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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the Fiscal Year Ended December 31, 1996 Commission File Number 0-16482
RDM SPORTS GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 84-1065239
- ------------------------------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
Suite 5, 267 Highway 74 North
Peachtree City, Georgia 30269
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(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (404) 586-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
8% Convertible Subordinated New York Stock Exchange
Debentures Due 2003
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock of the Registrant held
by non-affiliates as of June 20, 1997 was $37,674,468 based on the closing
sales price of $1.25 on the New York Stock Exchange on such date. For purposes
of this response only, all executive officers, directors and Metromedia
International Group, Inc. are "affiliates" of the Registrant and shares held by
non-affiliates were computed to be 30,139,574.
The number of shares outstanding of the Registrant's $.01 par value
common stock at June 20, 1997 was 49,507,167, excluding 4,239,598 shares held
as treasury stock.
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DOCUMENTS INCORPORATED BY REFERENCES
None.
PART I
ITEM 1. BUSINESS
RDM Sports Group, Inc. (the "Company" or "RDM"), through its operating
subsidiaries, is a leading U.S. manufacturer and distributor of fitness
equipment, selected toy products, and other selected recreational products. The
Company's major product lines consist of: fitness equipment, including
stationary, aerobic equipment, multi-station weight systems and benches; toy
products, such as toy horses, bulk plastic toys, swing sets, trampolines, and
children's lamps; and selected other recreation products, including sports
hosiery, team sports equipment, and backyard and lawn games.
The Company markets its products, primarily through mass
merchandisers, under well established trade names with widespread consumer
recognition and long operating histories, including, Vitamaster(R) (1950),
Flexible Flyer(R) (1889), American Playworld(R) (1983), MacGregor(R) (1870),
DP(R) (1953), Hutch(R) (1906), Reach(R) (1960) and Forster(R) (1988), and by
license under the Reebok(R) and Precious Moments(TM) brand names. In 1996, the
Company had sales greater than $10 million each to 11 leading mass
merchandisers, including Toys "R" Us, Inc. ("Toys "R" Us"), Wal-Mart Stores,
Inc. ("Wal-Mart") and Target Stores, Inc. ("Target"). In recent years, the
Company has received several Vendor of the Year awards from mass merchandisers,
including Toys "R" Us, Wal-Mart, Target, Sears Canada, Shopko Stores, Inc., and
Pamida, Inc. The principal markets for the Company's products are mass
merchandisers located primarily in the United States and Canada.
As discussed below, in 1996, the Company sold all of its camping,
bicycle and snow toy assets in two independent transactions in order to, among
other things, reduce its outstanding indebtedness. In 1996 and 1997, the
Company's performance was adversely affected by reduced sales in certain of its
retained product lines and increased product warranty claims for certain of its
fitness products. In order to address these matters, in 1996, the Company began
to implement, and in 1997 is continuing to implement, various strategies
intended to improve its financial condition and operating performance. These
strategies include expense reduction programs, inventory management reduction
programs, reorganization of the fitness production facility, production related
employee training programs, reduction in number of products offered, a shift
from manufacturing of certain products to sourcing, extensive piloting and
testing of new product introductions, and implementations of stringent quality
assurance measures. Management expects the full effects of such strategies will
not be fully realized, if at all, until late 1997.
The Company must satisfy all of its working capital and capital
expenditure requirements from borrowings under its revolving and fixed period
loan (the "New Loan Facility" as further described herein), from cash provided
by operating activities, from the sale of assets or external borrowings.
Despite the sale of its camping, bicycle and snow toys assets, the Company
remains highly leveraged. Furthermore, substantially all of the Company's
assets have been pledged to secure borrowings under the New Loan Facility.
Sales of such assets generally require the consent of the Lenders and
management believes that sales of assets which are not replaced would generally
require payments of the indebtedness secured thereby, which indebtedness could
exceed the immediately realizable value of such assets. To the extent the
Company's access to capital is constrained, the Company may not be able to make
certain capital expenditures or implement certain other aspects of its on-going
business plan and the Company may, therefore, be unable to achieve the full
benefits expected therefrom.
The Company has developed successful relationships with mass
merchandisers by providing a low cost product that management believes is
differentiated from the competition based on superior features, and by
supplying just-in-time inventory with proven reliability. The Company
emphasizes quality through strict
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design criteria to ensure high standards for all of its products. The Company
has encountered quality control issues on certain types of fitness equipment,
see Item 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS". In addition, the Company has developed flexible and
efficient manufacturing operations that enable it to shift production runs to
match demand.
The Company was formed on June 1, 1987. In September 1993, the Company
acquired certain assets of the Flexible Flyer Company ("Flexible Flyer"), a
manufacturer of a variety of toy products. From October 1993 to September 1996,
the Company had a distribution agreement with MacGregor Sports Products, Inc.,
a wholly-owned subsidiary of MacGregor Sports and Fitness, Inc., pursuant to
which the Company was the exclusive worldwide distributor of MacGregor(TM)
brand baseball, softball, basketball, football, soccer, hockey, volleyball,
racquet sports and other products. In September 1996, the Company purchased the
exclusive rights to use the MacGregor(TM) name for all sports products except
apparel, shoes, inflatables (balls) sold to institutions, bags, and various
other small items.
In February 1994, the Company acquired substantially all the assets of
American Playworld, Inc. ("American Playworld"), a leading manufacturer of
trampolines distributed mainly to mass merchants. American Playworld's
operations are now conducted by the Company.
On December 6, 1994, the Company acquired Diversified Products
Corporation ("DP"), Nelson/Weather-Rite, Inc. ("Nelson/Weather-Rite"), Willow
Hosiery Company, Inc. ("Willow") and Hutch Sports USA, Inc. ("Hutch")
(collectively referred to as the "Sports Subsidiaries") from The Actava Group,
Inc. ("Actava").
On March 23, 1995, Hutch acquired the sporting goods division of
Forster Manufacturing Company ("Forster"). The Forster product categories
acquired include various backyard and lawn games, including croquet, bocce
ball, and volleyball.
On April 28, 1995, Nelson/Weather-Rite acquired certain assets and the
business of MZH, Inc. ("MZH"), a manufacturer and marketer of sleeping bags.
Such acquired operations were thereafter conducted by Nelson/Weather-Rite.
On March 8, 1996, substantially all of Nelson/Weather-Rite's assets,
including the assets acquired from MZH, were sold to Brunswick Corporation
("Brunswick") for $120.0 million in cash and the assumption of certain
liabilities aggregating $10.0 million (the "First Brunswick Transaction"). The
net proceeds of such sale were applied to reduce outstanding indebtedness. The
final purchase price, as adjusted for ordinary post closing adjustments and
based on closing working capital levels, was reduced by $2.2 million. The
Company used the net proceeds to reduce its outstanding revolving credit
facility by approximately $110.0 million. The Company recognized a pre-tax gain
of approximately $24.4 million on the sale. As a result of such divestiture,
the manufacturing and distribution of camping products is no longer a material
portion of the Company's business.
On March 31, 1996, the Company purchased all of the outstanding shares
of common stock of TQ, Inc. ("TQ"), a company in which the Company had acquired
a 25% ownership interest in connection with the acquisition of the Sports
Subsidiaries, making the Company the sole owner of TQ. TQ manufactures gift
sets, sports clothing, and sports equipment almost solely for the Company.
On September 6, 1996, the Company completed the sale of the assets of
the Company's bicycle and snow toy products businesses (which also includes
tricycles, wagons, and junior ride-ons) to Brunswick for approximately $189.7
million in cash, as adjusted ("the Second Brunswick Transaction"). The Second
Brunswick transaction included the purchase of certain assets and the
assumption of accounts payable, accrued liabilities, and Industrial Revenue
Bonds affiliated with the bicycle and snow toy products businesses. In
connection with the Second
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Brunswick Transaction, the Company leased its former Olney, Illinois facility
to Brunswick pursuant to a long-term lease with an option to buy the property.
In connection with the Second Brunswick Transaction, the Company also deposited
$10.0 million into an escrow account to secure the costs of the environmental
remediation of the property at the Olney, Illinois facility (see Item 2.
"PROPERTIES - ENVIRONMENTAL MATTERS"), for which the Company has indemnified
Brunswick. In connection with the settlement of various post-closing adjustment
claims, the Company granted a relocation credit to Brunswick under the Olney
lease in the amount of $2.2 million, which approximates three years of lease
payments. The Company recognized a pre-tax gain of $91.1 million on the Second
Brunswick Transaction and used the net proceeds to reduce its outstanding
indebtedness (see Note 1 of Notes to Consolidated Financial Statements,
"Background") and for other corporate purposes. In 1996, the Company's bicycle
and toy snow products businesses contributed approximately $106.0 million in
sales and $3.6 million in operating profit for the year then ended.
