,664,000 and elimination of legal fees and settlements related to prior
disputes between the companies of $622,000. The management fees allocated
to the Sports Subsidiaries are general corporate office costs incurred by
Actava which will not be incurred by Roadmaster going forward offset by
additional compensation expense under the employment agreements for Mr.
Fong and Mr. Shake of $638,000.
(6) Represents amortization of goodwill and deferred acquisition charges over
40 years.
(7) Represents the combined operations of Diversified Products,
Nelson/Weather-Rite, Hutch and Willow. Earnings before income tax expense
and cumulative effect of change in accounting principle for the Sports
Subsidiaries excluding Diversified Products, were $3,535,000.
(8) Represents the equalization of tax expense/(benefit) based on the statutory
rate of 38%. Roadmaster believes that the realization of the deferred tax
asset is reasonably assured. A substantial portion of the tax benefit
reflected in the pro forma adjustments for 1993 reflects Roadmaster's
intention to file a consolidated federal tax return and offset income tax
obligations generated by other profitable portions of the combined
enterprise. Roadmaster believes that adequate carryforward opportunity
exists to offset any remaining credit against future taxes due.
(9) Includes the effect of 19,169,000 shares to be issued in connection with
the Exchange Transaction.
(10) The impact of common stock equivalents is not assumed because the effect of
their inclusion would be anti-dilutive.
(11) Does not include transaction fees payable to Mr. Fong and Mr. Shake in the
aggregate amount of $655,000 before tax ($406,000 after tax) as these fees
are payable in 1995 contingent upon certain future events, including the
continued services of Mr. Fong and Mr. Shake and the successful
assimilation of the Sports Subsidiaries with Roadmaster's businesses.
32
<PAGE> 39
ROADMASTER INDUSTRIES, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
DOLLARS IN THOUSANDS
The following unaudited pro forma consolidated balance sheet has been
prepared based on the historical consolidated balance sheet of Roadmaster and
the historical combined balance sheet of the Sports Subsidiaries as of July 2,
1994, and gives effect to the Exchange Transaction. This data should be read in
conjunction with the Consolidated Financial Statements of Roadmaster and the
Combined Financial Statements of the Sports Subsidiaries included elsewhere in
this Proxy Statement or incorporated herein by reference and the notes to the
unaudited pro forma consolidated balance sheets.
<TABLE>
<CAPTION>
THE SPORTS PURCHASE ACCOUNTING
ROADMASTER SUBSIDIARIES ADJUSTMENTS
AS OF AS OF ---------------------
JULY 2, 1994 JUNE 30, 1994 DEBIT CREDIT PRO FORMA
------------ ------------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents........................ $ 8,227 $ 2,000 $ 10,227
Marketable equity securities..................... 5,102 0 5,102
Accounts and notes receivable, net............... 94,358 45,608 139,966
Inventories...................................... 74,397 46,821 121,218
Prepaid expenses and other assets................ 6,410 2,356 8,766
Cash in escrow................................... 4,315 0 4,315
Deferred income taxes............................ 1,011 0 1,011
------------ ------------- ------- ------- ---------
Total current assets....................... 193,820 96,785 $ 0 $ 0 290,605
Net property, plant, and equipment................. 35,023 34,683 2,741(1) 66,828
137(8)
Deferred financing and acquisition charges......... 17,704 0 2,845(2) 20,549
Goodwill........................................... 15,713 16,620 2,741(1) 9,779(5) 40,149
400(3)
141(4)
14,176(6)
137(8)
Other assets....................................... 5,459 340 5,799
------------ ------------- ------- ------- ---------
TOTAL ASSETS....................................... $267,719 $ 148,428 $20,440 $12,657 $423,930
=========== ============ ======= ======= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable................................. $ 31,891 $ 14,027 $ 45,918
Accrued expenses................................. 20,499 12,119 $ 2,845(2) 35,863
400(3)
Income taxes..................................... 484 0 484
Revolving lines of credit........................ 37,781 0 37,781
Current portion of notes payable................. 0 21,240 21,240
Current portion of long-term debt................ 1,793 0 1,793
------------ ------------- ------- ------- ---------
Total current liabilities.................. 92,448 47,386 0 3,245 143,079
Accrued environmental remediation costs.......... 5,865 1,865(7) 4,000
Long-term debt and other liabilities............... 100,250 18,000 118,250
Convertible debentures............................. 51,742 0 51,742
Subordinated note payable to parent................ 0 10,000 10,000
Obligation for post retirement benefits............ 0 1,696 1,696
Redeemable common stock............................ 2,000 0 2,000
Stockholders' equity:
Common/preferred stock........................... 314 51 51(4) 192(4) 506
Additional paid-in capital....................... 18,588 81,471 81,471(5) (71,692)(5) 90,280
Retained earnings................................ 13,000 5,184 5,184(6) 13,000
Deferred compensation............................ (2,082) 0 (2,082 )
Cumulative translation adjustments............... (417) 0 (417 )
Intercompany..................................... 0 (21,225) 19,360(6) 0
1,865(7)
Treasury stock, at cost.......................... (8,124) 0 (8,124 )
------------ ------------- ------- ------- ---------
Total stockholders' equity................. 21,279 65,481 86,706 93,109 93,163
------------ ------------- ------- ------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY... $267,719 $ 148,428 $88,571 $96,354 $423,930
=========== ============ ======= ======= ==========
</TABLE>
33
<PAGE> 40
- ---------------
(1) Represents the adjustment to record plastic weight production machinery and
equipment at its fair value based on Roadmaster's expected use of those
assets.
(2) Represents estimated costs associated predominantly with legal, accounting,
printing, investment banking and other out-of-pocket costs related to the
Exchange Transaction.
(3) Reflects $400,000 to reserve for costs associated with the merger of
Diversified Products' benefit plans into those of Roadmaster and to pay
estimated severance costs for specific individuals identified as performing
redundant services.
(4) Reflects the increase in Roadmaster Common Stock of 19,169,000 shares at a
par value of $.01 offset by the elimination of the Sports Subsidiaries
common stock totalling $51,000.
(5) Represents the elimination of the Sports Subsidiaries additional paid in
capital of $81,471,000 and the issuance of 19,169,000 shares of Roadmaster
Common Stock at a price of $3.75 per share based on the closing price of
the Roadmaster Common Stock as quoted on the American Stock Exchange on
August 19, 1994.
(6) Represents the elimination of the remaining Sports Subsidiaries
stockholders' equity accounts.
(7) Reflects dividend to Newco of reserve for potential environmental
remediation costs with respect to the Materials Storage Area.
(8) Reflects dividend to Newco of land associated with the Materials Storage
Area.
34
<PAGE> 41
ROADMASTER MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE ROADMASTER
PRO FORMA COMBINED FINANCIAL STATEMENTS
The pro forma combining financial statements reflecting the acquisitions of
the Sports Subsidiaries by Roadmaster have been presented as required by the
rules of the Commission. The related methodology assumes only the issuance of
additional shares of Roadmaster Common Stock as part of the Exchange
Transaction, payment of certain expenses in connection with the Exchange
Transaction and the corresponding accounting adjustments to recognize the
foregoing. It is the opinion of management of Roadmaster that the pro forma
combining financial statements are not necessarily indicative of the results to
be expected in periods following the Exchange Transaction. In particular, the
pro forma results for the first six months may not be indicative of results for
the entire year because approximately 60% of Diversified Products' sales
historically occur in the second six months of the year. Any analysis of the pro
forma combined financial statements should also take into account the results of
operations of the Sports Subsidiaries other than Diversified Products.
Nevertheless, no assurances can be given by Roadmaster or Actava that the
changes to Diversified Products' operations discussed below can be effected or
that even if such changes are effected that such changes will have any effect on
the financial performance of Diversified Products.
This discussion of pro forma combined financial statements of Roadmaster
and the Sports Subsidiaries should be read in conjunction with the historical
financial statements and related management's discussion and analysis of
financial condition and results of operations of Roadmaster and the Sports
Subsidiaries included elsewhere herein or incorporated by reference herein. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "FINANCIAL STATEMENTS OF
THE SPORTS SUBSIDIARIES."
Management of Roadmaster believes that the selling, general and
administrative expenses of Diversified Products may be substantially reduced as
a percent of sales. While no assurance can be given, Roadmaster has historically
experienced savings upon adopting its personnel-related benefits programs.
Roadmaster intends to implement its benefits programs at all of the Sports
Subsidiaries. The impact of the new employment agreements for Mr. Fong and Mr.
Shake are not expected to have a material adverse impact on personnel-related
expenses.
Diversified Products' Opelika, Alabama manufacturing facility consists of
1,000,000 square feet of space. During Diversified Products' peak manufacturing
season, from September to February, it utilizes only 60% of such space with such
space devoted exclusively to the production of fitness products. During non-peak
periods, Diversified Products utilizes only 30% of its production space. During
the peak production months, Diversified Products employs approximately 1,000 to
1,200 employees. During non-peak periods, substantial layoffs occur reducing the
work force to 500 to 700 employees.
Roadmaster plans to substantially increase the utilization of the
Diversified Products production space by shifting to a focused factory
production approach, producing bicycles, fitness equipment and junior products
at the Opelika facility. Management of Roadmaster expects to open a bicycle
production line which would employ 250 to 500 employees. The peak production for
such line is anticipated to occur in March, April and May. Management of
Roadmaster also expects to open swingset and trampoline production lines at the
Opelika facility. The peak production periods for such lines are anticipated to
be in the first and second quarters. In the case of all three lines, production
would be counter-seasonal to fitness equipment production. Roadmaster estimates
that the initial conversion of the Opelika facility to a focused bicycle factory
can be completed with additional capital expenditures of less than $1,000,000.
By employing a focused factory approach, Roadmaster anticipates that the Opelika
production facility would ultimately employ approximately 1,200 employees on a
year-round basis with current seasonal employees being converted into year-round
employees. Roadmaster anticipates that the resulting production capacity, after
modifications to the Opelika facility, will be better utilized on a combined
basis and that no production facility utilized by Roadmaster will be closed.
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<PAGE> 42
In addition to more efficient utilization of the Opelika production
facility, Roadmaster anticipates a reduction in the level of its unemployment
insurance premiums and other seasonal employment related costs following any
seasonal employment decreases. In 1993, Diversified Products incurred expenses
associated with one seasonal decrease in operations of approximately $1.1
million.
Management of Roadmaster also anticipates that it may be able to lower
certain fitness equipment production costs by employing certain domestic sources
currently utilized by Roadmaster which may enable it to negotiate greater volume
discounts and reduce return rates. In such event, the percentage of imported
goods sold by Diversified Products would decrease from its historic 30% to 40%
to the extent Roadmaster is able to competitively source fitness equipment
components domestically. While no assurances can be given that domestic sourcing
can be increased at Diversified Products or that such sourcing will result in
lower costs, Roadmaster has historically sourced approximately 98% of its
existing fitness equipment products domestically.
Similarly, while no assurances can be given that utilization rates at the
Opelika facility can be increased in the near term, Roadmaster historically has
high utilization rates at all its facilities, including its West Point,
Mississippi production facility acquired in September 1993 as part of the
acquisition of the assets of Flexible Flyer assets. Following Roadmaster's
acquisition of these assets, plant operations in West Point increased during its
peak production period (first and second quarters) from an 80% utilization rate
for normal operating hours to a 110% rate (utilizing overtime). Non-peak
production utilization rates similarly increased from 30% in the third and
fourth quarters to 60% in the third and fourth quarters following the Flexible
Flyer acquisition. See "BUSINESS INFORMATION REGARDING ROADMASTER."
The pro forma combined statement of operations for the year ended December
31, 1993 includes a tax benefit of $0.7 million. This tax benefit represents a
statutory rate of 38%. A substantial portion of the tax benefit reflected in the
pro forma adjustments for 1993 reflects Roadmaster's intention to file a
consolidated federal tax return and offset income tax obligations generated by
other profitable portions of the combined enterprise. Roadmaster believes that
adequate carryback or carryforward opportunity exists to offset any remaining
credit against taxes otherwise due.
In October 1993, Roadmaster entered into a distribution agreement whereby
it became the exclusive worldwide distributor of various MacGregor(TM) brand
sporting goods including inflatable sports products such as footballs,
basketballs and soccerballs. To date, such distribution rights have not had a
material impact on Roadmaster's results of operations and Roadmaster is unable
to predict the impact of the existence of such distribution agreement on its
results of operations. Although no assurances can be given, management of
Roadmaster believes that the acquisition of Hutch, a distributor of products for
team sports, may have a synergistic effect as certain retailers, including many
of Roadmaster's existing mass merchandiser customers, prefer sourcing sporting
goods products from a single vendor which can provide a variety of models or
styles. The sporting goods market is highly competitive and no assurance can be
given that even with the addition of Hutch that Roadmaster's sporting goods
products will be able to capture market share from other multiple product and
multiple line sporting goods suppliers.
Although Diversified Products' European sales are not currently a
significant part of its business, Roadmaster expects to include Diversified
Products' products in Roadmaster's plans to expand its existing distribution in
Canada and Europe. Non-United States sales of the combined operations would have
constituted less than 5% of Roadmaster's total revenues in 1993 and currently
are expected to constitute less than 5% of combined revenues in 1994.
Prior to Actava's purchase of old Diversified Products, the Alabama
Department of Environmental Management ("ADEM") issued an administrative order
on May 14, 1991 obligating Diversified Products to undertake various
investigative activities with respect to an inactive chrome plating tank at its
Opelika facility. Such area is located on the property to be acquired by
Roadmaster. The required investigation called for, among other things, (a)
preparation of a "Groundwater Quality Assessment Work Plan," (b) closure of the
36
<PAGE> 43
chrome tank area, and (c) submission of a complete postclosure permit
application for the chrome tank area. Diversified Products has worked with
Alabama authorities to comply with the terms of the order, and closure of the
chrome tank area was completed on April 16, 1992. In addition, a final
Groundwater Quality Assessment Report was submitted to ADEM on May 23, 1994.
Diversified Products is currently in the process of preparing its application
for a post-closure permit for the chrome tank area. It is anticipated that the
post-closure permit will include requirements for, among other things,
corrective action near the chrome tank area, long term groundwater monitoring,
and maintenance of the closed chrome tank area.
It is anticipated that when Diversified Products receives its post-closure
permit from ADEM, the EPA will issue a permit for additional investigation and
corrective action at the Opelika facility. In the RFA, the EPA identified 45
solid-waste management units and one area for further study at that portion of
the Opelika facility to be acquired by Roadmaster. The Materials Storage Area,
which is being retained by a wholly-owned subsidiary of Actava, was identified
as an additional solid waste management unit. It is anticipated that the EPA
permit ultimately issued to Diversified Products will require confirmatory
sampling and/or integrity testing for some or all of the 45 identified
solid-waste management units. Depending on the results of this additional
investigation, Diversified Products will be required to develop and implement a
corrective action plan for those solid-waste management units that pose
potential threats to human health and the environment, if any.
The ADEM and EPA permitting processes will require several years of
investigation, design, construction and negotiation. Subsequent post-closure
care of the chrome tank area may last as long as 30 years.
In connection with the acquisition of the Sports Subsidiaries, Roadmaster
will record, pursuant to purchase accounting, a provision for potential
environmental remediation costs at the acquired properties. Currently, such
provision is expected to cover all of the Opelika facility (exclusive of the
Materials Storage Area). Diversified Products currently has recorded $5.9
million as a provision for potential environmental costs at the Opelika
facility, including the Materials Storage Area. The EIA only applies to any
liability to Roadmaster resulting from the presence on or migration of regulated
materials from the Materials Storage Area. While no assurances can be given,
Roadmaster believes that Actava's financial resources are adequate to meet its
obligations under the EIA and that any liability on the part of Roadmaster for
environmental remediation on or arising out of the Materials Storage Area is not
probable. While Roadmaster has one year from the Closing Date to complete its
purchase accounting and establish appropriate reserves as necessary, Roadmaster
currently believes no provision is necessary for the Materials Storage Area. See
"THE EXCHANGE TRANSACTION -- Environmental Indemnity Agreement." It should be
noted that environmental assessments conducted at the time of Actava's
acquisition of old Diversified Products in 1993 originally had estimated the
appropriate reserve for the entire Opelika facility at $1.5 million and that
Diversified Products retroactively adjusted its purchase accounting to reflect
its current estimated total environmental remediation costs for the Opelika
facility, including the Materials Storage Area, of $5.9 million. Such reserves
were increased following the receipt of additional remediation estimates
furnished to Roadmaster in connection with Roadmaster's due diligence.
Roadmaster's anticipated reserve of $4.0 million reflects the minimum value
of a range of potential cleanup costs ($4.0 million to $10.0 million) currently
estimated by Roadmaster, following consultation with Environmental Science &
Engineering, Inc., for the Opelika facility (exclusive of the Materials Storage
Area). The amount of the reserves anticipated to be established may be increased
or decreased to the extent Roadmaster acquires further information after
additional work by ESE concerning potential remediation costs at the Opelika
facility, either during the period allowed for determination of Roadmaster's
purchase accounting or thereafter.
Consistent with its prior practices, Roadmaster expects to participate in
any available voluntary remediation programs established pursuant to federal and
state authority with respect to such environmental remediation as may be
required at the Opelika facility.
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<PAGE> 44
The extent of the remediation of soil and groundwater contamination that
may have to be undertaken at the Diversified Products facility will be
determined by the results of additional on-site investigation. Any environmental
remediation costs associated with the Diversified Products facility or the
Materials Storage Area will not have any effect on Roadmaster's income
statements unless remediation costs exceed the reserve which is established
pursuant to purchase accounting or Roadmaster incurs liability for the Materials
Storage Area covered by the EIA. Notwithstanding the foregoing, no assurances
can be given that costs ultimately associated with the actual remediation
program will not be material or that unanticipated environmental matters
resulting in material costs for Roadmaster will not arise in the future.
The results of operations for Diversified Products for the period January
1, 1993 to June 7, 1993 does not reflect the provision for environmental
clean-up costs of $5,865,000 or the write down of unamortized patents totalling
$15,944,981 as these charges were deemed to be appropriately reflected in the
period June 28, 1992 to December 31, 1992. The decision to reflect these
adjustments in this period was based on the existence of information allowing
Diversified Products' management to reasonably estimate the clean-up costs and
impairment of patent values prior to the issuance of the respective financial
statements. These adjustments were recorded as purchase accounting adjustments
at June 7, 1993 with respect to Actava's acquisition of Diversified Products.
38
<PAGE> 45
BUSINESS INFORMATION REGARDING ROADMASTER
Roadmaster, through its operating subsidiaries, is one of the largest
manufacturers of bicycles and a leading manufacturer of fitness equipment and
junior products in the United States. Roadmaster's major product lines consist
of bicycles for the adult, teen and juvenile markets, fitness equipment,
including stationary aerobic equipment, multi-station weight systems and
benches, and junior products such as tricycles, wagons, toy horses, bulk plastic
toys, sleds and swing sets. Roadmaster markets its products, primarily through
mass merchandisers, under well established trade names with widespread consumer
recognition and long operating histories, including Roadmaster(R) (1935),
Vitamaster(R) (1950), Flexible(R) Flyer (1889) and MacGregor(R) (1870). In 1993,
Roadmaster had sales greater than $1 million to each of over 20 leading mass
merchandisers including Toys "R" Us Inc. ("Toys "R" Us"), Wal-Mart Stores, Inc.
("Wal-Mart") and Target Stores, Inc. ("Target"). Roadmaster received Vendor of
the Year awards from Toys "R" Us in 1992 and 1993, Wal-Mart in 1991 and Target
in 1990.
Roadmaster has developed successful relationships with mass merchandisers
by providing a low cost product that Roadmaster believes is differentiated from
the competition based on superior features, and by supplying just-in-time
inventory with proven reliability. Low costs are achieved through modern and
efficient manufacturing facilities, low selling, general and administrative
costs, and an experienced workforce. Savings from manufacturing are reinvested
into higher quality components for Roadmaster products, thus providing a higher
value product at a competitive cost. Roadmaster emphasizes quality through
strict design criteria to ensure high standards for all its products. In
addition, Roadmaster has developed flexible and efficient manufacturing
operations that enable it to shift production runs to match demand.
Bicycle and fitness products together accounted for 85% of Roadmaster's net
sales in 1993. Roadmaster has experienced sales growth in bicycles and fitness
products of 426% and 71.7%, respectively, from 1990 to 1993. Roadmaster's
management believes that Roadmaster's share of bicycles sold through mass
merchandisers, who sell approximately 80% of all bicycles in the United States,
has grown from 5% in 1990 to 25% in 1993. Roadmaster's total sales for the year
ended December 31, 1993 increased by 39.6% to $312 million from the year ended
December 31, 1992, primarily due to increased sales in Roadmaster's existing
product lines. Due to the seasonality of its business, Roadmaster's fourth
quarter sales over the past four years have accounted for approximately 35% of
its total annual sales.
Although international sales are not currently a significant part of
Roadmaster's consolidated operations, Roadmaster plans to expand its existing
distribution in Canada and Europe.
Roadmaster was formed on June 1, 1987 for the purpose of acquiring
Roadmaster Corporation ("RMC"), a manufacturer of bicycles, fitness equipment
and junior products. This acquisition was completed on August 10, 1987. On
August 31, 1988, Roadmaster acquired Ajay Enterprises Corporation ("Ajay
Enterprises"), a manufacturer of fitness equipment and sports accessories which
was subsequently merged with Roadmaster. In June 1989, RMC sold its sports
product line to Ajay Sports, Inc. ("Ajay Sports") and its wholly owned
subsidiary Ajay Leisure, Inc. This sale was not recorded for financial statement
purposes until May 1992. On October 19, 1989, Roadmaster acquired, through a
wholly-owned subsidiary, substantially all of the assets of Hamilton
Corporation, a designer, manufacturer and distributor of a variety of lamps for
residential use. In August 1992, RMC sold a 35% interest in its export sales
subsidiary, International Sports & Fitness, Inc. In September 1993, Roadmaster
acquired certain assets of Flexible Flyer, a division of Par Industries, Inc.
("Par"), a manufacturer of a variety of junior products. Immediately following
such acquisition, Roadmaster began operating these assets through its Flexible
Flyer, Inc. subsidiary. In September 1993, Roadmaster, in a separate
transaction, also acquired all of the capital stock of Flexible Flyer Europe,
Ltd. (now "Roadmaster, Limited"), a United Kingdom company and distributor of
Flexible Flyer products which now distributes Roadmaster's products in Europe.
In October 1993, RMC entered into a distribution agreement with MacGregor Sports
Products, Inc. ("MSP"), a wholly-owned subsidiary of MacGregor Sports and
Fitness, Inc. ("MacGregor"), a publicly held company engaged in the business of
marketing and distributing a broad range of sports, recreational and fitness
products under the MacGregor trademark. Pursuant to such distribution agreement,
RMC became the exclusive worldwide distributor of MacGregor(TM) brand baseball,
softball, basketball, football, soccer, hockey, volleyball, racquet sports, and
other products, for
39
<PAGE> 46
a term of five years, with a five-year renewal option. In late 1993, Roadmaster
reacquired all of the outstanding minority interest in International Sports &
Fitness, Inc. and consolidated its Hamilton Lamp Corporation and its Flexible
Flyer, Inc. operating subsidiaries with its RMC subsidiary. In February 1994,
Roadmaster acquired substantially all of the assets of American Playworld, Inc.,
a leading manufacturer of trampolines distributed mainly to mass merchants.
American Playworld's operations are now conducted by RMC.
In March 1994, Roadmaster furnished proposed post-closing adjustments to
Par to reduce the purchase price paid by Roadmaster based on Roadmaster's
preliminary investigations of the value of the Flexible Flyer assets purchased
by Roadmaster and the understatement of the amount of the Flexible Flyer
liabilities assumed by Roadmaster. The effect of such adjustments would be to
reduce the purchase price paid by Roadmaster by an amount of up to approximately
$3.8 million. Par has disputed the amount of post-closing adjustments calculated
by Roadmaster. Roadmaster believes the post-closing adjustments it has proposed
are reasonable based on the information available to date. The disputed
adjustments have been submitted to the parties' respective accountants for
analysis pursuant to a multi-stage alternative dispute resolution procedure
provided by the purchase agreement. In the event the parties' accountants are
unable to agree on the proper adjustments, the dispute resolution mechanism
ultimately provides for disputed adjustments to be resolved by a nationally
recognized firm of certified public accountants mutually acceptable to
Roadmaster's accountants and Par's accountants. Pending resolution of the
dispute, Roadmaster intends to offset the amount of adjustments against any
future payments remaining due to Par under the purchase note ($1.5 million), the
remaining $1.2 million due as consideration for the non-compete agreement,
rental payments of approximately $0.4 million per year and any other obligations
of Roadmaster to Par. The effect of any purchase price adjustments will be to
reduce the intangible asset value associated with the acquisition in receipt of
the settlement consideration.
Roadmaster intends to continue to pursue acquisitions of complementary
product lines in order to exploit economies of scale and to leverage its
existing relationships with mass merchandisers.
Roadmaster's principal executive offices currently are located at 7315 E.
Peakview Avenue, Englewood, Colorado 80111, and its telephone number is (303)
290-8150. In the event the Exchange Transaction is consummated, Roadmaster
expects to relocate its principal executive offices to Atlanta, Georgia.
Roadmaster and each of its domestic subsidiaries are incorporated under Delaware
law.
40
<PAGE> 47
BUSINESS INFORMATION REGARDING ACTAVA AND THE SPORTS SUBSIDIARIES
GENERAL
The Company is a provider of branded consumer products through distribution
channels to retail markets across the United States. Following the sale of its
50% equity interest in Qualex to Kodak on August 12, 1994, the Company operates
in two distinct businesses: lawn and garden equipment and sporting goods.
Following the Exchange Transaction, the Company will be involved in the sporting
goods business only through its ownership interest in Roadmaster. Information
regarding the Company's sale of its 50% equity interest in Qualex to Kodak is
set forth in "-- Recent Developments -- Sale of Qualex" below. Information
regarding the photofinishing business conducted by Qualex prior to August 12,
1994 is set forth in Item 1 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1993 and Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, which are incorporated herein by reference. Actava's
principal executive offices are located at 4900 Georgia Pacific Center, Atlanta,
Georgia 30303, and its telephone number is (404) 658-9000.
LAWN AND GARDEN EQUIPMENT
The Company's Snapper Division (which is operated as a division, and not as
a subsidiary, of the Company) manufactures Snapper(TM) brand power lawnmowers,
lawn tractors, garden tillers, snow throwers, and related 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
self-propelled and push-type walk-behind mowers. Snapper also manufactures a
line of commercial lawn and turf equipment and a Blackhawk(TM) line of mowers
and markets a fertilizer line under the Snapper(TM) brand.
Snapper products are premium priced, generally selling at retail from $250
to $8,200. They are sold exclusively through 54 independent distributors to
approximately 7,800 dealers throughout the United States. In addition, Snapper
products are exported to 27 independent distributors and four company-owned
distributors covering 41 foreign countries. Snapper does no private label
manufacturing of lawn and garden equipment and does not sell directly to
multi-unit retailers or mass merchandisers. While the ultimate consumers
generally purchase lawnmowers in the spring and early summer, Snapper sells to
its distributors nearly year-round utilizing accounts receivable dating
programs, with the greatest volume of production and shipment preceding ultimate
consumer purchasing periods. Accounts receivable dating programs establish the
due dates for distributor accounts receivable to coincide with the anticipated
sales to the ultimate consumer. Therefore, Snapper's cash flow needs are
seasonal, with the greatest need for funds being in the first quarter of the
year.
Snapper manufactures its products in McDonough, Georgia at facilities
totaling approximately 1,000,000 square feet. A substantial portion of the
component parts for Snapper products is manufactured by Snapper, excluding
engines and tires.
The lawn and garden business is highly competitive, with the competition
being based upon price, image, quality and service. While no one company
dominates the market, the Company believes Snapper is one of the significant
manufacturers of lawn and garden products. There are approximately 50
manufacturers in competition with Snapper. Snapper's principal brand name
competitors in the sale of power lawnmowers include The Toro Company, Lawn-Boy
(a product group of the Toro Company), Sears, Roebuck and Co., Deere & Company,
Ariens Company, Honda Corporation and Murray Ohio Manufacturing, Inc. Some of
the Company's competitors have greater financial resources than the Company.
The Company is actively seeking to identify synergistic business
combinations for Snapper and would ultimately like for Snapper to operate as or
as part of a publicly held company in which the Company has an interest.
Although the Company would prefer to own an interest in a publicly held Snapper,
the Company is exploring other alternatives for Snapper including a possible
sale or joint venture or the continued operation of Snapper as a division or
subsidiary. The Company currently is not a party to any agreements with respect
to any acquisitions or business combinations regarding Snapper nor does it have
any immediate plans or
41
<PAGE> 48
agreements that would cause Snapper to become publicly owned. No assurances can
be given that the Company in the future will engage in such a transaction or
effect such a plan.
THE SPORTS SUBSIDIARIES
Diversified Products. Diversified Products is a leading domestic
manufacturer of a variety of fitness equipment, such as stationary exercise
bicycles, treadmills, weight benches, free weight systems, ski machines, and
stair steppers. Its principal manufacturing facility is located in Opelika,
Alabama. Actava acquired the assets of Diversified Products in June 1993 for a
net purchase price of $11,629,500 in cash, the issuance of 1,090,909 shares of
Actava Common Stock valued at $12,000,000, and the indirect assumption of
approximately $40.1 million in liabilities. Diversified Products' principal
customers include mass merchandisers, such as Sears Roebuck & Co., Wal-Mart,
Target and K-Mart Corporation, as well as other retailers such as the Home
Shopping Network and USA Direct/Fingerhut. Management of the Company believes
that Diversified Products has a strong product brand name, complimentary
distribution channels and substantial unused manufacturing capacity. In addition
to traditional mass merchandiser markets, Diversified Products has implemented
programs for the sale of its products through various home shopping television
channels. Diversified Products' sales in most product categories declined in
1993 as a result of a cautious retail environment and production problems caused
by late delivery of electronic components for treadmills.
Approximately 65% of the sales of Diversified Products consist of products
manufactured or purchased domestically. The remaining 35% of sales come from
imported merchandise sourced from a large number of suppliers located primarily
in the Far East. Approximately 2% of Diversified Products' products are sold in
Europe through a United Kingdom subsidiary.
Diversified Products maintains a modern fleet of leased tractor-trailer
trucks which are utilized in its shipping operations. This fleet, which is
operated in a separate trucking subsidiary, includes nearly 100 tractors and 200
trailers. Currently, approximately 70% of the trucking capacity (including
backhaul operations) is utilized by parties other than Diversified Products
during non-peak periods. Diversified Products' research and development
department employs a 32-person in-house design staff which continuously
evaluates new product concepts and materials to determine consumer acceptance of
its products and seeks to respond vigorously to the desires and needs of
consumers.
The management of Actava believes that the operating performance of
Diversified Products will be substantially improved after the consummation of
the Exchange Transaction as a result of the anticipated increase in production
at Diversified Products' Opelika, Alabama manufacturing facility and the
resulting elimination or reduction of seasonal employment related costs. In
addition, it is anticipated that Diversified Products will realize cost
reductions by consolidating certain administrative functions with Roadmaster's
existing staff functions. Diversified Products' Opelika, Alabama manufacturing
facility consists of 1,000,000 square feet of space. During Diversified
Products' peak manufacturing season, from September to February, it utilizes
only 60% of such space with such space devoted exclusively to the production of
fitness products. During non-peak periods, Diversified Products utilizes only
30% of its production space. During the peak production months, Diversified
Products employs approximately 1,000 to 1,200 employees. During non-peak
periods, substantial layoffs occur reducing the work force to 500 to 700
employees.
Following consummation of the Exchange Transaction, Roadmaster plans to
substantially increase the utilization of the Diversified Products production
space by shifting to a focused factory production approach, producing bicycles,
fitness equipment and junior products at the Opelika facility. Roadmaster plans
to open a bicycle production line which would employ 250 to 500 employees. The
peak production for such line is anticipated to occur in March, April and May.
Roadmaster also expects to open swingset and trampoline production lines at the
Opelika facility. The peak production periods for such lines are anticipated to
be in the first and second quarters. In the case of all three lines, production
would be counter-seasonal to fitness equipment production. By employing a
focused factory approach, Roadmaster anticipates that the Opelika production
facility would ultimately employ approximately 1,200 employees on a year-round
basis with current seasonal employees being converted into year-round employees.
42
<PAGE> 49
In addition to more efficient utilization of the Opelika production
facility, Roadmaster anticipates a reduction in the level of its unemployment
insurance premiums and other seasonal employment related costs following any
seasonal employment decreases. In 1993, Diversified Products incurred expenses
associated with one seasonal decrease in operations of approximately $1.1
million.
Management of Roadmaster also anticipates that it may be able to lower
certain fitness equipment production costs by employing certain domestic sources
currently utilized by Roadmaster which may enable it to negotiate greater volume
discounts and reduce return rates. In such event, the percentage of imported
goods sold by Diversified Products would decrease from its historic 30% to 40%
to the extent Roadmaster is able to competitively source fitness equipment
components domestically. While no assurances can be made that domestic sourcing
can be increased at Diversified Products or that such sourcing will result in
lower costs, Roadmaster has historically sourced approximately 98% of its
existing fitness equipment products domestically.
Similarly, while no assurances can be given that utilization rates at the
Opelika facility can be increased in the near term, Roadmaster historically has
high utilization rates at all its facilities, including its West Point,
Mississippi production facility acquired in September 1993 as part of the
Flexible Flyer Acquisition. Following Roadmaster's acquisition of the Flexible
Flyer assets, plant operations in West Point increased during its peak
production period (first and second quarters) from an 80% utilization rate for
normal operating hours to a 110% rate (utilizing overtime). Non-peak production
utilization rates similarly increased from 30% in the third and fourth quarters
to 60% in the third and fourth quarters following the Flexible Flyer
Acquisition.
Nelson/Weather-Rite, Inc. Nelson/Weather-Rite is a leading supplier of
outdoor and camping equipment to mass merchandisers and specialty stores through
its American Camper(R), Weather-Rite(R) and Remington(R) brands. Products are
sourced from the Far East by its World Trade Corporation subsidiary, which
maintains offices in China, Taiwan, Hong Kong and Korea. Nelson/Weather-Rite,
which has been consistently profitable over the last three years, has similar
distribution channels to Roadmaster and established brand names. Its major
product lines include camping equipment, rainwear, footwear, hunting apparel and
inflatables and it is believed to be the leading or second leading supplier in
most of its product lines. Principal customers for Nelson/Weather-Rite include
Wal-Mart, K-Mart, Montgomery Ward Holding Corp., The Sports Authority, Inc. and
FingerHut Companies, Inc. Historically, Nelson/Weather-Rite's sales have been
counter-seasonal to Roadmaster's, peaking in the second quarter. Actava has
owned and operated Nelson/ Weather-Rite since 1972.