The Company's principal executive offices are located at Suite 5, 267
Highway 74 North, Peachtree City, Georgia 30269 and its telephone number is
(404) 586-9000. The Company is incorporated under Delaware law.
PRODUCTS
Fitness Equipment. Over the last decade, sales of fitness equipment in
the United States have increased primarily as a result of favorable social and
demographic factors. In particular, the post-war "baby boom" generation is a
prime user of fitness equipment. The fitness equipment market includes free
weights and benches, multi-station weight systems, skiers, stair steppers,
stationary exercise bikes, and treadmills. According to the Sporting Goods
Manufacturers Association ("SGMA"), a trade association, wholesale sales of
exercise equipment in the United States market grew by an estimated 7.0% in
1996 to a total estimated market size of $2.1 billion.
Today, the Company is a leading domestic manufacturer of a variety of
fitness equipment primarily consisting of stationary exercise bicycles,
treadmills, weight benches, stack weight and other resistance systems,
specialty fitness items, ski machines, and stair steppers. The Company's
exercise and fitness equipment is sold primarily under the DP(R) and
Vitamaster(R) names.
In 1995, the Company broadened its fitness distribution channels by
placing increased emphasis on television infomercials and television home
shopping programs including the Home Shopping Network. Management believes the
roll-out of new products in this format increases consumer awareness of the
Company's products and provides benefits of additional distribution along with
"as seen on TV" advertising campaigns for the mass merchandisers. The Body By
Jake(R), AB and Back Plus(TM) product and infomercial were selected as the Best
Infomercial Product of the Year (1995) and the Best Infomercial of the Year
(1995), respectively, by the National Infomercial Marketing Association
("NIMA").
Toys. The Company's toy products are composed of many different kinds
of products, including swing sets, trampolines, toy horses, bulk plastic toys,
and preschool "foot-to-floor" ride-ons. The Company also manufactures and sells
a variety of table and decorative lamps focusing on the children's market,
including decorative lamps employing licensed rights to various themes and
characters of Precious Moments, Inc. ("Precious Moments"). See "LICENSING"
below for additional discussion.
The Company estimates there were $102 million in wholesale sales of
residential metal swing sets and gym sets and over $525 million in bulk plastic
toys in 1996. The remainder of the toy product categories in which the Company
competes, which comprise only a portion of the total toy products market,
accounted for approximately $315 million in wholesale sales in 1996 according
to management's estimates. In recent years, the sales of toys in the United
States were bolstered by the "baby boomlet" demographic. Although demographic
trends supporting the sale of toys in the United States are not as favorable as
in recent years due to the aging of such baby boomlet demographic, the number
of children who are prime users of toy products still remains at relatively
high levels on a historical basis.
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The Company is a leading domestic manufacturer and distributor of
swing sets, toy horses, trampolines, and other toy products. The overall growth
in the toy line in recent years has been the result of increases in its market
share for traditional products, including metal swing sets and trampolines, as
well as the introduction of new products.
In 1995, the Company introduced a number of new and innovative toy
products including: the Prodigy Swing System(TM); Bounce-A-Round See-Saw(TM);
Sand Dune Rally(TM) sandbox; Having a Ball(TM) ball cage; and 8' Junior All Pro
Trampoline. Products introduced both capitalized on the Company's strong brand
names, including Flexible Flyer(R), American Playworld(R), Gym Dandy(R), and
PlaySafe(TM) and provided further line extensions to the range of toy
categories in which the Company competes. Although new toy product
introductions were minimal in 1996, as the Company concentrated on market
penetration for the products introduced in 1995 and its restructuring
activities, the Company did introduce two new products in 1996: The Lil Pit
Stop(TM) Activity Garage and Cart to Car(TM) pre-school ride-on. The Lil Pit
Stop(TM) Activity Garage received a Toy of the Year award from Parents
Magazine.
Other Recreation Products. The Company also markets and distributes
nationally a line of team sports products, back yard and lawn games, including
croquet, bocce ball, and volleyball, and sports hosiery products through its
Hutch and Willow subsidiaries, respectively.
Hutch is an official licensee for The National Football League
("NFL"), The National Basketball Association ("NBA"), The National Hockey
League ("NHL"), Major League Baseball ("MLB"), various colleges, and Reebok
International Ltd. ("Reebok"). Its major product lines include basketballs,
footballs, baseballs, baseball gloves, and football outfits. Hutch markets its
products under the Hutch(R), MacGregor(R), and Reebok(R) brands. Willow is a
licensee for the NFL as well as various colleges and universities. Willow's
products are manufactured to specification by hosiery manufacturers located in
the southeastern United States.
LICENSING
In tandem with its product and design innovation efforts, the Company
and its subsidiaries are licensees of numerous heavily promoted trademarked
themes which are used to support sales of toys, children's lighting products,
fitness products, team sports products, and certain hosiery lines. Characters
from popular television programs and feature films, and professional team and
college logos, frequently are added to increase consumer appeal. Usually, a
royalty is paid to the licensor based on a negotiated fixed percentage of
sales.
From time to time, the Company utilizes certain endorsement and
license agreements for use with its fitness marketing programs. Often these
agreements include both print and television promotions, as well as personal
appearances of certain "sports celebrities" to promote the Company's products.
In January 1997, the Company signed an exclusive license agreement with
Reebok International, Ltd. ("Reebok"). The Company and Reebok will manufacture,
distribute, and market various home fitness equipment, including Reebok(R)
treadmills, Cycle Reebok(TM) exercise bikes, Sky Walkers, and portable fitness
equipment. Management believes this strategic alliance should allow the Company
to expand its distribution channels and sell various fitness products at higher
price points. This agreement extends through March 2000, with an option to
renew for an additional four year term.
The Company has license agreements with Precious Moments, Inc. to
utilize the Precious Moments(R) characters for use with its children's lamps.
This agreement expires in March 1998.
Hutch is an official licensee for the NFL, NBA, NHL, MLB, various
colleges, and Reebok. The license agreement with Reebok is for footballs,
basketballs, volleyballs, and baseball glove products. Hutch also has an
agreement with Glenn Robinson of the NBA to use his name in endorsing their
products. Willow is a licensee for the NFL and various colleges. Current
licenses for Hutch and Willow expire at various times through December 1999.
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MANUFACTURING
The Company's fitness manufacturing operations were realigned during
1996 by moving production of weight systems, weight benches, stair steppers,
ski machines, and specialty fitness products from the Company's former fitness
production facility in Tyler, Texas to Opelika, Alabama. The Company also
relocated its stationary exercise bike production from its former Olney,
Illinois facility to Opelika with a corresponding transfer of Opelika's
mountain bike production to Olney prior to the consummation of the Second
Brunswick Transaction. The Company's weight filling operations are performed in
a secondary facility in Olney, Illinois.
The Company's facility located in West Point, Mississippi,
manufactures toy products. Lighting products are manufactured at the Company's
facilities in Kansas City and North Kansas City, Missouri. Trampolines and
related products are manufactured at the Company's facility in Ogden, Utah. The
Company maintains plastic molding capability at its West Point facility. Such
capability is utilized primarily in the manufacture of the Company's toy
product lines, including a variety of molded plastic toys.
Basic materials used by the Company are purchased primarily from
domestic sources. Certain products are currently obtainable on an economically
feasible basis only from foreign suppliers and, therefore, are subject to
changes in price as a result of changes in foreign currencies against the U.S.
dollar. Alternative domestic and/or foreign sources are available for raw
materials and components.
CAPITAL IMPROVEMENTS AND EXPANSION
The Company's capital expansion plans contemplate the investment of up
to approximately $10.0 million for plant and capital improvements of its
businesses over the next two years. The Company believes that less than half of
that amount is necessary to maintain production facilities. The majority of
these planned expenditures include projects to integrate and streamline the
Opelika facility; tooling for new products, machinery and equipment for cost
reductions; and equipment upgrades. The Company analyzes each of its investment
projects to seek to ensure that the investment yields acceptable returns and is
in accordance with the Company's current and future growth plans. See Item 2.
"PROPERTIES," and Item 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS >>LIQUIDITY AND CAPITAL RESOURCES."
DISTRIBUTION AND MARKETING
Fitness products are marketed primarily to mass merchants and through
direct marketing channels, including television infomercials. Toys are marketed
to mass market retailers, discount department stores and large chain toy
stores. Team sports and hosiery products employ similar distribution channels
as toys, including distribution to mass merchandisers and discount department
stores.