Hutch Sports USA Inc. Hutch is a national marketer and distributor of
products for team sports and is an official licensee for The National Football
League ("NFL"), The National Basketball Association, The National Hockey League,
Major League Baseball and various colleges and universities. Its major product
lines include basketballs, footballs and football outfits. Hutch's principal
customers include Hardee's Food Systems, Inc., K-Mart, Toys "R" Us, J.C. Penney,
Inc., and Wal-Mart. Like Nelson/Weather-Rite, Hutch has been consistently
profitable over the last three years and employs similar distribution channels
to Roadmaster. Roadmaster believes Hutch's distribution channels, especially for
inflatables, are complimentary with Roadmaster's Distribution Agreement with
MacGregor Sports Products, Inc., pursuant to which Roadmaster became the
exclusive worldwide distributor of MacGregor(TM) brand baseball, softball,
basketball, football, soccer, hockey, volleyball, racquet sports and other
products through 1998 with a renewal option through 2003. Actava has owned and
operated Hutch since 1971.
Willow Hosiery Company, Inc. Willow, headquartered in New York City, has a
nationally distributed line of hosiery and is a licensee for the officially
licensed socks of the NFL, Keds(R), Pro Keds(R), Outdoor Life(R), English
Leather(R) and Franklin(R), as well as various colleges and universities. Keds
Hosiery was the leading brand sold by Willow in 1993, Willow's largest customer
in 1993 was Wal-Mart. Its other principal customers include Hills Stores Co.,
Jamesway, Bill's Dollar Stores and 50%-Off Stores. Like Nelson/Weather-Rite and
Hutch, Willow employs similar distribution channels to those employed by
Roadmaster. Actava has owned and operated Willow since 1974.
43
<PAGE> 50
RECENT DEVELOPMENTS
Election of John D. Phillips as Chief Executive Officer of Actava
On April 19, 1994, the Board of Directors of the Company elected John D.
Phillips as President, Chief Executive Officer and a director of the Company.
The Company on the same date sold 700,000 shares of Actava Common Stock to
Renaissance Partners, a partnership for which Mr. Phillips serves as a general
partner, for a cash price of $4,462,500, and the Company issued to Mr. Phillips
seven-year options for the purchase of 300,000 additional shares of Actava
Common Stock at a price of $6.375 per share. As a result of these transactions,
Mr. Phillips, as of August 19, 1994, was the beneficial owner of 5.37% of the
outstanding Actava Common Stock. From 1989 to 1993, Mr. Phillips was President
and a director of Resurgens Communications Group, Inc., which transmitted
operator-assisted long distance telephone calls and provided operator services
and billing and collection services to other long distance telephone companies.
Resurgens Communications Group, Inc. merged with Metromedia Company and LDDS
Communications, Inc. in September 1993, and the combined company now operates as
a long distance telecommunications company under the name LDDS Communications,
Inc.
Mr. Phillips was given a mandate by the Company's Board of Directors to
improve the Company's operations and earnings and to increase stockholder value.
Consistent with this mandate, the Company, acting on a proposal by Mr. Phillips
which was approved by the Board of Directors, sold its 50% interest in a
photofinishing business on August 12, 1994. See "Sale of Qualex" below and "Pro
Forma Financial Information of Actava." Similarly, Mr. Phillips proposed and the
Board of Directors has approved the Exchange Transaction.
Sale of Qualex
On August 12, 1994, the Company sold its 50% ownership interest in Qualex
to Kodak and, as a result, is no longer engaged in the photofinishing business.
Kodak owned the remaining 50% interest in Qualex prior to the transaction. In
exchange for the Company's ownership interest in Qualex, as well as a covenant
not to compete and related releases from the Company, Kodak paid the Company $50
million in cash and agreed to pay the Company an additional $100 million without
interest in two equal installments on February 13, 1995 and August 11, 1995. The
Company recorded a loss of $37,858,000 on the sale of its interest in Qualex and
classified Qualex's results of operations to discontinued operations along with
the loss upon disposition. The cash received and to be received by the Company
from the sale of its interest in Qualex improved the Company's liquidity and the
Company's ability to take advantage of future business opportunities. See "Pro
Forma Financial Information of The Actava Group Inc."
Prior to June 30, 1994, Actava owned 51% of the voting stock of Qualex, was
entitled to and elected a majority of the members of the Board of Directors of
Qualex, and had the ability through its control of the Board of Directors to
declare dividends, remove the executive officers of Qualex and otherwise direct
the management and policies of Qualex, except for policies relating to certain
designated actions requiring the consent of at least one member of the Board of
Directors of Qualex designated by Kodak. Because of these rights, the Company
believes that, under generally accepted accounting principles, it had effective
unilateral control of Qualex which was not temporary during the period from 1988
until the second quarter of 1994. As a result, the Company consolidated the
results of operations of Qualex with the results of operations of the Company
for periods ending prior to June 30, 1994.
Upon the formation of Qualex in 1988, the Company and Kodak entered into
the Qualex Shareholders Agreement that provided, among other things, for a
reduction in the Company's voting control of Qualex from 51% to 50% and for
changes in the composition of the Board of Directors of Qualex in the event of a
"change in control" of the Company. The Qualex Shareholders Agreement defined
the term "change in control" to include a "transaction or occurrence the effect
of which is to give a person or group of affiliated persons or entities the
power to direct the management and policies" of the Company.
In 1991, Charles R. Scott was elected President and Chief Executive Officer
of the Company. At the time of his election, Mr. Scott was also serving as
Chairman and Chief Executive Officer of a company that owned approximately 25%
of the Company's voting stock and was the Company's single largest stockholder.
Because Mr. Scott was serving at the same time as the chief executive officer of
both the Company and the
44
<PAGE> 51
Company's single largest stockholder, the Company and Kodak agreed that a
"change in control" of the Company had occurred for purposes of the Qualex
Shareholders Agreement. Despite this "change in control" of the Company, Kodak
agreed that the Company would continue to own 51% of the voting control of
Qualex and to elect a majority of the directors of Qualex. The Qualex
Shareholders Agreement, however, was amended to provide that Kodak had the right
to change the Company's control of Qualex on March 1, 1992 or on any subsequent
March 1. During the period from 1991 until the second quarter of 1994, the
Company did not believe that Kodak would exercise the right to change the
Company's control of Qualex, and Kodak, in fact, did not exercise this right on
March 1, 1992, 1993 or 1994.
Mr. Phillips was elected as President and Chief Executive Officer of the
Company on April 19, 1994. The Company did not believe that the election of Mr.
Phillips constituted a "change in control" of the Company as defined in the
Qualex Shareholders Agreement. This belief was based in part on the fact that
(i) Mr. Phillips beneficially owned less than 4% of the Company's voting stock
at the time of his election, (ii) Delaware corporate law, under which the
Company is governed, provides that the business and affairs of a corporation
shall be managed by and under the direction of the board of directors -- not the
president, and (iii) eight of the nine members of the Board of Directors of the
Company after the election of Mr. Phillips were serving as directors before the
election of Mr. Phillips. Kodak informed the Company that it believed that the
election of Mr. Phillips constituted a "change in control" of the Company under
the Qualex Shareholders Agreement and requested that changes be made in the
Company's voting control of Qualex and in the composition of the Board of
Directors of Qualex. The disagreement between the Company and Kodak as to
whether or not a "change in control" had occurred was resolved on June 8, 1994
when the Company agreed that it would not contest Kodak's interpretation of the
Qualex Shareholders Agreement. As a result, on June 30, 1994, the Company's
ownership of the voting stock of Qualex was reduced to 50% and the Company and
Kodak each became entitled to elect an equal number of members of the Board of
Directors of Qualex. Because of these changes affecting the Company's control of
Qualex, the Company discontinued its practice of consolidating the accounts of
Qualex and began accounting for its ownership in Qualex under the equity method
effective as of June 30, 1994. As a result, the Company's balance sheet,
effective as of June 30, 1994, no longer includes approximately $770 million of
Qualex's assets, including approximately $367 million of intangible assets, and
approximately $398 million of Qualex's liabilities, including approximately $211
million of long-term debt and approximately $57 million of working capital debt.
Sale of Real Estate Investment
The Company has entered into an agreement, subject to certain conditions,
to sell a parcel of real property located near Houston, Texas to an investment
group for $9 million in cash, which approximates the Company's book value in the
property. The property, which is known as Sienna Plantation, was purchased by
the Company as an investment in 1973. The sale of the property will enable the
Company to recover its book value in the property and to be relieved of the
recurring costs of owning and maintaining the property. The Company anticipates
that this transaction will be closed before December 31, 1994.
Proposed Metromedia Transaction
On August 31, 1994, the Company entered into letters of intent relating to
the Proposed Metromedia Transaction. The letters of intent provide that the
Company, Orion Pictures Corporation ("Orion"), MCEG Sterling Incorporated
("Sterling"), and Metromedia International Telecommunications Inc. ("MITI") will
be combined into one new company to be named "Metromedia International Group,
Inc." Metromedia Company ("Metromedia") and its affiliates, including John W.
Kluge, presently control in excess of 50% of the voting power of both Orion and
MITI. It is contemplated that Metromedia International Group, Inc. would be a
global media, entertainment and communications company.
The consummation of the Proposed Metromedia Transaction is subject, among
other things, to the successful negotiation and execution of definitive
agreements, approval of the Proposed Metromedia Transaction by the Boards of
Directors and stockholders of Actava, Orion, Sterling, and MITI, the completion
of satisfactory due diligence investigations by each of the parties to the
Proposed Metromedia Transaction, the receipt of all required lender consents,
the successful refinancing of the currently outstanding indebtedness of Orion,
and the receipt of all required regulatory approvals. There can be no assurance
that the parties will
45
<PAGE> 52
negotiate and enter into definitive agreements or, even if definitive agreements
are executed, that the various conditions to the transaction will be satisfied
and that the Proposed Metromedia Transaction will be consummated. Accordingly,
the Company does not believe that consummation of the Proposed Metromedia
Transaction is probable for reporting purposes under the rules of the Securities
and Exchange Commission and, as a result, the Company has not included in this
proxy statement pro forma financial statements reflecting the Proposed
Metromedia Transaction. If the Proposed Metromedia Transaction is approved by
Actava's Board of Directors and if definitive agreements are executed by the
parties thereto, then Actava will call a separate meeting of stockholders for
the purpose of considering the Proposed Metromedia Transaction. In this event,
detailed information regarding the Proposed Metromedia Transaction, including
pro forma financial information, will be presented to the Company's stockholders
in a separate proxy statement relating to the Proposed Metromedia Transaction.
The letters of intent relating to the Proposed Metromedia Transaction
provide that (i) each outstanding share of Orion common stock would be exchanged
for 0.57143 shares of Actava Common Stock or its equivalent in the entity that
survives the combination, (ii) each share of Sterling common stock would be
exchanged for Actava Common Stock or its equivalent in the entity that survives
the combination at the same 0.57143 exchange ratio, and (iii) each share of MITI
common stock would be exchanged for 5.5614 shares of Actava Common Stock or its
equivalent in the entity that survives the combination. The foregoing exchange
ratios will be subject to certain adjustments depending on the trading range of
Actava Common Stock. Approximately 18,368,326 shares of Actava Common Stock are
currently issued and outstanding. If the Proposed Metromedia Transaction is
consummated, it is currently anticipated that Actava (based on current market
prices and assuming it is the surviving entity in the Proposed Metromedia
Transaction) would issue approximately 21,500,000 additional shares of Actava
Common Stock. The letters of intent provide that all of the shares of common
stock of the surviving entity in the Proposed Metromedia Transaction will be
identical to the shares of Actava Common Stock currently outstanding, except
that the shares of common stock issued to Metromedia and its affiliates
(including Mr. Kluge) will be entitled to three votes per share. If the Proposed
Metromedia Transaction is consummated, it is currently anticipated that
Metromedia and its affiliates would control in excess of 50% of the voting power
of the surviving entity in the transaction.
The letters of intent further provide that Metromedia International Group,
Inc. would be managed by a three person Office of the Chairman consisting of Mr.
Kluge, the current Chairman of Orion, as Chairman, Stuart Subotnick, Orion's
current Vice Chairman, as Vice Chairman, and Mr. Phillips, the current President
and Chief Executive Officer of Actava, as President. Except for the Proposed
Metromedia Transaction, Mr. Phillips does not currently have a business
relationship with Metromedia or Mr. Kluge. Mr. Phillips, however, has had
previous business relationships with Metromedia and Mr. Kluge. Mr. Kluge or
companies controlled by him, including Metromedia, have previously made
investments in two companies for which Mr. Phillips was then serving as chief
executive officer or chief operating officer.
The letters of intent relating to the Proposed Metromedia Transaction
contemplate that Actava will provide up to $55 million of interim financing on a
secured basis to Orion, Sterling and MITI prior to consummation of the Proposed
Metromedia Transaction. Pursuant to the letters of intent, Actava and Metromedia
entered into a Credit Agreement dated as of October 11, 1994 (the "Credit
Agreement") under which Actava will make loans to Metromedia in an amount not to
exceed an aggregate of $55 million. Under the terms of the Credit Agreement,
Metromedia will use the proceeds of the loans to make advances to or to pay
obligations on behalf of Orion, Sterling and MITI. All loans made by Actava to
Metromedia under the Credit Agreement are secured by the shares of stock of
Orion and MITI owned by Metromedia and its affiliates. In addition, Mr. Kluge, a
general partner of Metromedia, has personally guaranteed the loans. The Credit
Agreement provides that interest will be due on the principal amount of all
loans at an annual rate equal to the prime rate announced from time to time by
Chemical Bank (7.75% as of October 28, 1994). Interest will be increased to
prime plus three percent per annum if a party other than Actava terminates
discussions relating to the Proposed Metromedia Transaction. All loans will be
due and payable on April 12, 1995. If Actava elects to terminate discussions
relating to the Proposed Metromedia Transaction, then all loans will be due and
payable on the earlier of April 12, 1994 or three months from the date on which
such discussions are terminated. The first loan was made on October 12, 1994 in
the amount of $2 million and loans totalling $18.6 million had been made under
the Credit Agreement as of October 1, 1994.
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<PAGE> 53
Although the Proposed Metromedia Transaction has not been approved by the
Company's Board of Directors, a stockholder of the Company has filed a class
action lawsuit against the Company and each of its directors seeking to block
the Proposed Metromedia Transaction. The lawsuit was filed in the Chancery Court
for New Castle County, Delaware and is styled James F. Sweeney, Trustee of Frank
Sweeney Defined Benefit Pension Plan Trust v. John D. Phillips, et. al., Civil
Action No. 13765. The Company and its directors were served with this lawsuit on
September 28, 1994. The Complaint alleges that the terms of the Proposed
Metromedia Transaction constitute an overpayment for the assets being acquired
and as a result would result in a waste of the Company's assets. The Complaint
further alleges that the directors of the Company would be breaching their
fiduciary duties to the Company's stockholders by approving the Proposed
Metromedia Transaction. The Company and its directors have obtained an extension
of time to answer the Complaint in this lawsuit. The answer is presently due on
November 17, 1994, but the Company anticipates that it will request and receive
additional extensions of time to answer the Complaint at least until the
Proposed Metromedia Transaction has been approved by the Company's Board of
Directors.
The Company's stockholders will not be asked to consider or vote upon the
Proposed Metromedia Transaction at the Meeting. Stockholders at the Meeting will
only be asked to consider and vote upon the Agreement and the consummation of
the transactions contemplated thereby. The Exchange Transaction is not
contingent upon the closing of the Proposed Metromedia Transaction, and the
Proposed Metromedia Transaction is not contingent upon the closing of the
Exchange Transaction.
Certain Transactions
In August 1994, Roadmaster began manufacturing free weights for Diversified
Products pursuant to purchase orders placed by Diversified Products. Such
weights are marketed by Diversified Products under its Orbitron(R) brand name.
STOCK OWNERSHIP OF ACTAVA
OWNERSHIP OF ACTAVA COMMON STOCK BY DIRECTORS AND OFFICERS
The following table sets forth, as of October 21, 1994, certain information
concerning ownership of Actava Common Stock by each director and executive
officer of the Company, and by all directors and executive officers of the
Company as a group. The determinations of "beneficial ownership" of Actava
Common Stock are based upon Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
BENEFICIAL OWNER OWNED(1) PERCENT OF CLASS
- -------------------------------------------------------------- ------------ ----------------
<S> <C> <C>
John E. Aderhold.............................................. 8,900 *
Michael E. Cahr(2)............................................ -0- *
John M. Darden, III(3)........................................ 16,000 *
John P. Imlay, Jr............................................. 10,000 *
Clark A. Johnson(3)........................................... 11,000 *
Anthony F. Kopp(3)............................................ 17,500 *
Richard Nevins(2)............................................. 1,000 *
John D. Phillips(4)........................................... 1,000,000 5.4%
Carl E. Sanders(3)(5)(6)...................................... 31,497 *
Charles R. Scott(3)(6)(7)..................................... 122,816 *
Frederick B. Beilstein, III(3)................................ 89,550 *
Walter M. Grant(3)(6)......................................... 38,315 *
Paul N. Kiel(8)............................................... 4,551 *
Michael A. Lustig(3)(6)(9).................................... 23,609 *
All directors and executive officers as a Group (14
persons)(10)................................................ 1,374,738 7.5%
</TABLE>
47
<PAGE> 54
- ---------------
* Less than 1%. See footnotes below.