The Company maintains showrooms in New York, New York; Opelika,
Alabama; Hebron, Kentucky; and Peachtree City, Georgia. The Company
participates in trade shows, advertises in trade publications, and supplies
large numbers of catalogs to retail trade groups and consumers.
The Company advertises its products with "point of purchase" materials
and utilizes both print and TV media advertising campaigns to promote its
products, including the Company's trampolines. The Company also advertises
certain fitness products through the "infomercial" format. See "PRODUCTS,
FITNESS EQUIPMENT" for a discussion of the Company's infomercial programs.
Due to the relatively short period of time between placement of orders
for products and shipments, the Company normally does not consider its open
orders to be significant to its business. Because of rapid delivery
requirements of its customers, the Company typically maintains certain
quantities of finished goods inventories to respond to short notice demand and
to provide high service levels to its customers. However,
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since some of the Company's customers also share point of sale information
through Electronic Data Interchange ("EDI") with the Company, management
believes the Company is able to adequately project its customers' requirements,
limit its inventory levels and reduce its exposure to inventory obsolescence.
The Company either ships products directly from its plants or, in the case of
imported products, arranges for direct container shipments to certain U.S.
ports designated by customers for pickup.
The Company presently distributes and markets fitness products and a
limited number of toy products through a distribution operation in Niagara
Falls, Canada. The majority of the products distributed in Canada are
manufactured by the Company, with the remainder sourced from other suppliers.
International sales in 1996 accounted for 6.9% in 1996 versus 4.3% in 1995. Of
such international sales, in 1996 approximately 1% was attributable to sales of
toy products in the United Kingdom. In 1996, management decided to discontinue
the Company's sales efforts in the United Kingdom and management does not
believe international toy sales will be a material portion of the Company's
future international sales for the foreseeable future. Nevertheless, management
believes international sales, consisting primarily of sales of fitness products
in Canada, should continue to constitute approximately 7% of the Company's
total annual sales.
Fitness product sales are seasonal by nature, and are usually
concentrated in the first and fourth quarters of the year. This seasonality is
influenced by weather, holiday sales, and New Years' resolutions. The Company's
swing sets and backyard and lawn games sales are generally concentrated in the
second quarter of the year, while sales of team sports products are higher in
the third and fourth quarters due to the holiday season. Trampoline sales are
higher in the spring, due to the improvement in weather conditions, and in the
fourth quarter of the year as a holiday item.
CUSTOMERS
In 1996, the Company had sales greater than $10.0 million each to 11
leading mass merchandisers. Wal-Mart, Toys "R" Us, K-Mart and Sears
collectively accounted for 42.5% and 42.9%, of the Company's total sales in
1996 and 1995, respectively. One of these customers, Wal-Mart, accounted for
24.8% and 26.2% of total sales in 1996 and 1995, respectively. Other than
Wal-Mart, no other customer accounted for more than 10% of the Company's sales
in 1996 and 1995. The loss of, or a material reduction in, business from any of
these customers could adversely affect the Company's business. Although the
Company's total volume of sales is expected to be lower in 1997 due to the
divestiture of its bicycle and snow toys businesses, management does not
anticipate any material change in the Company's customer base.
COMPETITION
All of the Company's businesses are extremely competitive. The Company
competes primarily on the basis of just-in-time delivery, product innovation,
consistent quality control, and price.
Many of the Company's competitors may have substantially greater
financial resources than the Company. The Company competes in the fitness
equipment market with domestic companies such as ICON Health and Fitness, Inc.,
a subsidiary of IHF Capital and importers of foreign sourced products. In the
toy products category, the Company competes with a number of competitors,
including The Little Tikes Company, a subsidiary of Rubbermaid Incorporated;
Mattel, Inc.; and Hedstrom Corporation.
Imports of toy products and fitness equipment have subjected domestic
producers to price competition, especially over the past five years, and have
created price sensitivity. Imports constitute a significant source of
competition for the Company because the vast majority of the imports continue
to be distributed to major national and regional mass merchandisers including
the Company's major existing customers.
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PATENTS AND TRADEMARKS
The Company's toys are sold primarily under the Flexible Flyer(R)
brand name. The Flexible Flyer(R) brand name is utilized under a royalty free
license by Brunswick for certain snow toys, tricycles, wagons, and ride-on
toys. Most of the Company's fitness products are sold under the DP(R) and
Vitamaster(R) brand names. Trade names used to market the Company's team sports
products include Hutch(R), MacGregor(R), Reach(R), and Forster(R).
The Company owns numerous patents and trademarks. The Company believes
that the loss of any of its patents and trademarks (other than the DP(R),
Vitamaster(R), and Flexible Flyer(R) trademarks) would not have a material
adverse effect on its business.
EMPLOYEES
The Company and its subsidiaries have approximately 1,900 employees of
which approximately 1,300 are represented by various trade unions.
Substantially all of the Company's corporate services are provided by its
subsidiaries. Management believes the Company's relations with its employees
are good and does not anticipate material labor problems; however, in the event
of a strike or work stoppage at one or more of its facilities, the strike or
work stoppage, depending on its duration and magnitude, could result in a
disruption of the Company's operations and could have a material adverse effect
on its financial condition or results of operations.
ITEM 2. PROPERTIES
The Company's major manufacturing and distribution sites are described
below. In addition, the Company owns or leases other facilities consisting
primarily of warehouse space.
The Company's largest facility is located on a 121 acre site in
Opelika, Alabama. Such facility is leased from the City of Opelika development
authority and the Company has an option to acquire the facility for nominal
consideration. Such facility consists of approximately 1,000,000 square feet of
manufacturing and warehouse space, a portion of which is currently subleased to
unaffiliated third parties. Fitness equipment is manufactured at this facility.
The Company's weight filling operation is located in a 40,000 square
foot leased facility in Olney, Illinois.
In West Point, Mississippi, the Company leases a 315,000 square foot
facility and owns a 93,000 square foot facility where molded plastic toys,
metal and molded plastic swing sets, and hobby horses are manufactured.
The Company leases two facilities located in Ogden, Utah totaling
74,000 square feet. Trampolines and related products are manufactured at these
facilities.
The Company's Hutch and Willow operations relocated in February 1997
to a new leased 180,000 square foot facility located in Hebron, Kentucky which
includes both warehouse and office space. The warehouse is utilized for storage
and distribution of footballs, baseballs, basketballs, clothing, licensed gift
sets, and backboards.
The Company leases three facilities located in Monticello, Kentucky
totaling approximately 160,000 square feet. These facilities are utilized to
manufacture replica NFL and college football outfits, hand sewn footballs,
basketball mini backboards, MLB replica baseball outfits, and lawn games.
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The Company's Canadian distribution operation, RDM Sports and Leisure
Inc. (RDM Leisure"), located in Niagara Falls, Canada, occupies two facilities.
The Company leases a 51,200 square foot facility of which 40,000 square feet is
warehouse space used for parts, service, and storage of finished goods and the
remaining 11,200 square feet is used for the office and showroom. The Company
owns a 75,000 square foot facility located on a 5.6 acre site, primarily used
for storage of finished goods.
Subsequent to year end, the Company settled all of its obligations
with respect to its former Tyler Texas facilities. The costs of such
settlements, which will be paid over time and which aggregate, approximately
$425,000, will be charged against the existing restructuring reserve.
The Company also leases office space in Rosemont, Illinois for certain
business functions. Although the Company is actively seeking to sublease the
Tyler, Texas and Rosemont, Illinois facilities, no assurances can be given that
any such subleases can or will be obtained. See Item 7. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -
RESULTS OF OPERATION" for a discussion regarding the closing of the Tyler
facilities.
The Company's executive offices are located in approximately 1,000
square feet of leased office and showroom space in Peachtree City, Georgia.
The leased properties of the Company and its subsidiaries are held
under leases expiring over a period from 1997 to 2006. The Company believes
that property comparable to its leased properties can be obtained at a
comparable cost.
ENVIRONMENTAL MATTERS
The Company is subject to regulation under federal, state, local, and
provincial laws and regulations governing pollution and protection of human
health and the environment, including air emissions, water discharges,
management and cleanup of solid and hazardous substances, and wastes. The
Company believes that its facilities and operations are in material compliance
with all existing applicable laws and regulations. The Company cannot at this
time estimate the impact of any future laws or regulations on its future
operations or future capital expenditure requirements. The Company is not aware
of any pending federal or state legislation that would have a material impact
on the Company's financial position, results of operations, or capital
expenditure requirements.