(1) Unless otherwise indicated, the named individual or entity has sole voting
and investment power with respect to all shares shown as beneficially owned
by such person. For each beneficial owner, the number of shares outstanding
and the percentage of stock ownership includes the number of common and
common equivalent shares (including options and warrants exercisable within
60 days owned by such individual or entity).
(2) Excludes shares owned by Triton Group Ltd. ("Triton") (which is the
beneficial owner of approximately 24% of the outstanding shares of the
Actava Common Stock). Mr. Cahr and Mr. Nevins were designated by Triton to
fill the two positions on the Company's Board of Directors that Triton is
entitled to fill under a Stockholder Agreement between Triton and Actava.
(3) Includes shares subject to purchase within the next 60 days under the
Company's 1989 Stock Option Plan and under the 1991 Non-Employee Director
Stock Option Plan.
(4) Includes 700,000 shares owned by Renaissance Partners, a Georgia general
partnership in which Mr. Phillips is a general partner, and 300,000 shares
subject to purchase by Mr. Phillips within the next 60 days pursuant to the
exercise of a stock option. Mr. Phillips disclaims beneficial ownership of
the shares owned by Renaissance Partners except to the extent of his
interest in Renaissance Partners. See "BUSINESS INFORMATION REGARDING
ACTAVA AND THE SPORTS SUBSIDIARIES -- Recent Developments".
(5) In addition, Mr. Sanders beneficially owns $25,000 face amount (less than
1%) of the Company's 6 1/2% Convertible Subordinated Debentures due in
2002, which are convertible into Actava Common Stock at a conversion price
of $41 5/8 per share.
(6) Includes shares allocated to the individual employee's accounts under the
Company's Employees Stock Purchase Plan as of September 30, 1994.
(7) Mr. Scott served as President and Chief Executive Officer of the Company
from February 1991 until April 19, 1994. He resigned from this position on
April 19, 1994 but is continuing to serve as a Senior Officer of the
Company.
(8) Mr. Kiel's employment with the Company was terminated in March 1994.
(9) Mr. Lustig ceased to be an executive officer of the Company when he became
Executive Vice President and Chief Financial Officer of Diversified
Products in November 1993.
(10) The number of shares shown for directors and executive officers as a group
includes an aggregate of 514,500 shares which are subject to purchase by
members of the group within the next 60 days pursuant to the exercise of
stock options.
OWNERSHIP OF ACTAVA COMMON STOCK BY CERTAIN HOLDERS
The following table sets forth, as of the close of business on October 21,
1994, information as to those stockholders known to the Company to be the
beneficial owners of more than 5% of the outstanding shares of Actava Common
Stock (based solely upon filings by each of such stockholders with the
Commission on Schedule 13D or Schedule 13G):
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME AND ADDRESS OWNED PERCENT OF CLASS
--------------------------------------------------------- --------- ----------------
<S> <C> <C>
Triton Group Ltd.(1)..................................... 4,413,598 24.0%
550 West C
18th Floor
San Diego, California 92101
Mellon Bank, as Trustee of the Westinghouse Executive
Pension Trust Fund(2).................................. 1,090,909 5.9%
11 Stanwix Street
Pittsburgh, Pennsylvania 15222
John D. Phillips(3)...................................... 1,000,000 5.4%
945 E. Paces Ferry Road
Suite 2210, Resurgens Plaza
Atlanta, Georgia 30326
</TABLE>
48
<PAGE> 55
- ---------------
(1) Mr. Nevins serves as a financial advisor to Triton, and Mr. Cahr serves as a
director of Triton. Messrs. Nevins and Cahr were designated by Triton to
fill the two positions on the Company's Board of Directors that Triton is
entitled to fill under the Stockholder Agreement between the Company and
Triton. Mr. Nevins and Mr. Cahr disclaim beneficial ownership of the Actava
Common Stock owned by Triton.
(2) Westinghouse Electric Corporation ("Westinghouse") acquired these shares on
June 8, 1993 in connection with the acquisition by the Company of
substantially all of the assets of Diversified Products. According to a
Schedule 13D filed by Westinghouse, the shares were transferred to the
Trustee of the Westinghouse Executive Pension Trust Fund on August 31,
1993.
(3) Mr. Phillips was elected president, chief executive officer and a director
of the Company on April 19, 1994. See " Recent Developments." The shares
shown in the table as beneficially owned by Mr. Phillips include 700,000
shares owned by Renaissance Partners, a Georgia general partnership in
which Mr. Phillips is a general partner, and 300,000 shares subject to
purchase by Mr. Phillips within the next 60 days pursuant to the exercise
of a stock option. Mr. Phillips disclaims beneficial ownership of the
shares owned by Renaissance Partners except to the extent of his interest
in Renaissance Partners.
INDEPENDENT AUDITORS
Ernst & Young LLP serves as the Company's independent auditors. A
representative of Ernst & Young LLP is expected to be present at the Meeting,
will have an opportunity to make a statement if he or she so desires to do so,
and is expected to be available to respond to appropriate questions which
stockholders might have.
OTHER MATTERS
Management of the Company does not intend to present to the Meeting any
business other than the items stated in the "Notice of Meeting of Stockholders"
and does not know of any matters to be brought before the Meeting other than
those referred to above. If any other matters properly come before the Meeting,
the persons designated as proxies will vote on each such matter in accordance
with their best judgment.
Whether or not you expect to be at the Meeting in person, please sign, date
and return promptly the enclosed proxy. No postage is necessary if the proxy is
mailed in the United States.
AVAILABLE INFORMATION
Actava and Roadmaster are subject to the informational requirements of the
Exchange Act, and in accordance therewith file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied during normal business hours at
prescribed rates at the public reference facilities of the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. and at the following regional
offices of the Commission: New York Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048 and Chicago Regional Office, 500 West Madison
Street, 14th Floor, Chicago, Illinois 60661-2511. Copies of such material can
also be obtained from the public reference section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock
of the Company is publicly traded on The New York Stock Exchange and the Pacific
Stock Exchange and reports and other information also can be inspected at the
offices of The New York Stock Exchange, 20 Broad Street, 17th Floor, New York,
New York 10005 or at the Pacific Stock Exchange, 301 Pine Street, San Francisco,
California 30303.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated by reference in this Proxy Statement:
(a) Actava's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, as amended by Form 10-K/A No. 1 filed May 2, 1994, Form
10-K/A No. 2 filed June 29, 1994 and Form 10-K/A No. 3 filed October 7,
1994;
49
<PAGE> 56
(b) Actava's Quarterly Report on Form 10-Q for the quarter ended March
31, 1994 as amended by Form 10-Q/A No. 1 filed October 5, 1994 and by Form
10-Q/A No. 2 filed October 7, 1994;
(c) Actava's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994 as amended by Form 10-Q/A No. 1 filed October 7, 1994;
(d) Actava's Current Reports on Form 8-K filed April 14, 1994, May 4,
1994, August 25, 1994, September 2, 1994, October 21, 1994 and October 31,
1994;
(e) Actava's Current Report on Form 8-K/A No. 2 filed October 7, 1993
(amending Actava's Current Report on Form 8-K originally filed June 22,
1993) and Current Report on Form 8-K/A No. 1 filed October 7, 1994
(amending Actava's Current Report on Form 8-K filed August 25, 1994);
(f) Roadmaster's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993;
(g) Roadmaster's Quarterly Reports on Form 10-Q for the quarters ended
April 2, 1994 and July 2, 1994; and
(h) Roadmaster's Current Report on Form 8-K filed August 24, 1994.
All documents filed by Actava and Roadmaster with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Proxy Statement and prior to the date of the Meeting shall be deemed
incorporated by reference in this Proxy Statement and to be a part hereof as of
the date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for the purpose of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
that is or is deemed to be incorporated by reference herein modifies or
supersedes such previous statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Proxy Statement.
This Proxy Statement incorporates certain documents by reference which are
not presented herein or delivered herewith. All information appearing in this
Proxy Statement is qualified in its entirety by the information and financial
statements (including the notes thereto) appearing in the documents incorporated
herein by reference. These documents as filed with the Commission (exclusive of
documents incorporated therein by reference) are available without charge to
stockholders who make oral or written request therefor addressed to: The Actava
Group Inc., 4900 Georgia-Pacific Center, Atlanta, Georgia 30303, Attention:
Walter M. Grant, Secretary (telephone (404) 658-9000). Such documents will be
mailed by first class mail or other equally prompt means within one business day
of receipt of such request. Copies of exhibits and basic documents filed with
the Form 10-K or Form 10-Q or referenced therein will be furnished to
stockholders upon written request and payment of the Company's expenses in
furnishing such documents.
50
<PAGE> 57
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
AND THE SIX MONTHS ENDED JUNE 30, 1993 (UNAUDITED) AND 1994 (UNAUDITED)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Audited and Unaudited Combined Financial Statements --
Combined Balance Sheets.............................................................. F-3
Combined Statements of Operations.................................................... F-4
Combined Statements of Cash Flows.................................................... F-5
Combined Statements of Shareholder's Equity.......................................... F-6
Combined Notes to Financial Statements............................................... F-8
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
The Actava Group Inc.
We have audited the accompanying combined balance sheets of Actava Sporting
Goods Group, wholly-owned subsidiaries of The Actava Group Inc., as of December
31, 1992 and 1993, and the related combined statements of operations,
shareholder's equity, and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Group's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Actava
Sporting Goods Group at December 31, 1992 and 1993, and the combined results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes 3 and 6 to the combined financial statements, in 1993
the Group changed its method of accounting for income taxes and other
postretirement benefits, respectively.
ERNST & YOUNG LLP
Atlanta, Georgia
March 3, 1994,
except for Note 12, as to which the date is
July 20, 1994.
F-2
<PAGE> 59
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1992 1993 1994
-------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash....................................................... $ 420 $ 1,951 $ 2,000
Accounts receivable, less allowance of $2,525,000 and
$7,863,000 at December 31, 1992 and 1993 and $3,138,000
(unaudited) at June 30, 1994............................ 17,200 63,430 45,608
Inventories................................................ 22,993 47,040 46,821
Prepaid expenses........................................... 611 1,699 2,356
-------- -------- -----------
TOTAL CURRENT ASSETS............................... 41,224 114,120 96,785
PROPERTY, PLANT, AND EQUIPMENT:
Land and buildings......................................... -- 12,310 12,310
Furniture, fixtures and office equipment................... 875 2,602 3,080
Construction in progress................................... -- 1,813 1,397
Leasehold improvements..................................... 565 634 456
Machinery and equipment.................................... 1,725 23,393 24,704
-------- -------- -----------
3,165 40,752 41,947
Less allowance for depreciation............................ (2,133) (4,880) (7,264)
-------- -------- -----------
1,032 35,872 34,683
OTHER ASSETS:
Excess of costs over net assets acquired, net of
accumulated amortization of $2,625,000 and $2,939,000 at
December 31, 1992 and 1993 and $3,152,000 (unaudited) at
June 30, 1994, respectively............................. 3,305 16,777 16,620
Other assets................................................. 772 1,060 340
-------- -------- -----------
TOTAL ASSETS....................................... $ 46,333 $167,829 $ 148,428
======== ======== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Trade accounts payable..................................... $ 1,314 $ 21,114 $ 14,027
Accrued expenses........................................... 3,348 19,102 12,119
Current portion of notes payable........................... 302 22,724 21,240
-------- -------- -----------
TOTAL CURRENT LIABILITIES.......................... 4,964 62,940 47,386
Other liabilities............................................ -- 5,865 5,865
Subordinated note payable to Parent.......................... -- 8,000 10,000
Long-term portion of note payable............................ -- 18,000 18,000
Obligation for postretirement benefits....................... -- 1,696 1,696
Contingent liabilities and commitments....................... -- -- --
SHAREHOLDER'S EQUITY:
Capital.................................................... 42,892 81,522 81,522
Retained earnings.......................................... 19,383 9,818 5,184
Due from Parent............................................ (20,906) (20,012) (21,225)
-------- -------- -----------
TOTAL SHAREHOLDER'S EQUITY......................... 41,369 71,328 65,481
-------- -------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY......... $ 46,333 $167,829 $ 148,428
======== ======== =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 60
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1991 1992 1993 1993 1994
-------- -------- -------- ------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $116,407 $129,693 $240,852 $69,519 $149,045
Cost of products sold................... 90,864 102,489 207,340 54,080 128,786
Selling, general and administrative..... 22,387 22,437 33,456 13,126 21,449
Provision for doubtful accounts......... 646 545 1,054 383 473
-------- -------- -------- ------- --------
2,510 4,222 (998) 1,930 (1,663)
Interest expense........................ (149) (476) (3,392) (837) (2,570)
Other (expense) income, net............. (218) 40 (67) (14) (210)
-------- -------- -------- ------- --------
(Loss) income before income taxes and
cumulative effect of change in
accounting principle.................. 2,143 3,786 (4,457) 1,079 (4,443)
Income tax (benefit) expense............ 796 1,459 2,324 625 191
-------- -------- -------- ------- --------
(Loss) income before cumulative effect
of change in accounting principle..... 1,347 2,327 (6,781) 454 (4,634)
Cumulative effect of change in
accounting principle for
post-retirement benefits (net of taxes
of $191,000 in 1993).................. -- -- (371) (371) --
-------- -------- -------- ------- --------
Net (loss) income....................... $ 1,347 $ 2,327 $ (7,152) $ 83 $ (4,634)
======== ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 61
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- --------------------
1991 1992 1993 1993 1994
-------- ------- -------- -------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income......................... $ 1,347 $ 2,327 $ (7,152) $ 83 $ (4,634)
Adjustments to reconcile net (loss) income
to net cash (used in) provided by
operating activities:
Cumulative effect of change in
accounting for postretirement
benefits............................. -- -- 562 562 --
Loss on sale of plant, property and
equipment............................ 95 4 -- -- --
Depreciation and amortization.......... 429 449 3,265 556 2,597
Changes in operating assets and
liabilities:
Accounts receivable.................. 1,376 (248) (37,623) (9,878) 17,822
Inventories.......................... 102 (3,424) (11,030) (6,957) 219
Prepaid assets....................... (111) (64) (499) (1,449) (657)
Accounts payable and accrued
expenses.......................... 2,144 (866) 3,508 (3,458) (14,070)
Other assets......................... (66) (512) (145) 890 663
-------- ------- -------- -------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES............ 5,316 (2,334) (49,114) (19,651) 1,940
INVESTING ACTIVITIES
Purchases of property, plant, and
equipment.............................. (193) (214) (1,413) (406) (1,194)
Proceeds from disposal of plant, property
and equipment.......................... 83 31 146 -- --
Issuance of long-term receivables......... (147) -- -- -- --
Proceeds from long-term receivables....... -- 45 34 -- --
Other investing activities................ -- -- (45) -- --
-------- ------- -------- -------- ---------
NET CASH USED IN INVESTING
ACTIVITIES...................... (257) (138) (1,278) (406) (1,194)
FINANCING ACTIVITIES
Due from (to) Parent...................... (10,339) 7,251 894 (930) (1,213)
Capital contribution from Parent.......... -- -- 18,054 7,217 --
Proceeds from subordinated note payable to
Parent................................. -- -- 8,000 -- 2,000
Dividends paid to Parent.................. -- -- (2,413) -- --
Proceeds from notes payable............... 5,000 -- 80,165 47,022 152,139
Payment on notes payable.................. -- (5,000) (54,322) (32,171) (153,623)
Net proceeds from revolving lines of
credit................................. -- 302 1,545 -- --
-------- ------- -------- -------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES............ (5,339) 2,553 51,923 21,138 (697)
-------- ------- -------- -------- ---------
NET INCREASE (DECREASE) IN CASH... (280) 81 1,531 1,081 49
CASH AT BEGINNING OF YEAR......... 619 339 420 420 1,951
-------- ------- -------- -------- ---------
CASH AT END OF YEAR............... $ 339 $ 420 $ 1,951 $ 1,501 $ 2,000
======== ======= ======== ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 62
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
DIVERSIFIED PRODUCTS NELSON/WEATHER-RITE
----------------------------------------------------- -------------------------------------------------------
COMMON STOCK COMMON STOCK
-------------------- ADDITIONAL RETAINED DUE -------------------- ADDITIONAL RETAINED DUE TO
OUTSTANDING PAID-IN EARNINGS FROM OUTSTANDING PAID-IN EARNINGS (FROM)
SHARES(1) AMOUNT CAPITAL (DEFICIT) PARENT SHARES(1) AMOUNT CAPITAL (DEFICIT) PARENT
----------- ------ ---------- -------- ------ ----------- ------ ---------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1991........... -- $ -- $ -- $ -- $ -- 1 $ 1 $ 12,204 $ 7,225 $ 2,136
(Increase)
decrease in
due from
Parent,
net.......... -- -- -- -- -- -- -- -- -- (5,544)
Net income for
1991......... -- -- -- -- -- -- -- -- 315 --
--- ------ ---------- -------- ------ --- ------ ---------- -------- --------
Balance at
December 31,
1991........... -- -- -- -- -- 1 1 12,204 7,540 (3,408)
(Increase)
decrease in
due from
Parent,
net.......... -- -- -- -- -- -- -- -- -- 3,021
Net income for
1992......... -- -- -- -- -- -- -- 1,451 --
Contribution
from
Parent....... -- -- -- -- -- -- -- 15,944 -- (15,944)
--- ------ ---------- -------- ------ --- ------ ---------- -------- --------
Balance at
December 31,
1992........... -- -- -- -- -- 1 1 28,148 8,991 (16,331)
Contribution
from Parent
at June 8,
1993 (Note
2)........... 1 1 23,629 -- -- -- -- -- -- --
(Increase)
decrease in
due from
Parent,
net.......... -- -- -- -- 1,743 -- -- -- -- 685
Net income
(loss) for
1993......... -- -- -- (8,728) -- -- -- -- 1,442 --
Dividends
paid......... -- -- -- -- -- -- -- -- (1,400) --
Contribution
from
Parent....... -- -- 15,000 -- -- -- -- -- -- --
--- ------ ---------- -------- ------ --- ------ ---------- -------- --------
Balance at
December 31,
1993........... 1 $ 1 $ 38,629 $ (8,728) $1,743 1 $ 1 $ 28,148 $ 9,033 $(15,646)
======== ===== ======= ======= ====== ======== ===== ======= ======= ========
</TABLE>
(Table continued on next page)
F-6
<PAGE> 63
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
WILLOW HOSIERY CO. HUTCH SPORTS USA
----------------------------------------------------------------------------------------- ----------------------
COMMON STOCK PREFERRED STOCK COMMON STOCK
---------------------- ---------------------- ADDITIONAL DUE TO ----------------------
OUTSTANDING OUTSTANDING PAID-IN RETAINED (FROM) OUTSTANDING
SHARES(2) AMOUNT SHARES(3) AMOUNT CAPITAL EARNINGS PARENT SHARES(1) AMOUNT
----------- ------ ----------- ------ ---------- -------- ------- ----------- ------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46 $ 46 2 $ 2 $1,370 $2,460 $ 4,690 1 $ 1
-- -- -- -- -- -- (2,408) -- --
-- -- -- -- -- 733 -- -- --
--- ------ --- ------ ---------- -------- ------- --- ------
46 46 2 2 1,370 3,193 2,282 1 1
-- -- -- -- -- -- 3,374 -- --
-- -- -- -- -- 205 -- -- --
-- -- -- -- 5,688 -- (5,688) -- --
--- ------ --- ------ ---------- -------- ------- --- ------
46 46 2 2 7,058 3,398 (32) 1 1
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- (2,448) -- --
-- -- -- -- -- (588) -- -- --
-- -- -- -- -- (364) -- -- --
-- -- -- -- -- -- -- -- --
--- ------ --- ------ ---------- -------- ------- --- ------
46 $ 46 2 $ 2 $7,058 $2,446 $(2,480) 1 $ 1
======== ===== ======== ===== ======= ====== ======= ======== ======
<CAPTION>
ADDITIONAL DUE TO
PAID-IN RETAINED (FROM)
CAPITAL EARNINGS PARENT COMBINED
---------- -------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
$ 552 $6,024 $ 4,072 $ 40,783
-- -- (2,387) (10,339)
-- 299 -- 1,347
---------- -------- ------- --------------
552 6,323 1,685 31,791
-- -- 856 7,251
-- 671 -- 2,327
7,084 -- (7,084) --
---------- -------- ------- --------------
7,636 6,994 (4,543) 41,369
-- -- -- 23,630
-- -- 914 894
-- 722 -- (7,152)
-- (649) -- (2,413)
-- -- -- 15,000
---------- -------- ------- --------------
$7,636 $7,067 $(3,629) $ 71,328
======= ====== ======= ==========
</TABLE>
- ---------------
(1) 1,000 shares authorized
(2) 100,000 shares authorized
(3) 10,000 shares authorized
See accompanying notes.