The Company has been identified as a potentially responsible party
("PRP") for hazardous wastes in connection with the Four County Landfill
Superfund proceeding in Rochester, Indiana, pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA" or "Superfund"). CERCLA requires cleanup of sites from which there
has been a release or threatened release of hazardous substances and authorizes
the United States Environmental Protection Agency (the "EPA") to take any
necessary response action at Superfund sites, including ordering PRPs liable
for the release to take or pay for these actions. The Company disposed of
hazardous substances at the Four County Landfill, composed of paint sludge,
plating sludge, and plating pre-treatment sludge. Although the Company has been
invited to settle this matter as a de minimis party, it has not yet done so.
The Indiana Department of Environmental Management, which has responsibility
for the site, estimates the Company's liability to be less than 1% of the total
cleanup costs (approximately 0.28%). In management's opinion, based on the
proceedings and investigations to date and the amount of wastes sent by the
Company to the Four County Landfill, the costs associated with the cleanup at
this site will not have a material effect on the Company's financial condition
or results of operations.
The Company is currently conducting remedial activities at its former
Olney, Illinois manufacturing facility, where approximately 3,000 barrels of
paint waste and solvents were buried between 1974 and 1978. This site also
includes three small inactive disposal pits for paints, sludges, solvents, and
oils, and four inactive surface settling basins for plating wastewater (such
paint waste, sludges, solvents, and oils collectively referred
9
<PAGE> 10
to herein as the "contaminants"). The pits and basins were utilized by one or
more prior owners of the facility, and the burial of the barrels was carried
out by a prior owner of the facility, AMF Corporation. In 1980, the then
current owner of the facility installed six monitoring wells strategically
located near each area to monitor any migration of contaminants. Based on the
most recent results from the monitoring wells and additional sampling and
testing by an environmental engineering firm, Environmental Science &
Engineering, Inc. ("ESE"), some minor migration of contaminants has been
detected from the buried barrels toward the southern portion of the site. Since
the soil at the site is a glacial till composed of dense clay, the Company
believes, based on further investigation during the drilling of additional
monitoring wells by ESE, that the probability of significant movements of
contaminants from the buried barrels is small. ESE is currently pursuing a
testing and remedial plan for the site, which will be subject to approval by
the Illinois Environmental Protection Agency ("IEPA"). The cleanup has been
accepted as part of the State of Illinois' Voluntary Cleanup Program, which
allows the Company to clean up the site, subject to IEPA supervision and
review, without any enforcement action by the IEPA or the EPA. While no
assurances can be given, the Company believes that by participating in the
Voluntary Cleanup Program, it may be able to reduce its total cleanup costs.
The remedial program could include placement of additional monitoring wells or
other monitoring instruments, "capping" the site, installation of slurry or
containment walls or interception trenches, hydraulic containment using sump
pumps to recover contaminants and other liquids and discharge them through a
new and existing wastewater treatment facility or removal of the barrels and
surrounding soils. No assurances can be given that the costs associated with
the remedial program will not be material or that unanticipated environmental
matters resulting in additional material cost for the Company will not arise.
The Company has escrowed $10.0 million and has reserved an additional $6.4
million to cover this exposure, which will be expended over a number of years.
In management's opinion, additional costs associated with the remedial program
are not expected to have a material adverse effect on the Company's financial
condition or results of operations.
Prior to the purchase of DP by the Company, the Alabama Department of
Environmental Management ("ADEM") issued an administrative order on May 14,
1991, obligating DP to undertake various investigative activities with respect
to an inactive chrome plating tank at its Opelika facility. This area is
located on the property acquired by the Company. The required investigation
called for, among other things: (a) preparation of a "Groundwater Quality
Assessment Work Plan," (b) closure of the chrome tank area, and (c) submission
of a complete post-closure permit application for the chrome tank area. Closure
of the chrome tank area was completed in April 1992 and the Company has
subsequently worked with Alabama authorities to comply with the terms of the
order. In addition, a final Groundwater Quality Assessment Report was submitted
to ADEM in May 1994. The Company submitted its application for a post-closure
permit for the chrome tank area on July 31, 1995. In addition, the Company has
submitted a Risk-Based Closure Report seeking a Clean Closure Equivalency
Determination with respect to the chrome tank area, which would, if granted,
avoid further corrective action near the chrome tank area and additional
long-term groundwater monitoring. It is anticipated that the Company may be
required to conduct additional investigative and corrective action at the
Opelika facility. In the Resource Conservation and Recovery Act ("RCRA")
facility assessment, the EPA identified 45 solid-waste management units and one
area for further study at that portion of the Opelika facility acquired by the
Company. A contiguous land parcel, "the Materials Storage Area", which was
retained by a subsidiary of Actava, the former owner of the Sports
Subsidiaries, was identified as an additional solid-waste management unit. It
is anticipated that the EPA will require confirmatory sampling and testing for
some or all of the 45 identified solid-waste management units. Depending on the
results of this additional investigation, the Company and/or other persons 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. In connection with any investigation and corrective
action which is required at the Materials Storage Area, federal and state
environmental authorities have acknowledged that Actava has retained ownership
of this area, and are requiring Actava, rather than the Company, to undertake
and finance any necessary investigation and corrective action with respect
thereto. The ADEM and EPA permitting processes are expected to require several
years of investigation, design, construction, and negotiation. Unless the Clean
Closure Equivalency Determination is granted, subsequent post-closure care of
the chrome tank area may last as long as 30 years. The extent of the
remediation of soil and groundwater contamination that may have to be
undertaken at the Opelika facility will be determined by the results of
additional on-site investigation. Any environmental
10
<PAGE> 11
remediation costs associated with the Opelika facility will not have any effect
on the Company's income statements unless remediation costs exceed the reserve
which is established or the Company incurs liability for the Materials Storage
Area which is not covered by an environmental indemnity agreement between the
Company and Actava pursuant to which Actava has agreed to indemnify the Company
for costs and liabilities resulting from the presence on or migration of
regulated materials from the Materials Storage Area. The Company has
established $3.6 million of reserves to cover this exposure. In management's
opinion, additional costs associated with the remedial plan are not expected to
have a material adverse impact on the Company's financial condition or results
of operations.
ITEM 3. LEGAL PROCEEDINGS
The Company was a defendant, along with two other major U.S.
manufacturers of bicycles, Huffy Corporation and Murray-Ohio Manufacturing
Company, in a case brought in the U.S. District Court for the District of
Massachusetts in November 1995 (case number 95-12532), by two major importers
of bicycles manufactured in the People's Republic of China, Dynacraft
Industries, Inc. and China Bicycle Company (Holdings) Ltd. (the "Chinese
Importers"). The Chinese Importers sought to prevent these three U.S.
manufacturers of bicycles from marketing their bicycles as "Made in the USA".
The Chinese Importers brought this action under the Lanham Act and the
Massachusetts unfair trade practices statute, alleging that the three U.S.
manufacturers were deceiving retailers and the consumers by advertising the
bicycles as "Made in the USA" while making bicycles which include foreign
components and therefore are not 100% made in the U.S. The Chinese Importers
claimed that they lost over $100.0 million in sales as a result, and asserted
that amount as alleged damages. The U.S. manufacturers, including the Company,
answered and demanded a jury trial, asserting that 100% content was not legally
required, and also was impossible because some components were only available
from foreign sources, and therefore such bicycles were made in the U.S. to the
fullest economically practical extent, as well as other defenses. The Company,
together with the two other U.S. manufacturers of bicycles, settled such
litigation in the fourth quarter of 1996. The Company experienced no material
loss or gain in connection with such settlement.
In Roadmaster Corporation v. General Electric Company, Civil Action
No. 95 C 5220 (U.S. District Court for the Northern District of Illinois, filed
October 5, 1995), Roadmaster Corporation, now known as RDM Holdings, Inc.
("RDMHI") is seeking damages for breach of contract, breach of warranties,
indemnity and related claims arising out of the delivery to RDMHI by General
Electric Company ("GE") of approximately 52,600 electric motors previously
utilized in certain of the Company's fitness products, some portion of which
were defective. Pursuant to the contract created by GE's acceptance of RDMHI's
purchase orders, RDMHI is seeking to recover from GE all of RDMHI's costs,
expenses, damages and the costs of resolving customer claims arising out of the
delivery of the non-conforming GE motors. The amount of claims for out of
pocket damages exceed $10 million with additional damages for lost sales, lost
profits and attorneys fees. GE has asserted counterclaims for approximately
$2.8 million, which GE asserts that RDMHI has failed to pay for motors, and for
alleged misrepresentations made by RDMHI in notices sent to treadmill
purchasers which stated that certain treadmills could contain defective GE
motors. RDMHI is withholding payment of an amount in excess of $2.4 million,
but is doing so pursuant to the terms of the purchase orders. RDMHI is
aggressively pursuing its claims and is vigorously defending the counterclaims.
Trial is currently scheduled for later this year. Nevertheless, the Company is
unable to predict the ultimate outcome of this litigation.
Roadmaster Corp. and RDM v. Thomas Itin, Civil Action No.
95-CV-4282-JPG (U.S. District Court for the Southern District of Illinois,
filed November, 1995). The Company is a plaintiff in a declaratory judgment
action in which the Company and RDMHI seek a declaration that nothing is owed
Thomas Itin, a former director of the Company, who resigned in May 1993
pursuant to the terms of a settlement agreement regarding his departure, in
connection with the 1994 acquisition of the Sports Subsidiaries. Itin has
counterclaimed for approximately $2.5 million, which he claims is due him under
that settlement agreement. RDM contends that Itin has failed to meet the
conditions precedent to create liability to RDM (including, but not limited to,
a requirement for approval by the outside directors, which never occurred). The
Company intends to prosecute its declaratory judgment action vigorously and to
defend the counterclaim vigorously;
11
<PAGE> 12
however, the Company is unable to predict the ultimate outcome of this
litigation. Based on the advice of counsel, management believes that even if
Itin were to prevail in his claims, the maximum amount of damages under the
settlement agreement would be 1/2% of the transaction consideration, or
approximately $580,000 plus interest.
The Company is a defendant in Baldor Electric Company v. Delaware
Roadmaster Corp., Civil Action No. 96-11503-K (192nd Jud. Dist. Court of Dallas
County, Texas, filed October 31, 1996). Baldor Electric has sued RDMHI,
claiming damages in the amount of approximately $691,000, resulting from
RDMHI's alleged failure to take delivery of certain treadmill motors designed
by Baldor. RDMHI asserted that the motors were non-conforming, unmerchantable
and otherwise defective, and that, accordingly, RDMHI was justified in
rejecting the motors. RDMHI intends to defend the claim vigorously and RDMHI is
preparing and intends to pursue a counterclaim against Baldor for the costs of
cover (the cost of obtaining substitute motors) and other incidental and
consequential damages, however, the Company is unable to predict the ultimate
outcome of the litigation.
The Company, through its operating subsidiaries, is involved in
various legal proceedings which are normal to its business, including product
liability, patent infringement, contested OSHA matters, and workers'
compensation claims. In management's opinion, the ultimate resolution of those
proceedings is not likely to have a material adverse effect on the Company's
financial condition or its results of operations. The Company maintains
insurance for certain types of claims experienced in the ordinary course of its
business. From time to time the Company also may be subject to claims and/or
legal actions other than in the ordinary course of its business and which may
not be covered under its liability insurance policies. To the extent any such
matters result in substantial cash payments by the Company, whether pursuant to
one or more verdicts or settlements, regardless of whether such matters result
in actual litigation, such substantial cash payments could have a material
adverse effect on the Company's financial condition and/or results of
operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the stockholders of the Company
during the fourth quarter of the year ended on December 31, 1996.
PART II
ITEM 5. PRICE RANGE FOR COMMON STOCK
The Company's Common Stock has traded on the New York Stock Exchange
under the symbol "RDM" since December 12, 1994. The following table indicates
the high and low closing sale prices of the Common Stock on the New York Stock
Exchange:
<TABLE>
<CAPTION>
1996 1995
---------------------------- ------------------------------
HIGH LOW HIGH LOW
------------ --------------- --------------- --------------
<S> <C> <C> <C> <C>
Fourth Quarter $1.75 $1.13 $3.75 $2.13
Third Quarter 2.00 1.50 3.25 2.63
Second Quarter 2.25 1.50 3.38 2.25
First Quarter 2.75 1.88 4.00 2.75
</TABLE>
On June 20, 1997 there were 1,375 registered holders of the Company's
Common Stock.
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<PAGE> 13
DIVIDEND POLICY
Holders of Common Stock are entitled to such dividends as may be
declared by the Board of Directors and paid out of funds legally available for
payment of dividends. The Company has never paid any dividends on its Common
Stock. The Company intends to retain earnings to finance the development and
expansion of its business and does not anticipate paying cash dividends in the
foreseeable future. Future determination as to the payment of dividends is
subject to the discretion of the Board of Directors and will depend upon a
number of factors, including future earnings, capital requirements, financial
condition and the existence or absence of any contractual limitations on the
payment of dividends. For more information as to the current contractual
limitations on the payment of dividends, see Item 7. "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND
CAPITAL RESOURCES".
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<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data
for each of the years in the five-year period ended December 31, 1996. The
income statement data for the fiscal years ended December 31, 1996, 1995, and
1994 and the balance sheet data as of December 31, 1996 and 1995 have been
derived from the Company's consolidated financial statements included elsewhere
in this report. This data should be read in conjunction with Item 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," the consolidated financial statements and the notes thereto.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 15
(in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (1) (2) (3)
(4) (5) (6) (7):
Net sales $ 366,683 $ 730,875 $ 455,661 $ 312,160 $ 226,201
Cost of sales 365,401 644,268 388,871 264,031 190,951
--------- --------- --------- --------- ---------
Gross profit 1,282 86,607 66,790 48,129 35,250
Selling, general and
administrative expenses 65,405 92,814 37,976 27,055 21,589
Impairment loss 1,470 23,500 -- -- --
Restructuring expense 4,262 7,521 -- -- --
Gain on sale of subsidiaries (116,324) -- -- -- --
Gain on sale of affiliated company -- -- -- -- (709)
Interest expense, net 22,652 35,470 21,312 9,515 6,355
Other expense (income), net 7,951 7,785 (394) (103) 592
--------- --------- --------- --------- ---------
Earnings (loss) before
extraordinary item and income
tax expense (benefit) 15,866 (80,483) 7,896 11,662 7,423
Income tax expense (benefit) 11,360 (29,479) 2,896 4,029 3,726
--------- --------- --------- --------- ---------
Income (loss) before extraordinary
item 4,506 (51,004) 5,000 7,633 3,697
Extraordinary item, net of tax 3,731 -- -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss) $ 775 $ (51,004) $ 5,000 $ 7,633 $ 3,697
========= ========= ========= ========= =========
Earnings (loss) per common share:
Primary $ 0.02 $ (1.04) $ 0.16 $ 0.26 $ 0.13
========= ========= ========= ========= =========
Fully diluted $ 0.02 (1.04) $ 0.16 $ 0.25 $ 0.13
========= ========= ========= ========= =========
</TABLE>
See Succeeding Page for Footnotes to Statement of Operations and Balance Sheet
Data.
15
<PAGE> 16
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $293,212 $577,107 $515,036 $281,775 $142,864
Working capital 15,717 173,375 180,710 122,818 48,136
Total short-term debt 75,950 87,461 63,659 22,899 27,082
Long-term debt and other long-term
liabilities (excluding convertible
debentures) 24,630 237,070 180,030 110,312 59,879
Convertible Debentures (8) 51,742 51,742 51,742 51,742 --
-------- -------- -------- -------- --------
Total long-term debt and other
long-term liabilities $ 76,372 $288,812 $231,772 $162,054 $ 59,879
Stockholders' equity $ 53,240 $ 55,084 $103,097 $ 16,376 $ 14,077
</TABLE>
(1) Excludes bicycle and snow toy operations beginning September 6, 1996.
(2) Excludes operations of Nelson/Weather-Rite beginning March 8, 1996.
(3) Includes operations of MZH from March 1, 1995 through March 8, 1996.
(4) Includes operations of the Sports Subsidiaries beginning December 7, 1994.
(5) Includes operations of American Playworld, Inc. beginning March 1, 1994.
(6) Includes operations of Flexible Flyer Company beginning September 14,
1993.
(7) Includes operations of Ajay Enterprises Corporation through April 14,
1992.
(8) The Convertible Debentures are convertible into Common Stock at $4.00 per
share of Common Stock and are redeemable by the Company on or after
September 15, 1996 if the Common Stock price exceeds certain price levels.
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<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD-LOOKING STATEMENTS
Certain statements made above relating to plans, conditions,
objectives, and economic performance go beyond historical information and may
provide an indication of future results. To that extent, they are
forward-looking statements within the meaning of Section 21E of the Exchange
Act, and each is subject to factors that could cause actual results to differ
from those in the forward-looking statement. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected.
OVERVIEW AND RECENT DEVELOPMENTS
Bicycle and snow toy products accounted for 29% of the Company's net
sales in 1996, while 30% was attributable to fitness products and 17% was
attributable to toy products and 19% was attributable to the Company's other
remaining continuing operations. Total sales for the year ended December 31,
1996 decreased approximately 49.8% to $366.7 million from 1995, primarily due
to decreased revenue attributable to the divestitures of the Company's bicycle,
snow toys, and camping products businesses in 1996, as described below, and
decreased sales in the Company's fitness product lines.