F-7
<PAGE> 64
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIOD)
DECEMBER 31, 1992 AND 1993
1. ACCOUNTING POLICIES
Description of Business
Actava Sporting Goods Group (the "Group" or the "Companies") is comprised
of four wholly-owned subsidiaries of The Actava Group Inc. (the "Parent"). These
subsidiaries are Diversified Products Corporation and Subsidiary ("DP"),
Nelson/Weather-Rite, Inc. and Subsidiary ("NWR"), Hutch Sports USA Inc.
("Hutch"), and Willow Hosiery Company, Inc. ("Willow"). The Group manufactures
and distributes sporting goods primarily to mass merchants and sporting goods
retailers located throughout the United States. The Companies within the Group
perform periodic credit evaluations of their customers' financial condition and
generally do not require collateral. Receivables generally are due within 30-60
days, but some extended payment terms are granted. Credit losses have generally
been within management's expectations.
The Group has one major customer which comprised 28%, 26% and 19% of the
Group's net sales for the years ended December 31, 1991, 1992 and 1993,
respectively.
Principles of Combination
The combined financial statements include the accounts of DP, NWR, Hutch
and Willow. All significant intercompany transactions and accounts have been
eliminated in combination.
Interim Financial Information
The financial statements as of June 30, 1994 and for the six month periods
ending June 30, 1993 and 1994 are unaudited but include all adjustments
consisting of normal recurring adjustments that the Company considers necessary
for a fair presentation of its financial position, results of operations and
cash flows for the interim periods. Results for interim periods are not
necessarily indicative of results for the entire year.
Inventories
Inventories at NWR, all of which are finished goods, are stated at the
lower of cost or market. The last-in, first-out (LIFO) method of determining
cost is used for valuing these inventories. Inventories at DP, Hutch, and Willow
are stated at the lower of cost or market using the first-in, first-out (FIFO)
method.
Inventory balances are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1992 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Inventories recorded under LIFO:
Finished goods............................................... $16,614 $16,381
LIFO reserve................................................. (4,319) (4,079)
------- -------
12,295 12,302
Inventories recorded under FIFO:
Raw materials and supplies................................... 892 3,634
Work-in-progress............................................. 5 1,895
Finished goods............................................... 9,801 29,209
------- -------
Total inventories.................................... $22,993 $47,040
======= =======
</TABLE>
F-8
<PAGE> 65
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and are depreciated
over their expected useful lives. Generally, depreciation is provided on the
straight-line method for financial reporting purposes and on accelerated methods
for tax purposes.
Excess of Costs Over Net Assets Acquired
Excess of costs over net assets acquired represents the excess of costs
over the fair value of net assets of the Companies on the date they were
acquired by the Parent and are amortized over a 40-year period using the
straight-line method. No diminishment in value has occurred.
Management evaluates intangible assets on the basis of the operations of
the particular entity to which the intangible relates to determine whether any
changes in the nature and expected benefits to be derived from the intangible
have occurred which would require an adjustment to its recorded value. In the
event management believes that the recorded value of the intangible is greater
than its actual value, the Company will write-down the value of the intangible.
In conjunction with the evaluation of any possible impairment of its
intangibles, the Company also similarly assesses whether a change in the life of
the intangible is required for amortization purposes.
Postemployment Benefits
The Group provides benefits to former or inactive employees after
employment, but before retirement, such as severance benefits, continuation of
health care benefits and life insurance coverage. The costs of these are
currently accounted for on a pay-as-you-go (cash) basis. The Financial
Accounting Standards Board has issued Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits," which
requires employers to recognize the obligation to provide these benefits when
certain conditions are met. The Group is required to adopt the new method of
accounting for these benefits no later than January 1, 1994. The adoption of
Statement No. 112 will not have a significant effect on the Group's combined
financial position or results of operations.
Accounting Change
In accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes," and SEC Staff Accounting Bulletin No. 55, "Allocation of Expenses and
Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser
Components of Another Entity," income taxes and management fees charged by the
Parent (see Note 7) have been retroactively restated in the Combined Financial
Statements of the Group for all periods presented.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with the
completion of a feasibility study.
2. ACQUISITION
On June 8, 1993, a wholly-owned subsidiary of the Parent acquired
substantially all the assets of DP for a net purchase price of $23,629,500
consisting of $11,629,500 in cash and the issuance of 1,090,909 shares of the
Parent's Common Stock valued at $12,000,000, and the assumption or payment of
certain liabilities including
F-9
<PAGE> 66
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
trade payables and a revolving credit facility. The purchase price resulted in
an excess of costs over net assets acquired of approximately $13,786,000.
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. As of the date of
acquisition, DP was combined with the Group. Accordingly, the results of
operations of DP have been included in the combined financial statements of the
Group since the date of acquisition.
This transaction has been reflected in the combined financial statements of
the Group as a capital contribution from the Parent. The following data
represents the effect of this capital contribution:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Total Assets Acquired.................................................. $ 71,693
Total Liabilities Assumed.............................................. 48,063
--------------
$ 23,630
===========
</TABLE>
The following data represents the combined unaudited operating results of
the Group on a pro forma basis as if the above transaction had taken place at
January 1, 1992. The pro forma information does not necessarily reflect the
results of operations as they would have been had the transaction actually taken
place at that time. Adjustments include amounts of depreciation to reflect the
fair value and economic lives of property, plant and equipment and amortization
of intangible assets.
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED
DECEMBER 31,
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Sales................................................................ $281,993 $298,466
Net loss............................................................. $(31,028) $(18,812)
</TABLE>
3. INCOME TAXES
Effective January 1, 1993, the Companies 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 bases 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 Companies have elected not to restate
the financial statements of any prior years. The cumulative effect of the change
in accounting principle on pre-tax income, net income and financial position was
not material.
The results of operations of the Companies are included in the consolidated
Federal income tax return of the Parent. Current and deferred taxes have been
computed as if the Companies filed a separate income tax return.
F-10
<PAGE> 67
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense (benefit) is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
DEFERRED
METHOD LIABILITY
----------------- METHOD
1991 1992 1993
------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current federal.......................................... $1,036 $1,271 $ 2,027
Current state............................................ 96 199 260
Deferred federal and state............................... (336) (11) 37
------ ------ ---------
$ 796 $1,459 $ 2,324
====== ====== ======
</TABLE>
Income tax expense (benefit) computed by applying federal statutory rates
to income (loss) before income taxes is reconciled to the actual income tax
expense (benefit) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
DEFERRED
METHOD LIABILITY
------------- METHOD
1991 1992 1993
---- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed tax at statutory rates............................... $730 $1,287 $ (1,561)
State tax, net of federal benefit............................. 33 131 175
Deferred tax valuation allowance.............................. -- -- 3,654
Amortization of goodwill...................................... 54 54 81
Other......................................................... (21) (13) (25)
---- ------ ---------
$796 $1,459 $ 2,324
==== ====== =======
</TABLE>
Significant components of deferred tax assets and liabilities at December
31, 1993, are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Product warranty, self-insurance, advertising and other
reserves and accruals...................................... $4,114 $ --
Provision for loss on loans and receivables.................. 2,252 --
Obligation for postretirement benefits....................... 588 --
Capitalized inventory costs.................................. 441 --
Other........................................................ 476 --
Basis differences in fixed assets............................ -- 298
------------ ------------
Total deferred taxes......................................... 7,871 298
Valuation allowance.......................................... 3,654
------------
$4,217 $ 298
========= =========
Net deferred taxes........................................... $3,919
=========
</TABLE>
F-11
<PAGE> 68
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax expense (benefit) for the years ended
December 31, 1991 and 1992 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1991 1992
----- ----
(IN
THOUSANDS)
<S> <C> <C>
Provision for loss on loans and receivables............................ $(114) $ 16
Product warranty, self-insurance, advertising and other reserves and
accruals............................................................. (182) --
Increase in valuation allowance........................................ -- --
Other.................................................................. (40) (27)
----- ----
$(336) $(11)
===== ====
</TABLE>
The components of income tax included in Due from Parent in the Combined
Balance Sheets are as follows:
<TABLE>
<CAPTION>
1992 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Current income tax assets (liabilities)............................. $ (29) $1,880
Current deferred income tax assets (liabilities).................... 1,853 (1,072)
Deferred income tax assets (liabilities)............................ (235) 226
------ ------
Net current and deferred income tax assets.......................... $1,589 $1,034
====== ======
</TABLE>
4. NOTES PAYABLE
Notes payable represent revolving credit facilities for each of the
Companies in the Group. The provisions of the agreements and related
outstandings are described below.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30
1992 1993 1994
---- ------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Borrowings under a $50,000,000 revolving credit facility expiring
December 15, 1996, interest payable monthly at prime + 1 1/2%
(7.5% at December 31, 1993 and 8.75% at June 30, 1994)........... $ -- $36,178 $21,087
Borrowings under a $35,000,000 revolving credit facility expiring
December 29, 1995, interest payable monthly at prime + 1 1/4%
(7.25% at December 31, 1992 and 1993 and 8.5% at June 30,
1994)............................................................ 302 1,846 9,200
Borrowings under a $10,000,000 revolving credit facility expiring
April 29, 1995, interest payable monthly at the prevailing base
rate (6% at December 31, 1993 and 7.25% at June 30, 1994)........ -- -- 6,037
Borrowings under a $5,000,000 revolving credit facility expiring
August 31, 1994, interest payable monthly at prime (6% at
December 31, 1992 and 1993 and 7.25% at June 30, 1994)........... -- 2,700 2,916
---- ------- -----------
Total notes payable................................................ 302 40,724 39,240
Less current portion of notes payable.............................. 302 22,724 21,240
---- ------- -----------
$ -- $18,000 $18,000
==== ======= =========
</TABLE>
The loans are principally secured by certain receivables and inventory of
the Companies. The assets which serve as collateral are determined by reference
to the outstanding balances under the credit agreements and the qualification of
the assets as collateral as defined in the credit agreements; however,
substantially all of
F-12
<PAGE> 69
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the Groups assets are potentially available as collateral to secure borrowings
under the above facilities. Availability of borrowings under the agreements are
subject to certain percentage limitations on eligible collateral.
The agreements contain numerous restrictive covenants, including, but not
limited to, maintenance of financial ratios, a specified tangible net worth,
minimum earnings, and limitations on capital additions and borrowings. Certain
of the agreements also restrict the transferring of dividends to the Parent to
70% of the respective Company's net income in any fiscal year.
The fair value of the Groups notes payable is estimated to approximate its
carrying value in the combined financial statements as notes payable have
variable interest rates.
Interest payments were approximately $-0-, $13,000, and $3,155,600 during
the years ended December 31, 1991, 1992 and 1993, respectively.
5. SUBORDINATED NOTE PAYABLE TO PARENT
The subordinated note payable to Parent balance represents the amount
outstanding under a revolving credit agreement between DP and the Parent. Under
this revolving credit agreement, DP may borrow up to $20,000,000. Balances
outstanding under this agreement bear interest at the Chase Manhattan Bank prime
rate plus 1 1/2% (7.5% at December 31, 1993). Balances outstanding under this
revolving credit agreement are payable only to the extent payment is permitted
under the $50,000,000 revolving credit facility (see Note 4) and the related
subordination agreement. The balance outstanding at December 31, 1993 has been
classified as long-term as repayment prior to December 31, 1994 is not
permissible under the terms of the $50,000,000 revolving credit facility.
6. EMPLOYEE BENEFITS
Effective January 1, 1993 the Group adopted FASB Statement No. 106,
"Accounting for Retirement Benefits Other than Pensions."
The Group sponsors two plans that provide postretirement medical, dental,
and life insurance benefits for certain employees subsequent to retirement. One
plan covers eligible employees of NWR, Hutch and Willow. A separate plan covers
eligible employees of DP. 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 accounting for the plans anticipates future cost-sharing changes to the
written plan that are consistent with the Group's expressed intent to increase
the retiree contribution rate annually for the expected medical trend rate for
that year. The Companies fund the excess of the cost of benefits under the plans
over the participant's contributions as the costs are incurred. The combination
of benefits with Medicare uses a supplemental, or exclusion of benefits,
approach.
As permitted by Statement No. 106, the Group elected to immediately
recognize the effect in the statement of operations in 1993 as a $562,000
pre-tax charge to net income as the cumulative effect of a change in accounting
principle. The change in annual net periodic postretirement benefit expense for
1993 as a result of adopting the new rules was not material. Postretirement
benefit expense for 1991 and 1992, recorded on a cash basis, has not been
restated.
F-13
<PAGE> 70
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the plans status reconciled with amounts
recognized in the Combined Balance Sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1992 1993
----- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................................ $ (78) $ (472)
Fully eligible active plan participants......................... (244) (465)
Other active plan participants.................................. (176) (821)
----- -------
(498) (1,758)
Plan assets....................................................... -- --
----- -------
Accumulated postretirement benefit obligation in excess of plan
assets....................................................... (498) (1,758)
Unrecognized net (gain) or loss................................. -- 62
Unrecognized transition obligation.............................. 498 --
----- -------
Accrued postretirement benefit cost............................. $ -- $(1,696)
===== =======
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1991 1992 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost....................................................... $-- $-- $ 63
Interest cost...................................................... -- -- 88
Cash basis expense................................................. 10 13 --
---- ---- ----
Net periodic postretirement benefit cost........................... $10 $13 $151
==== ==== ====
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) for 1994 is 10.7% for
the DP Plan and 13% for the plan covering employees of NWR, Hutch and Willow.
For the DP Plan this trend rate is expected to decrease in .2% to .3% decrements
to 5.5% in 2012 and remain at that level thereafter. For the plan covering NWR,
Hutch and Willow employees, this trend rate is expected to decrease in 1%
decrements to 6% in 2001 and years thereafter. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation as of
December 31, 1993 was 7.25% for the DP Plan and 7% for the plan covering NWR,
Willow and Hutch employees, as compared to 9% for January 1, 1993. A 1% increase
in the assumed health care cost trend rates would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by 15% and the net
periodic post retirement benefit cost by 18%.
NWR and Willow have a profit sharing plan covering substantially all
non-union employees. The plans are noncontributory defined contribution plans.
Contributions are made at the discretion of NWR and Willow. Cost recognized for
the years ended December 31, 1991, 1992 and 1993 amounted to $564,500, $465,300,
and $537,900, respectively.
Hutch participates in the Parent's noncontributory defined benefit pension
plan which is "qualified" under Federal tax law and covers substantially all
non-union employees. Benefits under the plan are based upon the employee's years
of service and level of compensation. Hutch's funding policy for the plan is to
contribute annually such amounts as are necessary to provide assets sufficient
to meet the benefits to be paid to the plan's members and to keep the plan
actuarially sound. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future.
F-14
<PAGE> 71
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1991 1992 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost........................................................ $71 $75 $73
Interest cost on projected benefit obligation....................... 6 14 33
Actual return on plan assets........................................ (4) (4) (11)
Net amortization and deferral....................................... 2 (2) --
---- ---- ----
$75 $83 $95
==== ==== ====
</TABLE>
Assumptions used in the accounting for the defined benefit plan are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1992 1993
---- ----
<S> <C> <C>
Discount rate.......................................................... 9.0 % 7.0 %
Rates of increase in compensation levels............................... 6.3 % 5.0 %
</TABLE>
The expected long-term rate of return on assets was 8.6%, 8.6% and 7.0% for
December 31, 1991, 1992 and 1993, respectively.
The following tables set forth the funded status and amounts recognized in
the Combined Balance Sheets for the defined benefit pension plan:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1992 1993
----- -----
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation........................................... $ (64) $(152)
===== =====
Accumulated benefit obligation...................................... $(122) $(216)
===== =====
Projected benefit obligation.......................................... (250) $(470)
Plan assets at fair value............................................. 112 112
----- -----
Funded status -- projected benefit obligation in excess of plan
assets.............................................................. $(138) $(358)
===== =====
Comprised of:
Accrued pension cost................................................ (114) $(114)
Unrecognized net loss............................................... (24) (244)
----- -----
$(138) $(358)
===== =====
</TABLE>
Substantially all of the plan assets at December 31, 1992 and 1993 are
invested in government bonds, mutual funds and temporary investments.
DP sponsors a profit sharing/401(k) plan for all employees who meet stated
length of service requirements. Contributions under the profit sharing feature
of the plan are made at the discretion of management up to the maximum amount
deductible by DP. No profit sharing contribution was made for the period ended
December 31, 1993. Under the 401(k) feature of the plan, DP matches 25% of
employee contributions up to six percent of the employee's compensation. Expense
under the 401(k) feature of the Plan was $103,601 for the period ended December
31, 1993.
F-15
<PAGE> 72
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTIES
The Parent charged a management fee of $1,965,000 in 1991, $1,939,000 in
1992, $3,664,000 in 1993, $1,364,000 (unaudited) for the six months ended June
30, 1993, and $2,400,000 (unaudited) for the six months ended June 30, 1994 for
various expenses it incurred for corporate services. These costs are reflected
in selling, general and administrative expenses of the Group. These services
included accounting, legal, and other central operating functions. These costs
are allocated on the basis of various factors, including equity, total revenue,
and total number of employees. The Parent considers its allocation policy to be
reasonable.
During 1993, the Parent contributed $38,630,000 in additional capital to
the Group. During 1991, 1992, 1993, and the six months ended June 30, 1993 and
1994, the Group was charged approximately $149,000, $444,000, $265,000, $137,000
(unaudited) and $322,000 (unaudited), respectively, in intercompany interest
expense. Intercompany interest expense is calculated based on actual cash
payments to/from the Parent (includes subordinated note payable to Parent of
$8,000,000 at December 31, 1993) and on operating expenses paid by the Parent on
behalf of the Group. The interest-bearing balances in the Due from Parent
account totalled $1,935,000 and zero dollars at December 31, 1992 and 1993,
respectively. Intercompany interest rates on funds borrowed ranged from 5.75% to
9% during 1991, 8% to 8.5% during 1992, 8% during 1993 and 8% to 8.75% during
the six months ended June 30, 1994.
The Due from Parent account is included in the Combined Balance Sheet as a
reduction of shareholder's equity as this amount will not be paid by the Parent.
This amount will be forgiven by the Group through a dividend distribution to the
Parent in the future.
8. COMMITMENTS
At December 31, 1992 and 1993, the Group has irrevocable letters of credit
outstanding for the purchase of inventory amounting to $14,594,000 and
$17,176,300, respectively.
9. LEASES
The Group leases office and warehouse facilities and equipment under
noncancelable operating leases. Rental expense was approximately $1,551,000,
$1,779,000 and $2,826,000, in 1991, 1992 and 1993, respectively.
Future minimum payments under noncancelable operating leases with initial
or remaining terms of one year or more are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
-----------------------------------------------------------------------
<S> <C>
1994.............................................................. $ 2,908
1995.............................................................. 1,999
1996.............................................................. 1,780
1997.............................................................. 879
1998.............................................................. 713
Thereafter........................................................ 2,928
--------------
Total minimum lease payments................................. $ 11,207
===========
</TABLE>
10. LITIGATION AND CLAIMS
There are various claims and pending actions against the Group with respect
to commercial matters arising out of the normal course of business. However, the
Group is not aware of any action which, in the opinion of management, would
materially affect its combined financial position or results of operations.
F-16
<PAGE> 73
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. ENVIRONMENTAL MATTERS
The Group's manufacturing plants are subject to federal, state and local
pollution laws and regulations. Compliance with such laws and regulations has
not materially affected, and is not expected to have a material effect on the
Group's competitive position, financial condition or results of operations.
DP is complying with various requirements under a compliance order under
the Resource Conservation Recovery Act as administered by the State of Alabama.
A reserve of approximately $5.9 million has been established for expected
clean-up costs by DP and is reflected in accrued expenses on the balance sheet
as of December 31, 1993. Management's estimate of the possible range of costs is
approximately $6 million to $12 million. This estimate was based on discussions
with legal counsel, a feasibility study and a review of the compliance order as
administered by the State of Alabama. The major components of the costs included
in the environmental accrual relate to the preparation and implementation of the
plan for corrective action for solid waste management units and regulated units,
for closure of the chrome tank area and for operating and maintaining the solid
waste management units and regulated units. Cash payments related to these costs
are expected to occur primarily over the next five years with certain general
post-closure care costs continuing for thirty years or more. The current reserve
of $5.9 million represents the minimum value of the range of possible costs and
was recorded by DP as no other value in the range represents a better estimate.
Depending on the results of continued assessment activities, costs in excess of
the amount accrued could be incurred; however, in the opinion of management, any
additional costs in excess of the amount accrued would not be material to the
combined results of operations or financial position of the Group.
12. SUBSEQUENT EVENT
On July 20, 1994, The Actava Group Inc. and Roadmaster Industries, Inc.
entered into a definitive agreement to combine the Actava Sporting Goods Group
with Roadmaster. Under the terms of the agreement, Actava will transfer the
Actava Sporting Goods Group to Roadmaster in exchange for approximately 19.2
million unregistered shares of Roadmaster's common stock, representing an
approximate 39% ownership interest in Roadmaster. Completion of the transaction
is subject to a number of conditions, including approval by the stockholders of
Roadmaster and Actava. Pursuant to such agreement, Actava will enter into an
Environmental Indemnity Agreement under which Actava will indemnify Roadmaster
for costs and liabilities resulting from the presence on or migration of
regulated materials from approximately 17 acres of land at the Opelika facility
(the "Materials Storage Area"). In connection with an in-kind dividend of the
Materials Storage Area to be made by DP to Newco, a subsidiary of Actava, prior
to the completion of the transaction with Roadmaster, Newco will record $1.9
million for potential environmental remediation costs associated with the
Materials Storage Area.
F-17
<PAGE> 74
ACTAVA SPORTING GOODS GROUP
(WHOLLY-OWNED SUBSIDIARIES OF THE ACTAVA GROUP INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUPPLEMENTAL PRODUCT LINE INFORMATION
The Group's major operations in 1993 included fitness equipment and other
recreation and sporting goods. The Group operates as a single business segment.
Although not separate business segments, net sales, operating profit,
depreciation and amortization, capital expenditures, and identifiable assets for
(i) fitness equipment and (ii) other recreation and sporting goods products for
1993 are separately presented below:
<TABLE>
<CAPTION>
1993
(UNAUDITED) --------------
---------------------------------------------------------------------- (IN THOUSANDS)
<S> <C>
Net Sales
Fitness equipment................................................... $ 90,609
Other............................................................... 150,243
--------------
Total.......................................................... $240,852
===========
Operating Profit (Loss)
Fitness equipment................................................... $ (5,987)
Other............................................................... 4,989
--------------
Total.......................................................... $ (998)
===========
Depreciation and Amortization
Fitness equipment................................................... $ 2,647
Other............................................................... 618
--------------
Total.......................................................... $ 3,265
===========
Capital Expenditures
Fitness equipment................................................... $ 1,107
Other............................................................... 306
--------------
Total.......................................................... $ 1,413
===========
Identifiable Assets
Fitness equipment................................................... $113,578
Other............................................................... 54,251
--------------
Total.......................................................... $167,829
===========
</TABLE>
F-18
<PAGE> 75
DIVERSIFIED PRODUCTS CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 29, 1991, JUNE 27, 1992 AND
PERIOD FROM JUNE 28, 1992 TO JUNE 7, 1993
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of Independent Auditors...................................................... F-20
Audited Consolidated Financial Statements--
Consolidated Statements of Operations.............................................. F-22
Consolidated Statements of Cash Flows.............................................. F-23
Notes to Consolidated Financial Statements......................................... F-24
</TABLE>
F-19
<PAGE> 76
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
Diversified Products Corporation
We have audited the accompanying consolidated statements of operations and
cash flows of Diversified Products Corporation and subsidiary for the period
from June 28, 1992 to June 7, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of Diversified Products Corporation and subsidiary for the period from June 28,
1992 to June 7, 1993 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Atlanta, Georgia
March 3, 1994,
except for Note 10, as to which the date is
July 20, 1994.
F-20
<PAGE> 77
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Diversified Products Corporation
We have audited the accompanying consolidated statements of operations and
cash flows of Diversified Products Corporation and subsidiary for the years
ended June 29, 1991 and June 27, 1992. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 1 to the consolidated financial statements, the
Company's stockholder consented to a quasi-reorganization plan effective at the
beginning of 1992.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Diversified Products Corporation and subsidiary for the years
ended June 29, 1991 and June 27, 1992, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
August 14, 1992
F-21
<PAGE> 78
DIVERSIFIED PRODUCTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JUNE 28, 1992
----------------------------- TO
JUNE 29, 1991 JUNE 27, 1992 JUNE 7, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net sales (Note 1)................................... $ 195,310,447 $ 175,501,647 $ 151,942,091
Costs of products sold (Note 7)...................... 184,322,706 147,320,495 151,525,042
Selling and administrative expenses.................. 17,492,840 14,370,449 17,660,457
Provision for doubtful accounts...................... 1,608,000 500,000 482,600
Property, plant and equipment impairment charge...... 2,309,455 -- --
Provision for environmental clean-up costs........... -- -- 5,865,000
Write down of unamortized patents (Note 8)........... -- -- 15,944,981
Research and development expenses.................... 1,936,000 1,881,000 1,464,278
------------- ------------- -------------
(12,358,554) 11,429,703 (41,000,267)
Interest expense and amortization of debt discount... 12,798,920 5,571,461 3,942,852
Amortization of deferred loan costs and debt
restructuring fees................................. 946,301 494,752 --
Management fee (Note 6).............................. 600,000 300,000 270,696
------------- ------------- -------------
Income (loss) from continuing operations before
income taxes....................................... (26,703,775) 5,063,490 (45,213,815)
Income tax expense (Note 2).......................... -- 1,854,000 145,879
------------- ------------- -------------
Income (loss) from continuing operations............. (26,703,775) 3,209,490 (45,359,694)
Discontinued operations (Note 9):
Loss from operations of discontinued U.K.
operation....................................... (3,798,948) -- --
Loss on disposal of discontinued U.K. operation
including provision of $282,000 For operating
losses during phase-out period.................. (5,800,680) -- --
------------- ------------- -------------
Net income (loss).................................... $ (36,303,403) $ 3,209,490 $ (45,359,694)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-22
<PAGE> 79
DIVERSIFIED PRODUCTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JUNE 28, 1992
----------------------------- TO
JUNE 29, 1991 JUNE 27, 1992 JUNE 7, 1993
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................... $ (36,303,403) $ 3,209,490 $ (45,359,694)
Adjustments to reconcile net income (loss) to net
cash provided/(used) by operating activities:
Depreciation and amortization...................... 13,597,665 5,195,042 4,586,416
Provision for environmental clean-up costs......... -- -- 5,865,000
Write down of patents.............................. -- -- 15,944,981
Property, plant & equipment impairment charge...... 2,309,455 -- --
Loss (gain) on disposal of property, plant, and
equipment....................................... -- (103,203) 627,509
Discontinued operations............................ 7,805,112 (469,556) --
Charge in lieu of income taxes..................... -- 1,554,000 --
Deferred taxes..................................... -- 100,000 --
Changes in operating assets and liabilities:
Accounts receivable............................. 5,072,622 6,520,561 (1,046,214)
Inventories..................................... 8,057,131 3,956,044 4,430,529
Prepaid expenses and other assets............... 14,379 (198,205) 1,269,260
Accounts payable................................ 7,329,268 (13,049,223) 4,402,088
Accrued expenses and other...................... 7,892,045 (1,804,079) 1,281,772
Refundable income taxes......................... -- (1,444,368) 1,444,368
------------- ------------- -------------
Net cash provided/(used) by operating activities..... 15,774,274 3,466,503 (6,553,985)
INVESTING ACTIVITIES
Increase in investments.............................. -- (1,500,000) (99,380)
Purchases of property, plant, and equipment.......... (4,445,745) (3,977,576) (2,722,933)
Proceeds from disposal of property, plant, and
equipment.......................................... 28,000 346,655 312,200
------------- ------------- -------------
Net cash used in investing activities................ (4,417,745) (5,130,921) (2,510,113)
FINANCING ACTIVITIES
Payments on industrial development bonds............. (150,000) (100,000) (100,000)
Payment of capital lease............................. -- -- (31,971)
Net payments on revolving note....................... (8,637,763) (8,250,168) --
Proceeds from notes payable.......................... -- -- 11,588,779
Principal payments on notes payable.................. (2,568,766) (308,414) (178,800)
Proceeds from issuance of common and preferred
stock.............................................. -- 10,510,000 --
Purchase of treasury stock........................... -- (187,000) --
------------- ------------- -------------
Net cash provided/(used) by financing activities..... (11,356,529) 1,664,418 11,278,008
------------- ------------- -------------
Net increase in cash................................. -- -- 2,213,910
Cash at beginning of period.......................... -- -- --
------------- ------------- -------------
Cash at end of period................................ $ -- $ -- $ 2,213,910
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................................ $ 10,548,454 $ 5,942,348 $ 3,942,852
=========== =========== ===========
Income taxes paid.................................... $ -- $ 1,644,368 $ 678,531
=========== =========== ===========
</TABLE>
F-23
<PAGE> 80
DIVERSIFIED PRODUCTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 29, 1991, JUNE 27, 1992 AND
PERIOD FROM JUNE 28, 1992 TO JUNE 7, 1993
1. ACCOUNTING POLICIES
Description of Business
Diversified Products Corporation (the "Company") manufactures and sells
home fitness equipment to mass merchandisers and small retailers primarily
within the United States. Prior to June 29, 1991 the Company was a wholly-owned
subsidiary of Shape Holdings, Inc. The Company utilizes a 52/53-week fiscal
year. The consolidated financial statements for 1991 and 1992 reflect a 52-week
year. Effective June 29, 1991, the Company completed a plan of debt and
stockholders' equity restructuring under which the Company's lender ultimately
assumed control of the Company.
Effective as of the beginning of 1992, Diversified Products Corporation's
Class B voting common stockholder consented to a quasi-reorganization plan.
Prior to the quasi-reorganization plan, Diversified Products Corporation
recorded an asset impairment of $2,309,455 in the 1991 consolidated statement of
operations. As of the beginning of 1992, Diversified Products Corporation
believed the carrying value of its assets and liabilities approximated their
fair values; therefore no additional fair value adjustments were recorded as of
the beginning of 1992.
The Company had three major customers (defined as customers comprising more
than 10% of net sales) which comprised approximately 44% and 53% of the
Company's net sales for the years ended June 29, 1991 and June 27, 1992,
respectively. The Company had two major customers in 1993 which comprised
approximately 29% of the Company's net sales for the period from June 28, 1992
to June 7, 1993; however, during this same period, sales to the five largest
customers comprised 57% of net sales for the period.
Principles of Consolidation
The consolidated financial statements include the accounts of Diversified
Products Corporation and its wholly-owned subsidiary, Diversified Trucking Corp.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and are depreciated
over their expected useful lives. Generally, depreciation is provided on the
straight-line method for financial reporting purposes and on accelerated methods
for tax purposes. Leasehold improvements are amortized using the straight-line
basis over the shorter of the lease term or estimated useful life of the
respective asset.