The Company's business tends to have varying degrees of seasonality.
Accordingly, quarterly results may not be indicative of yearly results. See
"LIQUIDITY AND CAPITAL RESOURCES".
SALE OF CAMPING PRODUCTS OPERATIONS
The Company decided to divest its camping operations based on the
anticipated realizable values for such operations. On March 8, 1996,
substantially all of Nelson/Weather-Rite's assets, including the assets
acquired from MZH were sold to Brunswick Corporation ("Brunswick") for $120.0
million in cash and the assumption of certain liabilities aggregating $10.0
million (the "First Brunswick Transaction"). The net proceeds of such sale were
applied to reduce outstanding indebtedness. The sale included the purchase of
all the assets, and the assumption of accounts payable and accrued liabilities.
The final purchase price, as adjusted for ordinary post closing adjustments and
based on closing working capital levels, was reduced by $2.2 million. The
Company used the net proceeds to reduce its outstanding revolving credit
facility by approximately $110.0 million. The Company recognized a pre-tax gain
of approximately $24.4 million on the sale. In 1996, the Company's camping
products operations contributed approximately $19.2 million in sales and $1.2
million in operating profit for the year then ended. As a result of such
divestiture, the manufacturing and distribution of camping products is no
longer a material portion of the Company's business.
SALE OF BICYCLE AND SNOW TOYS OPERATIONS
On September 6, 1996, the Company completed the sale of the assets of
the Company's bicycle and snow toy products businesses (which also includes
tricycles, wagons, and junior ride-ons) to Brunswick for approximately $189.7
million in cash, as adjusted ("the Second Brunswick Transaction"). The Second
Brunswick transaction included the purchase of certain assets and the
assumption of accounts payable, accrued liabilities, and Industrial Revenue
Bonds affiliated with the bicycle and snow toy products businesses. In
connection with the Second Brunswick Transaction, the Company leased its former
Olney, Illinois facility to Brunswick pursuant to a long-term lease with an
option to buy the property. In connection with the Second Brunswick
Transaction, the Company also deposited $10.0 million into an escrow account to
secure the costs of the environmental remediation of the property at the Olney,
Illinois facility, for which the Company has indemnified Brunswick. In
connection with the settlement of various post-closing adjustment claims, the
Company granted a relocation credit to Brunswick under the Olney lease in the
amount of $2.2 million, which approximates three years of lease payments. The
Company recognized a pre-tax gain of $91.1 million on the
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<PAGE> 18
Second Brunswick Transaction and used the net proceeds to reduce its
outstanding indebtedness (see Note 1 of Notes to Consolidated Financial
Statements, "Background") and for other corporate purposes. In 1996, the
Company's bicycle and toy snow products businesses contributed approximately
$106.0 million in sales and $3.6 million in operating profit for the year then
ended.
See Item 2. "PROPERTIES - ENVIRONMENTAL MATTERS" and Note 12 of Notes
to Consolidated Financial Statements, "Commitments and Contingencies" for a
discussion on environmental exposures.
RESULTS OF OPERATIONS
The following table reflects the percentage relationship between net
sales and specified line items from the Consolidated Statements of Operations
and the percentage change in the dollar amount of each of such line items for
the periods indicated:
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE (DECREASE)
OF DOLLAR AMOUNTS
-------------------------------
YEAR 1996 YEAR 1995 YEAR ENDED DECEMBER 31,
-------------------------------
VS. 1995 VS. 1994 1996 1995 1994
--------- --------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Net sales (49.8)% 60.4% 100.0% 100.0% 100.0%
Gross Profit (98.5) 29.7 0.3 11.8 14.7
Selling, general and administrative
expense (29.5) 144.4 17.8 12.7 8.3
Interest expense (36.1) 66.4 6.2 4.9 4.7
Earnings before income tax
expense and extraordinary item 119.7 (1,119.3) 4.3 (11.0) 1.7
Net earnings 101.5 (1,120.1) 0.2 (7.0) 1.1
</TABLE>
Fiscal year 1996 compared to fiscal year 1995. Net sales ("sales")
decreased $364.2 million or 49.8% in 1996, compared to 1995. Approximately 21%
of this decrease was attributable to the sale of the Company's camping products
operations in the first quarter of the year, approximately 29% was due to the
sale of the Company's bicycle and snow toys operations in the third quarter of
1996, and approximately 38% of the decrease was attributable to decreased
shipments of fitness products. A portion of the decrease also related to slow
shipments of bicycle products in August. The remainder of the decrease related
to decreases in shipments of swing sets and minor decreases across various
other product lines. The decrease in fitness product sales primarily reflected
the Company's decision to eliminate distribution of certain treadmill
categories which had historically reduced operating profits. Management
believes the decrease in sales in various other product lines reflected a
relatively weak retail environment for certain recreation products.
Gross profit decreased $85.3 million or 98.5% in 1996, compared to
1995, primarily resulting from lower sales volume, the write-off of certain
fitness products inventory with no future value of approximately $10.0 million,
and the write down to net realizable value of certain toy products inventory of
approximately $2.7 million. The Company recorded gross profits in an amount
equal to 0.3% of sales in 1996 versus gross profits, expressed as a percentage
of sales, of 11.8% for the same period in 1995. The Company's fitness
manufacturing operations were impacted negatively during 1996 due to the
combined effect of higher production costs associated with introducing new
products and costs associated with the consolidation in Opelika, Alabama of the
production of fitness products previously produced in the former Tyler, Texas
and
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<PAGE> 19
Olney, Illinois facilities. In 1996, the Company completed the process of
closing its Tyler, Texas facility and leasing its Olney, Illinois facility and
consolidating its fitness operations into its Opelika, Alabama facility. While
no assurances can be given, management believes such consolidation may assist
in reducing costs, optimize the utilization of the Company's fitness
manufacturing facility, and return gross profit margins for the fitness
products to average historical levels. The benefits anticipated to be derived
from such actions are dependent in part on reducing the return rate for
products produced at such facility, which have exceeded the Company's
historical return rates for similar products previously produced at other
facilities. Accordingly, the full effect of such actions are not expected to be
fully realized, if at all, until late 1997.
Selling, general, and administrative ("SG&A") expenses, expressed as a
percentage of sales, were 17.8% in 1996 versus 12.7% for the same period in
1995. The increase was primarily attributable to product warranty costs in the
Company's fitness business. Such product warranty costs related to continuing
quality control problems at the Company's Opelika, Alabama facility as well as
to fitness products formerly produced at the Company's former Tyler, Texas
facility. Product warranty costs increased to 7.4% of sales in 1996 versus 3.8%
for 1995. Such increase was attributable to increased product warranty claims
associated with sales of fitness products. The Company has implemented or is in
the process of implementing additional measures to help reduce its product
warranty costs in the future, including: extensive piloting and testing of new
product introductions; reductions in the number of products offered; the
exiting of the opening price point treadmill business, which traditionally has
had a higher than normal product warranty rate; and the implementation of
stringent quality assurance measures. Although no assurances can be given, the
Company anticipates warranty expenses, expressed as a percentage of sales, will
decline in the future due to its efforts, however, the full effect of such
actions are not expected to be fully realized, if at all, until late 1997.
The Company in connection with the closure of the Tyler, Texas
manufacturing facility, provided for an additional $4.3 million in
restructuring charges in the third quarter of 1996. This charge related
primarily to the non-cash write-off of tooling associated with the production
process at this facility. The Company substantially completed all related
restructuring activities by December 31, 1996. Of the total restructuring
charge of $11.8 million, approximately $9.6 million had been utilized by the
end of 1996.
Interest expense for 1996 was $22.7 million, a decrease of $12.8
million from the same period of 1995. Expressed as a percentage of sales,
interest was 6.2% for 1996, compared to 4.9% for 1995. See "LIQUIDITY AND
CAPITAL RESOURCES" for a discussion regarding the reduction in the Company's
outstanding indebtedness.
Other Expense in 1996 was $7.9 million, representing mainly
amortization of other long term assets and fixed asset write-offs at the
Opelika facility.
The Company recorded a pretax gain of $91.1 million resulting from the
sale of its bicycle and snow toy products business to Brunswick on September 6,
1996. The Company recorded a pretax gain of $24.4 million resulting from the
sale of its camping products business to Brunswick on March 8, 1996.
The Company recorded a $3.7 million extraordinary loss, net of tax, on
the repurchase of $88.0 million of its 11.75% Senior Subordinated Notes due
2002.
In 1996, the Company recorded tax expense of $11.4 million
representing an effective tax rate of 71.6% as compared to an effective tax
benefit recorded in 1995 of 36.6%. The 1996 effective rate is higher than the
statutory rate primarily due to non-deductible goodwill and state income taxes
relating to the sales of the Nelson/Weather-Rite subsidiary and the bicycle and
snow toys products business. Tax benefits related to operating losses and the
extraordinary loss were recorded at 37%. See Note 10 "Income Taxes" of Notes to
Consolidated Financial Statements for further information related to income
taxes.
Fiscal year 1995 compared to fiscal year 1994. The 1995 year was a
difficult one for the Company as a variety of internal and external factors
adversely affected both revenue growth and profitability. These factors
included market pricing pressures in bicycle and fitness products, high
material costs related to
19
<PAGE> 20
cardboard, plastics and steel, elevated interest expense and higher product
warranty costs associated with fitness products. Nevertheless, overall sales
increased $275.2 million (60%) in 1995 compared to 1994. The increase was
primarily attributable to a full year of sales contributed by the Sports
Subsidiaries as well as an increase in sales of the Company's core fitness and
toy products.
Sales of fitness products increased 57% in 1995 compared to 1994 due
to increased sales of infomercial and Body By Jake(R) products and sales
attributable to the acquisition of DP. Sales of bicycles were flat for the
year, however, the Company continued to increase its market share in bicycles.
Sales of toy products increased 20% compared to 1994 due to the introduction of
several new products, including snow toys, and increasing sales of trampolines
and swing sets.
Gross profit increased $19.8 million in 1995 compared to 1994 due to
higher sales volume. Gross profit as a percentage of net sales was 11.8% verses
14.7% in 1994. This decrease was attributable to large increases in raw
material prices in steel, cardboard, and plastics in the fourth quarter of
1994, which remained in effect through much of 1995. Additionally, competitive
pricing pressures in the bicycle and fitness markets contributed to the decline
in gross profit. The Company moved to offset these factors in the second half
of the year by successfully introducing new products with higher profit
margins, by implementing price increases designed to mitigate increases in raw
material costs and by undertaking cost reduction projects. However, the total
potential impact of these improvements was dampened by softness in retail
orders in the fourth quarter.
SG&A expenses were $92.8 million or 12.7% of net sales compared to
$38.0 million or 8.3% of net sales in 1994. The increase in expenses from 1994
was due to volume related expenses such as commissions and a full year impact
of the Sports Subsidiaries acquisitions which occurred in December 1994. SG&A
expenses for the Sports Subsidiaries historically have been at higher levels
than the Company's historical levels due to a higher composition of product
warranty and administration expenses. Additionally, the Company experienced
higher than normal warranty expenses due to product warranty claims caused by
faulty treadmill motors. Product warranty expenses increased to 3.8% of sales
in 1995 versus 2.1% in 1994. Although no assurances can be given, the Company
anticipates warranty expenses, as a percentage of sales, will be lower in 1996
due to sourcing treadmill motors from new suppliers and the implementation of
stringent quality assurance measures. In 1995, the Company successfully
implemented cost reductions relating to administrative expenses including the
consolidation of certain operations and a reduction in personnel. With respect
to its fitness operations, the Company has announced plans to streamline such
operations by consolidating all fitness products manufacturing at its Opelika
facility. With respect to Hutch and Willow, the Company reduced certain
administrative costs by eliminating certain positions and consolidating
operations beginning in the second quarter of 1995. While no assurances can be
given, management believes the combination of the above actions will assist in
reducing its product warranty costs and administrative costs and will
ultimately bring such costs in line with the Company's historical percentages.
The full impact of these actions on SG&A expenses is not expected to be
realized until 1997.
The Company wrote off $23.5 million of goodwill related to the DP
fitness business since the Company determined it would not be able to recover
the associated goodwill based on an undiscounted cash flow analysis. On the
balance sheet, the $23.5 million write off of goodwill is offset against
goodwill generated on the acquisitions of MZH and Forster, as well as final
purchase accounting adjustments related to the acquisition of the Sports
Subsidiaries. See Note 5 "Impairment of Long-Lived Assets" of Notes to the
Consolidated Financial Statements for additional discussion.
The Company recorded restructuring charges of $7.5 million in 1995, in
connection with closing its Tyler, Texas facility and the change in the method
of the Company's overseas distribution operations. Although no assurances can
be given, the Company does not anticipate the change in its overseas
distribution methodology will adversely affect overseas sales. See Note 19
"Restructuring Charge" of Notes to the Consolidated Financial Statements for
additional discussion.
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<PAGE> 21
Other expense in 1995 was $7.8 million, representing mainly
amortization of other long-term assets and the write off of certain acquisition
related costs for transactions the Company is now no longer pursuing.
Additionally, the Company recognized a write down of investments that were
received in exchange for receivables from a bankrupt customer.
Interest expense for 1995 was $35.4 million versus $21.3 million in
1994. This increase in interest expense was attributable to higher interest
rates in 1995 and increased borrowings necessary to support higher inventories
and receivables resulting from the 60% increase in sales.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's working capital has been obtained
primarily from revolving lines of credit from banks and internally generated
funds. On a consolidated basis, during 1996, the Company's operations used cash
of approximately $29.3 million. The seasonal nature of the Company's sales
imposes fluctuating demands on its cash flow, due to the temporary buildup of
inventories in anticipation of, and receivables subsequent to, the peak
seasonal period, which historically has occurred around November of each year.
The Company had operating losses of $69.8 million, and $37.2 million
for the years ended December 31, 1996 and 1995, respectively. The Company's
consolidated cash, cash equivalents and cash in escrow pursuant to various
contractual obligations balance at December 31, 1996 was $44.9 million, of
which funds $12.8 million was restricted as to use. The Company obtained
waivers from the lenders in 1995 and amended its then existing revolving line
of credit agreement in 1995 and in the first quarter of 1996. The Company was
not in compliance with various financial covenants under its Bank Credit
Agreement as of December 31, 1996. In the first quarter of 1997, the Company
experienced operating losses of $5.1 million, used $15.6 million of cash for
operating purposes, and was not in compliance with various financial covenants
under its Bank Credit Agreement until the termination of such agreement in
connection with the execution of the New Loan Facility (as defined below). At
no time was the Company in default with respect to the payment of indebtedness
under the Bank Credit Agreement or the predecessor agreements thereto as in
effect in 1995 and 1996. In connection with the Second Brunswick Transaction,
on September 6, 1996, the Company terminated its then existing bank credit
facility and entered into a new bank credit agreement (the "Bank Credit
Agreement"). The Bank Credit Agreement was for a three year term, maturing
September 1999, and provided for borrowings up to $130.0 million based on
certain inventories and accounts receivable. Interest was calculated at the
Agent's referenced rate (generally the "prime rate") plus 1.25% and included a
LIBOR rate option which equaled LIBOR plus 1.25%. The monthly unused facility
fee was .25% on the available unused portion of the facility provided by the
Bank Credit Agreement. At December 31, 1996, the Company had outstanding
borrowings of $74.9 million under the Bank Credit Agreement and was not in
compliance with various financial covenants contained therein.
On June 20, 1997 (the "Closing Date"), the Company entered into a new
$100 million revolving and term credit facility (the "New Loan Facility")
pursuant to a Loan and Security Agreement (the "Loan Agreement") between the
Company's borrowing subsidiaries and certain financial institutions. Borrowers
under the New Loan Facility are the Company's operating subsidiaries and the
first tier holding company subsidiary for the operating subsidiaries. The New
Loan Facility replaced the Bank Credit Agreement which was repaid in full plus
$500,000 in prepayment fees. Borrowings under the New Loan Facility are
guaranteed by the Company and are secured by substantially all of the assets of
the Company and all of its subsidiaries. In addition, the New Loan Facility is
guaranteed by a letter of credit in the amount of $15 million in favor of the
lenders there under (the "Lenders"), which letter of credit was obtained by the
Metromedia Company, an affiliate of Metromedia International Group, Inc.
("MIG"), the Company's largest stockholder. Such Letter of Credit cannot be
drawn until five days after a payment default under the New Loan Facility and
fifteen days after a non-payment default under the New Loan Facility.
Metromedia also is entitled to receive copies of all notices required under the
Loan Agreement.
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<PAGE> 22
The New Loan Facility provides up to a $75 million revolving credit
facility and two term loan tranches aggregating $25 million. The New Loan
Facility has a four year term. Borrowings under the revolving credit portion of
the New Loan Facility are based on eligible inventory and receivables.
Borrowings and other obligations under the New Loan Facility bear interest at a
per annum interest rate equal to the base rate of the reference financial
institution (the "Reference Rate") plus one percent (1%) except $10 million of
the term loans ("Tranche A") bears interest at the Reference Rate plus 1.5%.