Patents
Patents are stated at cost and are amortized over their estimated useful
lives, ranging from six to sixteen years. Management continually assesses the
recoverability of the carrying value of its patents based on expected sales of
products covered by the patents and the introduction of products with
functionally similar characteristics. If such assessment indicates that the
carrying values may not be recoverable, then an impairment loss is recognized
based on the fair value of the patents. Fair value is determined based on a
discounted cash flow analysis that considers the extent to which patent
protection continues to provide benefit to the Company's future sales.
Deferred Loan Costs
Deferred loan costs represent origination fees and expenses incurred to
originate the credit facility. These costs are being amortized over the
remaining term of the finance and security agreement.
F-24
<PAGE> 81
DIVERSIFIED PRODUCTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred income taxes are recognized for income and expense items that are
reported in different years for financial reporting purposes and income tax
purposes under the "deferred" method of APB Opinion 11.
In February 1992 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" that is
effective for fiscal years beginning after December 15, 1992. 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
consolidated statement of operations. The adoption of Statement No. 109
prospectively is not expected to have a significant effect on the Company's
results of operations.
Postretirement Benefits Other Than Pensions
The Company sponsors plans that provide postretirement medical, dental, and
life insurance benefits to full-time employees who retire with 20 years of
service. The costs of these plans are currently accounted for on a pay-as-you-go
(cash) basis. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" that is effective for fiscal years
beginning after December 15, 1992. The adoption of Statement No. 106 will result
in an approximate $1,135,000 charge to operations as the cumulative effect of an
accounting change. Statement No. 106 requires the cost of postretirement
benefits to be recognized in the financial statements over an employee's active
working career to the date of eligibility for benefits.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the costs can be
reasonably estimated. Generally, the timing of these accruals coincides with the
completion of a feasibility study.
Reclassifications
Certain amounts reported for the years ended June 29, 1991 and June 27,
1992 have been reclassified to conform with the current year presentation in the
accompanying consolidated financial statements.
2. INCOME TAXES
The results of operations of the Company for the period from March 31, 1993
to June 7, 1993 are included in the consolidated Federal income tax return of
the lender who controlled the Company. Current and deferred taxes have been
computed as if the Company filed a separate income tax return.
The significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JUNE 28, 1992
----------------------------- TO
JUNE 29, 1991 JUNE 27, 1992 JUNE 7, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Current.......................................... $-- $ 200,000 $ 145,879
Deferred......................................... -- 100,000 --
Charge in lieu of income taxes -- 1,554,000 --
--- ------------- -------------
$-- $ 1,854,000 $ 145,879
========== ========== ==========
</TABLE>
F-25
<PAGE> 82
DIVERSIFIED PRODUCTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from the expected income tax that would
result from applying the Federal statutory income tax rate of 34% to income
(loss) from continuing operations before income taxes as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JUNE 28, 1992
----------------------------- TO
JUNE 29, 1991 JUNE 27, 1992 JUNE 7, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Expected income tax expense (benefit).......... $ (9,079,284) $ 1,721,587 $ (14,293,197)
State income taxes, net of Federal income tax
benefit...................................... -- 132,000 145,879
Net operating losses........................... 9,079,284 -- 14,293,197
Other.......................................... -- 413 --
------------- ------------- -------------
$ -- $ 1,854,000 $ 145,879
========== ========== ===========
</TABLE>
Due to the quasi-reorganization plan and debt/equity restructuring
resulting in a change in ownership in excess of 50% for income tax purposes,
limitations resulted on the future utilization of net operating loss
carryforwards generated in 1991 and prior periods. As a result, the Company has
bases differences between its financial statement carrying amounts and its
income tax reporting amounts. The 1992 effect of the realization of certain
financial and tax reporting differences have been reflected as a charge in lieu
of income taxes with a corresponding increase in paid-in-capital.
The significant differences between financial and taxable income/loss are
primarily due to depreciation and inventory lower of cost or market provisions.
3. PROFIT SHARING/401(K) PLAN
The Company sponsors a profit sharing/401(k) plan for all employees who
meet stated length of service requirements. Contributions under the profit
sharing feature of the plan are made at the discretion of the Board of Directors
up to the maximum amount deductible by the Company. Profit sharing expense was
$1,113,000 and $850,000 for the years ended June 29, 1991 and June 27, 1992,
respectively, and no profit sharing contribution was made for the period from
June 28, 1992 to June 7, 1993. Under the 401(k) feature of the plan, the Company
matches 25% of employee contributions up to six percent of the employee's
compensation. Expense under the 401(k) feature of the Plan was $74,000 for the
period from June 28, 1992 to June 7, 1993.
4. LEASES
The Company is obligated under various operating leases for machinery,
transportation equipment and computer equipment. These leases expire at various
dates over the next five years. Rental expense under operating leases was
approximately $1,524,000, $1,559,000 and $1,776,000 for the years ended June 29,
1991, June 27, 1992 and the period from June 28, 1992 to June 7, 1993,
respectively.
5. LITIGATION, CLAIMS AND ENVIRONMENTAL MATTERS
There are various claims and pending actions against the Company with
respect to commercial matters arising out of the normal course of business.
However, the Company is not aware of any action which, in the opinion of
management, would materially affect its consolidated results of operations.
DP's manufacturing plants are subject to federal, state and local pollution
laws and regulations. Compliance with such laws and regulations has not
materially affected, and is not expected to have a material effect on DP's
competitive position, financial condition or results of operations.
F-26
<PAGE> 83
DIVERSIFIED PRODUCTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DP is complying with various requirements of a compliance order under the
Resource Conservation Recovery Act as administered by the State of Alabama. A
reserve of approximately $5.9 million has been established for expected clean-up
costs by DP and is reflected in accrued expenses on the balance sheet as of June
7, 1993. Management's estimate of the possible range of costs is approximately
$6 million to $12 million. This estimate was based on discussions with legal
counsel, a feasibility study and a review of the compliance order as
administered by the State of Alabama. The major components of the costs included
in the environmental accrual relate to the preparation and implementation of the
plan for corrective action for solid waste management units and regulated units,
for closure of the chrome tank area and for operating and maintaining the solid
waste management units and regulated units. Cash payments related to these costs
are expected to occur primarily over the next five years with certain general
post-closure care costs continuing for thirty years or more. The current reserve
of $5.9 million represents the minimum value of the range of possible costs and
was recorded by DP as no other value in the range represents a better estimate.
Depending on the results of continued assessment activities, costs in excess of
the amount accrued could be incurred; however, in the opinion of management, any
additional costs in excess of the amount accrued would not be material to the
combined results of operations or financial position of DP.
6. RELATED PARTY TRANSACTIONS
The Company paid management fee expenses to stockholders of $600,000,
$300,000 and $270,696 for the years ended June 29, 1991, June 27, 1992 and the
period from June 28, 1992 to June 7, 1993, respectively. The Company paid an
affiliate for marketing services $163,000 and $125,000 for the years ended June
29, 1991 and June 27, 1992. Such payments were pursuant to a consulting
agreement.
7. CHANGE IN ESTIMATED USEFUL LIVES
Effective June 30, 1991, the Company revised the estimated useful lives for
all categories of its property, plant and equipment based upon management's
expectations of the extended economic benefit. The change in estimated useful
lives had the effect of reducing depreciation expense by $3,198,000 and
increasing net income by $2,998,000 had the Company not revised its useful lives
for property, plant and equipment but after giving effect to the
quasi-reorganization plan.
8. PATENTS
Patents were stated at cost and were amortized over their estimated useful
lives on the straight line method during the years ended June 29, 1991 and June
27, 1992. These lives ranged from six to sixteen years. During the period from
June 28, 1992 to June 7, 1993, sales of the products related to these patents
unexpectedly declined dramatically indicating that the value of these patents
was substantially impaired. New technology and new product developments were the
primary causes of this decline in sales. As a result, the Company reevaluated
the value of these patents based on discounted future cash flows and determined
that their future value was nominal and wrote off the remaining unamortized
patent balance of approximately $15,945,000.
9. DISCONTINUED OPERATIONS
Until February 1992 the Company operated a wholly owned subsidiary,
Diversified Products Corporation-U.K., in the United Kingdom and a majority
owned subsidiary, Diversified Products Corporation GmbH in Western Europe. As of
June 29, 1991, the Company intended to phase out these operations. The cost of
phasing out these operations, including the loss from operations until
phase-out, was $5,800,680. The phase-out was completed during February 1992 by a
sale of the operations in consideration for preferred stock in the purchaser's
new entity. The sale resulted in a gain of $472,000 which was accounted for as a
reduction in the basis of the preferred stock investment since the new entity
was highly leveraged.
F-27
<PAGE> 84
DIVERSIFIED PRODUCTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENTS
On June 8, 1993, the Company was acquired by The Actava Group Inc. (the
"Parent") from its lender (the "Seller") for a net purchase price of $23,629,500
consisting of 1,090,900 shares of Parent common stock valued at $12,000,000 and
$11,629,500 in cash, and the assumption or payment of certain liabilities
including trade payables and a revolving credit facility. The Parent also
entered into an agreement which provided the Seller with the rights to receive
additional payments, or additional shares of the Parent's common stock,
depending upon the value of the issued shares over a period of not longer than
one year from the purchase date. This option however was not exercised by the
Seller.
On July 20, 1994, the Parent entered into a definitive agreement with
Roadmaster Industries, Inc. under which the Parent would transfer ownership of
the Company together with the rest of the Parent's Sporting Goods Group to
Roadmaster Industries, Inc. in exchange for 19.2 million shares (39%) of common
stock in Roadmaster Industries, Inc. Completion of the transaction is subject to
a number of conditions, including approval by the stockholders of Roadmaster and
Actava.
F-28
<PAGE> 85
FLEXIBLE FLYER COMPANY
A DIVISION OF PAR INDUSTRIES, INC.
(AN S CORPORATION)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Report of Independent Public Accountants........................................... F-30
Financial Statements --
Balance Sheets -- As of September 14, 1993 (Unaudited) and December 31, 1992
and 1991...................................................................... F-31
Statements of Income (Loss) and Divisional Equity -- For the period January 1 to
September 14, 1993 and Nine Months Ended September 30, 1992 (Unaudited) and
for the years ended December 31, 1992 and 1991................................ F-32
Statements of Cash Flows -- For the period January 1 to September 14, 1993 and
Nine Months Ended September 30, 1992 (Unaudited) and for the years ended
December 31, 1992 and 1991.................................................... F-33
Notes to Financial Statements.................................................... F-34
</TABLE>
F-29
<PAGE> 86
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Flexible Flyer Company
A Division of Par Industries, Inc.
West Point, Mississippi
We have audited the accompanying balance sheets of the Flexible Flyer
Company, a division of Par Industries, Inc. (an S Corporation), as of December
31, 1992 and 1991, and the related statements of loss and divisional equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Flexible Flyer Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Flexible Flyer Company
as of December 31, 1992 and 1991, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 11 to the financial statements, on September 14, 1993,
Par Industries, Inc. sold substantially all assets of the Flexible Flyer Company
for an amount in excess of book value.
LEWANDOWSKI ZALICK & COMPANY
July 1, 1993 except for Notes 11 and 12,
for which the date is October 22, 1993.
Cleveland, Ohio
F-30
<PAGE> 87
FLEXIBLE FLYER COMPANY
A DIVISION OF PAR INDUSTRIES, INC.
(AN S CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 14,
1991 1992 1993
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................. $ 394,864 $ 51,407 $ 125,286
Trade accounts receivable, less allowance for
doubtful accounts of $232,082, $94,772, and
$84,772 at September 14, 1993 and December 31,
1992 and 1991, respectively....................... 8,668,218 9,716,612 5,661,221
Accounts receivable -- related party................. -- -- 1,397,177
Other receivables.................................... 392,574 278,374 75,482
Inventories.......................................... 11,347,264 11,677,399 8,692,584
Prepaid expenses and other........................... 346,997 224,037 340,327
Assets held for sale................................. 1,209,711 1,177,657 1,153,959
----------- ----------- -------------
TOTAL CURRENT ASSETS......................... 22,359,628 23,125,486 17,446,036
PROPERTY, PLANT AND EQUIPMENT
Land................................................. 217,092 217,092 190,503
Buildings............................................ 3,783,551 3,969,888 3,746,418
Building improvements................................ 98,848 123,422 123,422
Machinery and equipment.............................. 11,373,633 12,621,753 12,989,692
Office furniture and equipment....................... 880,678 949,567 967,941
Transportation equipment............................. 533,153 527,345 91,063
Construction-in-progress............................. 769,581 185,688 47,443
----------- ----------- -------------
17,656,536 18,594,755 18,156,482
Accumulated depreciation............................. (8,683,387) (9,874,352) (10,546,478)
----------- ----------- -------------
8,973,149 8,720,403 7,610,004
OTHER ASSETS........................................... 274,262 241,264 236,354
----------- ----------- -------------
$31,607,039 $32,087,153 $ 25,292,394
========== ========== ===========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES
Line of credit....................................... $ 9,804,407 $ 6,496,755 $ 7,183,703
Short-term note payable.............................. -- -- 500,000
Current portion of long-term debt.................... 2,083,201 1,630,557 1,330,673
Trade accounts payable -- related parties............ 2,055,313 6,135,887 762,441
Trade accounts payable -- other...................... 3,210,516 4,463,988 3,224,279
Accrued advertising.................................. 86,269 330,926 209,869
Accrued payroll and vacation......................... 233,147 194,148 190,236
Accrued insurance.................................... 81,533 100,642 86,669
Accrued payroll taxes................................ 81,515 51,467 47,898
Accrued other taxes.................................. 11,665 9,786 55,924
Accrued income taxes................................. 248,983 -- --
Other current liabilities............................ 76,278 97,501 72,129
----------- ----------- -------------
TOTAL CURRENT LIABILITIES.................... 17,972,827 19,511,657 13,663,821
LONG-TERM DEBT, LESS CURRENT PORTION................... 4,740,687 3,925,557 2,825,639
DIVISIONAL EQUITY...................................... 8,893,525 8,649,939 8,802,934
----------- ----------- -------------
$31,607,039 $32,087,153 $ 25,292,394
========== ========== ===========
</TABLE>
See accompanying notes.
F-31
<PAGE> 88
FLEXIBLE FLYER COMPANY
A DIVISION OF PAR INDUSTRIES, INC.
(AN S CORPORATION)
STATEMENTS OF INCOME (LOSS) AND DIVISIONAL EQUITY
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS PERIOD
YEAR ENDED DECEMBER 31, ENDED JANUARY 1, TO
------------------------- SEPTEMBER 30, SEPTEMBER 14,
1991 1992 1992 1993
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES.................................... $41,571,060 $42,065,069 $ 33,809,657 $ 23,781,365
COST OF GOODS SOLD, including $2,695,745 and
$4,781,227 in 1993 and 1992, respectively,
and $7,364,734 and $4,872,282 in the years
ended 1992 and 1991, respectively, to
related companies.......................... 36,589,140 37,590,789 29,851,330 20,931,757
----------- ----------- ------------- -------------
GROSS PROFIT................................. 4,981,920 4,474,280 3,958,327 2,849,608
SELLING EXPENSES............................. 2,146,586 2,204,835 1,699,353 1,148,849
ADMINISTRATIVE EXPENSES...................... 1,354,220 1,327,396 978,922 832,948
RESTRUCTURING CHARGE......................... 196,968 -- -- --
----------- ----------- ------------- -------------
3,697,774 3,532,231 2,678,275 1,981,797
----------- ----------- ------------- -------------
INCOME FROM OPERATIONS....................... 1,284,146 942,049 1,280,052 867,811
Other Income (Expense)
Interest expense........................... (1,759,498) (1,565,321) (1,176,742) (1,005,973)
Other income:
Rent from related company.................. 163,200 163,200 122,400 115,600
Other rent................................. 82,749 138,588 -- --
Other...................................... 34,421 77,898 182,830 175,557
----------- ----------- ------------- -------------
(1,479,128) (1,185,635) (871,512) (714,816)
NET INCOME (LOSS)............................ (194,982) (243,586) 408,540 152,995
DIVISIONAL EQUITY AT BEGINNING OF PERIOD..... 9,088,507 8,893,525 8,893,525 8,649,939
----------- ----------- ------------- -------------
DIVISIONAL EQUITY AT END OF PERIOD........... $ 8,893,525 $ 8,649,939 $ 9,302,065 $ 8,802,934
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-32
<PAGE> 89
FLEXIBLE FLYER COMPANY
A DIVISION OF PAR INDUSTRIES, INC.
(AN S CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED NINE MONTHS JANUARY 1,
DECEMBER 31, ENDED TO
-------------------------- SEPTEMBER 30, SEPTEMBER 14,
1991 1992 1992 1993
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss....................................... $ (194,982) $ (243,586) $ 408,540 $ 152,995
----------- ----------- ------------- -------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................. 1,491,338 1,498,565 1,130,665 1,026,076
Amortization................................. 17,529 30,332 -- --
(Gain) loss on sale of property and
equipment.................................. 17,752 (48,437) (48,383) (158,968)
(Increase) decrease in assets:
Receivables................................ (150,031) (934,194) 1,856,857 4,258,283
Receivable -- related party................ -- -- -- (1,397,177)
Inventories................................ 4,291,956 (330,135) (167,466) 2,984,815
Prepaid expenses and other................. 140,644 122,960 (295,612) (116,290)
Other assets............................... (113,934) 2,666 89,714 (17,286)
Increase (decrease) in liabilities:
Trade accounts payable..................... (2,695,367) 1,253,472 776,154 (1,239,709)
Trade accounts payable -- related party.... (53,467) 4,080,574 3,811,760 (5,373,446)
Accrued expenses........................... (555,455) (56,143) 63,012 (96,373)
Other current liabilities.................. 22,122 21,223 15,983 (25,372)
----------- ----------- ------------- -------------
2,413,087 5,640,883 7,232,684 (155,447)
----------- ----------- ------------- -------------
NET CASH PROVIDED BY (USED BY) OPERATING
ACTIVITIES............................ 2,218,105 5,397,297 7,641,224 (2,452)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment............ (1,436,382) (1,217,235) (940,819) (407,114)
Proceeds from sale of property and equipment... 57,587 51,907 51,907 696,299
----------- ----------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES... (1,378,795) (1,165,328) (888,912) 289,185
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on line of credit.... (9,874) (3,307,652) (6,206,878) --
Proceeds of short-term note payable............ -- -- -- 500,000
Proceeds from long-term debt................... 816,813 343,377 343,377 1,186,948
Principal payments on long-term debt........... (1,508,513) (1,611,151) (1,212,497) (1,899,802)
----------- ----------- ------------- -------------
NET CASH PROVIDED BY (USED BY) FINANCING
ACTIVITIES............................ (701,574) (4,575,426) (7,075,998) (212,854)
NET INCREASE (DECREASE) IN
CASH.................................. 137,736 (343,457) (323,686) 73,879
CASH AT BEGINNING OF PERIOD...................... 257,128 394,864 394,864 51,407
============ ============ ============ ============
CASH AT END OF PERIOD............................ $ 394,864 $ 51,407 $ 71,178 $ 125,286
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-33
<PAGE> 90
FLEXIBLE FLYER COMPANY
A DIVISION OF PAR INDUSTRIES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIOD)
1. ORGANIZATION AND NATURE OF OPERATIONS
The Flexible Flyer Company ("Flexible Flyer") and Blazon Tube Company
("Blazon Tube") comprise the Flexible Flyer Division (the "Division") of Par
Industries, Inc. ("Par"), an Ohio corporation. These financial statements
present only the operations of Flexible Flyer. Flexible Flyer is a manufacturer
of toy products whose sales are primarily to retailers located throughout the
United States.
Management of Flexible Flyer believes that all appropriate expenses have
been included in these financial statements. Substantially all operating
expenses of Flexible Flyer are incurred directly by Flexible Flyer. No
allocations of expenses between divisions of Par are necessary.
The information for the period January 1 to September 14, 1993 and the nine
month period ended September 30, 1992, respectively, included herein is
unaudited; however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim period.
The results of operations for period January 1 to September 14, 1993 are
not necessarily indicative of the results to be reported for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost or market, with cost determined
by the first-in, first-out (FIFO) method. Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 14,
1991 1992 1993
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................... $ 5,597,174 $ 5,426,978 $ 4,283,493
Work-in-process................................. 1,113,980 923,755 612,394
Finished goods.................................. 4,636,110 5,326,666 3,796,697
----------- ----------- -------------
$11,347,264 $11,677,399 $ 8,692,584
========== ========== ==========
</TABLE>
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Additions and major
renewals are capitalized. Maintenance and repairs are charged to expense as
incurred. Upon disposal, the asset cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in income.
Depreciation is computed primarily by the straightline method over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings.............................................................. 20 - 40 years
Building improvements.................................................. 5 - 18 years
Machinery and equipment................................................ 3 - 16 years
Office furniture and fixtures.......................................... 5 - 10 years
Transportation equipment............................................... 3 - 5 years
</TABLE>
F-34
<PAGE> 91
FLEXIBLE FLYER COMPANY
A DIVISION OF PAR INDUSTRIES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Cash Flow Information
The following is supplemental cash flow information for the years ended
December 31:
<TABLE>
<CAPTION>
1991 1992
---------- ----------
<S> <C> <C>
Cash paid for:
Interest.................................................. $1,741,484 $1,586,765
Income taxes.............................................. 248,984 248,983
</TABLE>
3. RESTRUCTURING
On November 1, 1990, the Board of Directors of Par announced a
restructuring plan for the Division involving the closing of the Division's
DuQuoin, Illinois plant facility. The purpose of the restructuring was to reduce
costs by consolidating the product lines of the DuQuoin facility with those of
the West Point, Mississippi facility. In conjunction with this plan, related
charges of $196,968 were incurred in 1991. Further, Par has taken action to sell
the DuQuoin facility; accordingly, the net book value of the facility is
classified as a current asset at December 31, 1992 and 1991.
4. LINE OF CREDIT
The Division has a revolving credit agreement with a bank. The maximum
amount outstanding cannot exceed the lesser of $20,000,000 or a percentage of
combined eligible accounts receivable and certain inventories. The total amount
outstanding was $14,828,152 at December 31, 1992 and $11,891,819 at December 31,
1991, of which $6,496,755 and $9,804,407 was the balance applicable to Flexible
Flyer at December 31, 1992 and 1991, respectively. Borrowings under the line
provide for interest at the bank's prime rate plus 1.5% and are due on demand.
The line is subject to renewal on July 31, 1993.
In addition to the above, the same bank has extended credit to the
Division, on a revolving credit basis, for amounts which exceed the Division's
total borrowing base. These "permitted overadvances" provide for interest at the
bank's prime rate plus 3.5%, and were repaid by the due date of March 15, 1993.
At December 31, 1992, the permitted overadvance was $1,700,000, of which
$1,341,218 had been used by the Division.
The line of credit and promissory note payable to bank (Note 5) are
collateralized by substantially all assets of the Division.
F-35
<PAGE> 92
FLEXIBLE FLYER COMPANY
A DIVISION OF PAR INDUSTRIES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Flexible Flyer had the following long-term debt obligations at December 31,
1992 and 1991:
<TABLE>
<CAPTION>
1991 1992
----------- -----------
<S> <C> <C>
A promissory note payable to bank (total balance outstanding was
$5,000,000 at December 31, 1992 and $6,000,000 at December 31,
1991, of which $500,000 and $600,000, respectively, was
applicable to Blazon Tube) in monthly installments of $75,000
($83,333 for the Division), plus interest at 1% over the bank's
prime rate, through January 1, 1995, at which time the remaining
principal balance of $2,511,000 ($2,700,000 for the Division) is
due. The note is secured by substantially all assets of the
Division. The current portion of this note includes $300,000 as
the estimated additional amount which will have to be repaid in
1993 as a result of the intended sale of the Division's DuQuoin
plant facility, which has been classified as an asset held for
sale............................................................ $ 5,400,000 $ 4,500,000
A promissory note payable to finance company in monthly
installments of $18,214, including interest at 10.7% through
December 15, 1994. The note is secured by certain molds with an
original cost of $560,419....................................... 560,419 391,880
A promissory note payable to bank in monthly installments of
$9,250, including interest at 1% over the bank's prime rate,
through May 8, 1995. The note is secured by machinery and
equipment with an original cost of $1,339,069................... -- 244,392
A promissory note payable to bank in monthly installments of
$4,675, including interest at 10%, through July 1, 1996. The
note is secured by certain transportation equipment with an
original cost of $307,485....................................... 205,802 168,608
A note payable in monthly installments of $3,773, including
interest at 11.6% through December 1995. The note is secured by
certain office equipment with an original cost of $170,131...... 149,927 120,877
A promissory note payable to bank in monthly installments of
$2,950, including interest at 9.75%, through April 1, 1994. The
note is secured by certain real estate with an original cost of
$220,277........................................................ 75,046 45,673
A promissory note payable to bank in monthly installments of
$13,590, including interest at 1% over the bank's prime rate,
through June 2, 1992, at which time the remaining principal
balance of $283,491 was paid.................................... 347,374 --
Other............................................................. 85,320 84,684
----------- -----------
TOTAL........................................................ 6,823,888 5,556,114
CURRENT PORTION.............................................. (2,083,201) (1,630,557)
LONG-TERM PORTION............................................ $ 4,740,687 $ 3,925,557
========== ==========
</TABLE>
F-36
<PAGE> 93
FLEXIBLE FLYER COMPANY
A DIVISION OF PAR INDUSTRIES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt for the next five years are as follows:
<TABLE>
<S> <C>
1993..................................................................... $1,630,557
1994..................................................................... 1,326,797
1995..................................................................... 2,851,242
1996..................................................................... 47,518
1997..................................................................... --
</TABLE>
Certain of the above agreements contain loan covenants that require Par to
maintain specific levels of working capital, net worth, and debt to equity
ratios, among others. Par did not meet the net worth covenant at December 31,
1992; however, the bank issued a waiver of this loan covenant violation on April
5, 1993, at which time the amount of the required net worth was reduced.
6. FEDERAL INCOME TAXES
The Division's merger into Par, effective July 1, 1989, resulted in a
change in their tax status from a C Corporation to an S Corporation.
Accordingly, the Division does not pay income taxes on its taxable income.
Instead, all income, losses and tax credits pass through to the shareholders of
Par for inclusion on their personal income tax returns. Accordingly, no
provision for income taxes has been recognized in the statements of loss.
Also, as a result of the change in tax status in 1989, the Division was
required to recognize as income the LIFO reserve existing at the date of the
change in tax status. Tax regulations allowed the Division to pay the tax
liability for the LIFO reversal over a period of four years, with the last
installment of $248,983 being paid in 1992.
7. RETIREMENT PLAN
Flexible Flyer has a 401(k) retirement plan covering all eligible
employees. In addition to elective wage deferrals by employees, the plan also
calls for a matching contribution by Flexible Flyer. Total expense under this
plan was $59,291 and $33,145 in 1992 and 1991, respectively.
8. OPERATING LEASES
Flexible Flyer leases certain office space, vehicles and equipment under
noncancelable operating leases. The following is a schedule of the future
minimum rental payments required under these leases:
<TABLE>
<S> <C>
1993...................................................................... $122,300
1994...................................................................... 122,900
1995...................................................................... 96,200
1996...................................................................... 96,200
1997...................................................................... 101,200
Thereafter................................................................ 138,400
</TABLE>
Total 1992 and 1991 rent expense for these leases was $137,421 and
$106,494, respectively.
9. RELATED PARTY TRANSACTIONS
Flexible Flyer purchased raw materials inventory totalling $5,815,320 in
1992 and $2,979,355 in 1991 from Blazon Tube. Trade accounts payable to Blazon
Tube totalled $5,716,020 at December 31, 1992 and
F-37
<PAGE> 94
FLEXIBLE FLYER COMPANY
A DIVISION OF PAR INDUSTRIES, INC.
(AN S CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$1,502,440 at December 31, 1991. Flexible Flyer pays interest at 9.5% on this
account payable balance. Total interest expense incurred to Blazon Tube was
approximately $350,000 in 1992 and $110,000 in 1991.
Flexible Flyer also purchases raw materials inventory from another division
of Par. Total purchases were $1,493,925 in 1992 and $1,515,640 in 1991. Trade
accounts payable to that division were $419,867 at December 31, 1992 and
$552,873 at December 31, 1991. No interest is charged on this accounts payable
balance.
Blazon Tube pays rent of $13,600 per month to Flexible Flyer on a
month-to-month basis for use of a manufacturing and office facility. Total rent
income was $163,200 in 1992 and 1991.
Trade accounts receivable includes $196,677 in 1992 and $111,439 in 1991
due from a company affiliated by common ownership. Sales to this affiliate
totaled $758,215 and $372,804 in 1992 and 1991, respectively. In addition, other
accounts receivable includes $219,607 in 1992 and $366,747 in 1991 from this
related company for certain operating advances.
10. MAJOR CUSTOMERS
Sales to three major customers totaled $18,701,980 and $16,714,118, or
44.5% and 40.2%, of 1992 and 1991 total net sales, respectively.
11. SUBSEQUENT EVENT
On September 14, 1993, substantially all of the assets of Flexible Flyer
were sold for an amount in excess of book value.
12. CONTINGENCY
On June 10, 1993, the Environmental Protection Agency ("EPA") notified the
Division that it is a potentially responsible party ("PRP") as a generator of
hazardous substances under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended. Governmental agencies have
alleged that the Division contributed to contamination problems to soil and
ground water at an eight acre site located in Marshall, Mississippi. The EPA has
requested that the Division, along with other PRP's, voluntarily perform the
work necessary to prevent any releases or threatened releases of hazardous
substances from the site. On August 6, 1993, a PRP agreement was signed by the
vast majority of major generators, including Flexible Flyer. The initial
allocation of total costs assigned to Flexible Flyer is approximately 1.55%. The
total cost of the project, including site cleanup, soil remediation,
establishment of potable water to residential wells, and cleanup of ground water
contamination, has not been determined. Any potential liability related to this
agreement was retained by Par pursuant to the sale of assets referred to in Note
11.
Because of the status of this matter, it is impossible to determine any
potential liability that may result; accordingly, no provision has been made in
the accompanying financial statements. Management does not believe, based on
information available at this time, that the final disposition of this matter
will adversely affect Flexible Flyer's financial position.
F-38
<PAGE> 95
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE> 96
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.
<PAGE> 97
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
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 3.18 Properties..............................................................
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...........................................
</TABLE>
<PAGE> 98
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
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...........................................................
Section 9.6 Counterparts............................................................
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
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
4.17 Roadmaster Employment and Consulting Agreements
4.18(a) Roadmaster Property Matters
4.18(b) Roadmaster Intellectual Property
</TABLE>
<PAGE> 100
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 101
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
<PAGE> 102
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
2
<PAGE> 103
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
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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 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
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business, condition (financial or other) or results of operations of the Sports
Subsidiaries and their subsidiaries, taken as a whole.
(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.
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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 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
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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 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
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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 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
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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 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
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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 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
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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 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.
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(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 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
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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 "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
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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, 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.
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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 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
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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 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
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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 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.
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(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 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
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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").
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
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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.
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).
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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 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
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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
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
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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 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).
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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 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
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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.
(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.") Section 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. Section 1.197-1T(a)) with respect to Actava's "election year" which, under
Temp. Reg. Section 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
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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.
(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
Section 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
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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.
(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 Section 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 Section 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 Section 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 Section 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 Section 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 Section 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
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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 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 Section 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 Section 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.
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(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 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).
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(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.
(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.
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(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.
(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
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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 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]
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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: /s/ HENRY FONG
------------------------------
Its: President and Chief Executive
Officer
THE ACTAVA GROUP INC.
By: /s/ JOHN D. PHILLIPS
------------------------------
Its: President and Chief Executive
Officer
DIVERSIFIED PRODUCTS CORPORATION
By: /s/ JAMES L. MARDEN
------------------------------
Its: President and Chief Executive
Officer
HUTCH SPORTS USA, INC.
By: /s/ GARRETT A. KAMSTRA
------------------------------
Its: President and Chief Executive
Officer
NELSON/WEATHER-RITE, INC.
By: /s/ MELVIN MARX
------------------------------
Its: President and Chief Executive
Officer
WILLOW HOSIERY COMPANY, INC.
By: /s/ HERBERT W. LIBOWITZ
------------------------------
Its: President
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THE ACTAVA GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE ACTAVA GROUP,
INC.
(THE "COMPANY") IN CONNECTION WITH A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 2, 1994.
The undersigned hereby appoints Frederick B. Beilstein, III, Walter M. Grant
and Victor E. Goetz and each of them, with full power of substitution as proxies
and attorneys-in-fact on behalf and in the name of the undersigned to represent
the undersigned, at the Special Meeting of Stockholders of the Company to be
held on December 2, 1994 at 10:00 a.m., local time at the Georgia Pacific Center
Auditorium and at any adjournments thereof with respect to such business as may
properly come before the meeting or any and all adjournments thereof and to vote
all shares of stock which the undersigned would be entitled to vote if then and
there personally present.
The proxies appointed hereby are instructed to vote as indicated herein on
the following proposals as more fully described in the Company's Notice of
Meeting of Stockholders and Proxy Statement, each dated November 3, 1994,
receipt of which is hereby acknowledged, and in their discretion on any other
business which may properly come before the meeting or any adjournment thereof.
The Company's Board of Directors recommends voting FOR approval of the
Agreement as specified in the Proxy Statement and the Proxy will be so voted
unless otherwise specified.
1. To approve the Agreement and Plan of Reorganization dated as of July 20, 1994
by and among the Company, the Sports Subsidiaries, and Roadmaster Industries,
Inc., and the transactions contemplated thereby.
/ / FOR / / AGAINST / / ABSTAIN
all as set forth in the Proxy Statement.
(Continued on other side)
(Continued from other side)
Please mark, then date and sign this proxy, exactly as your name appears
hereon, and return this entire proxy card in the enclosed postage paid envelope.
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, guardian or in any other fiduciary
capacity, please give full title as such. If a corporation, please sign in full
corporate name by the president or other authorized officer. If a partnership,
please sign in full partnership name by authorized person.
------------------------------
Signature
------------------------------
Signature if Held Jointly
Dated: , 1994
------------------
If you also expect to
attend the stockholders'
meeting, the Board of
Directors requests you check
the box below.
/ / I/we plan to attend the
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS INDICATED HEREON OR IT WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS FOR THE PROPOSAL SPECIFIED IN THE
PROXY STATEMENT.