The rate for borrowings under the revolving credit facility is subject to
decrease to 0.5% above the Reference Rate based on the achievement of certain
pricing benchmarks and is subject to increase by 4% in the event borrowings
against inventories exceed certain levels under specified circumstances. All
borrowings are subject to an interest rate increase of 4% upon the occurrence
and during the continuance of an Event of Default as defined in the Loan
Agreement. The Reference Rate as of the date of the Loan Agreement was 8.5% per
annum.
The Loan Agreement also provides for a $750,000 closing fee, plus an
unused line fee equal to 0.25% of the average unused portion of the maximum
revolving amount (i.e. $75 million), plus an annual facility fee equal to .50%
of the total initial facility (i.e. $100 million). Additional fees and expenses
are payable to the agent for the Lenders. In consideration of providing the
letter of credit, the affiliate of MIG was granted 3 million warrants to
purchase Common Stock of the Company at an exercise price of $.50 per share.
The Warrants have a ten year term and are exercisable beginning ninety (90)
days from the Closing Date. Prepayment fees on the Bank Credit Agreement,
origination fees on the New Loan Facility, brokerage, and other closing costs
incurred by the Company in connection with the New Loan Facility aggregated
approximately $2.7 million, the majority of which were paid on the Closing
Date.
The Loan Agreement contains numerous financial and non-financial
covenants, including limitations on the incurrence of additional indebtedness,
limitations on the incurrence of liens, limitations on capital expenditures,
limitations on the sale of assets, maintenance of specified ratios of current
assets to current liabilities, total liabilities to tangible net worth and
minimum tangible net worth, all as defined in the Loan Agreement. The Loan
Agreement also contains provisions requiring additional payments to the Lenders
in the event of the early termination of the Loan Agreement.
Management believes the Company is in material compliance with the
terms of the Loan Agreement and, based on the Company's internal financial
projections, that it will be in compliance with the terms of the Loan Agreement
on an on-going basis throughout 1997. Nevertheless, no assurances can be given
that the financial results actually achieved by the Company will be in accord
with its internal financial projections or that the results actually achieved
will be sufficient to enable the Company to comply with the financial and other
covenants contained in the Loan Agreement. In the event the Company were to be
in non-compliance with any of the provisions of the Loan Agreement, there can
be no assurances that any events of non-compliance could be cured or waived or
that the Lenders would agree to any amendment of the relevant provisions of the
Loan Agreement. In the event the Loan Agreement is terminated by the Lenders
prior to its scheduled expiration date, there can be no assurance that the
Company could arrange alternative sources of financing and the Company's
inability to arrange such alternative sources of financing would raise
substantial doubt about the Company's ability to continue as a going concern. A
portion of the New Loan Facility (approximately $54 million) was utilized on
the Closing Date to refinance the Company's prior bank facility and a portion
was used to pay other indebtedness. The remaining available funds will be for
working capital and other general corporate purposes. Following borrowings made
on the Closing Date under the New Loan Facility, the Company had available
borrowing capacity under the New Loan Facility of approximately $12 million.
Management believes the availability of such funds is a necessary
component of the Company's strategy to improve its operating and financial
performance. The Company believes that borrowings available under the New Loan
Facility and internally generated funds should be adequate to implement the
strategies discussed below.
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<PAGE> 23
In 1996, the Company began to implement, and in 1997 is continuing to
implement, various strategies intended to improve its financial condition and
operating performance. These strategies include expense reduction programs,
inventory management reduction programs, reorganization of the fitness
production facility, production related employee training programs, reduction
in number of products offered, a shift from manufacturing of certain products
to sourcing, extensive piloting and testing of new product introductions, and
implementations of stringent quality assurance measures. Management expects the
full effects of such strategies will not be fully realized, if at all, until
late 1997.
The Company must satisfy all of its working capital and capital
expenditure requirements from borrowings under the New Loan Facility, from cash
provided by operating activities, from the sale of assets or external
borrowings. Despite the sale of its camping, bicycle and snow toys assets, the
Company remains highly leveraged. As noted above, substantially all of the
Company's assets have been pledged to secure borrowings under the New Loan
Facility. Sales of such assets generally require the consent of the Lenders and
management believes that sales of assets which are not replaced would generally
require payments of the indebtedness secured thereby, which indebtedness could
exceed the immediately realizable value of such assets. To the extent the
Company's access to capital is constrained, the Company may not be able to make
certain capital expenditures or implement certain other aspects of its on-going
business plan and the Company may, therefore, be unable to achieve the full
benefits expected therefrom.
The Company has two long-term debt issues, the $51.7 million
Convertible Subordinated Debentures due 2003 (the "Debentures") and $2.1
million of its 11.75% Senior Subordinated Notes due 2002 (the "Notes"). The
Debentures are redeemable at the option of the Company. Before the Company's
Debentures can be called for redemption, the Company's Common Stock must meet
or exceed a minimum closing price of $5.0625 per share for the thirty day
period prior to such notice of redemption. The Debentures are convertible, at
the option of the holders thereof, into Common Stock of the Company at a price
of $4.00 per share. The remaining Notes are redeemable at the option of the
Company beginning September 15, 1996, at a price of 105.875%. The redemption
price declines to par on or after December 15, 2000.
On August 2, 1996, the Company commenced an Offer to Purchase and
Consent Solicitation (the "Offer") to the holders of its Notes, whereby the
Company offered to purchase up to all of the then outstanding Notes not held by
the Company ($90.1 million) at a purchase price equal to one hundred percent
(100%) of such Notes' principal amount, plus accrued but unpaid interest. Such
Offer terminated on August 29, 1996. Consents to the required Waivers under the
Indenture were obtained from the holders of $88.4 million principal amount of
the Notes and the Waivers to the relevant Indenture provisions were effected
thereafter. Of such amount, $88.0 million also were purchased.
The Notes and Debentures are obligations of the Company and the
ability of the Company to meet its debt service obligations is dependent on the
ability of its subsidiaries to generate funds from operations sufficient to
meet their respective debt service and other obligations and, second, to pay or
distribute amounts to the Company sufficient to enable it to meet its debt
service and other obligations. The New Loan Facility restricts, with limited
exceptions, distributions, dividends, and payments to the Company, but in each
case, permits dividends and interest on intercompany loans to be paid to the
Company for, among other things, the purpose of making interest payments on the
Notes and Debentures so long as the relevant subsidiary is not in default under
the Loan Agreement.
At December 31, 1996 and December 31, 1995, the Company, on a
consolidated basis, had stockholders' equity of $53.2 million and $55.1
million, respectively.
The Company's capital expenditures plan contemplates the investment of
up to approximately $10.0 million for plant improvements, expansion of
production capability, and other capital improvements of its businesses over
the next two years. Such capital expenditures program could be curtailed or
deferred depending on the availability of financing and the Company believes
that less than half of that amount is
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necessary to maintain production facilities. The majority of the Company's
capital expenditures are planned for tooling of new products and cost
reductions.
AVAILABILITY OF NOLS
The Company estimates that it had, for state and federal income tax
purposes, net operating loss carryforwards ("NOLs") amounting to approximately
$10.2 million at December 31, 1996. Such NOLs expire predominantly in 2011 if
not utilized before then to offset taxable income. Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations issued
thereunder, impose limitations on the ability of corporations to use NOLs, if
the corporation experiences a more than 50% change in ownership during certain
periods. Changes in ownership in periods thereafter could substantially
restrict the Company's ability to utilize its tax net operating loss
carryforwards. There can be no assurance that an ownership change will not
occur in the future. In addition, the NOLs are subject to examination by the
IRS, and thus, are subject to adjustment or disallowance resulting from any
such IRS examination.
INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
Increases in the materials price of plastics, cardboard and steel have
had a significant negative impact in on the results of operations. The manner
in which sales programs are set causes a delay in price adjustments which
limits the Company's ability to pass some or all of these increased costs on to
the Company's customers as such costs are incurred. Furthermore, depending on
the competitive environment, the Company may or may not be able to timely pass
along material price increases to its customers.
Although the Company's foreign operations were negatively impacted by
the reduction in the value of the Canadian dollar versus the U.S. dollar, such
transaction exposure did not have a material adverse effect on the Company's
results of operations for the year ended 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All financial statements required to be filed herein are attached
hereto following Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND CERTAIN EXECUTIVE OFFICERS OF THE COMPANY
James H. Rand, age 54, has served as a director of the Company since
July 1993 and as the Company's Chief Executive Officer since June 20, 1997, the
date on which he succeeded the Company's former Chief Executive Officer. Mr.
Rand also is Chief Executive Officer and a principal stockholder of The
Excellence Group, Inc., a holding company whose operating subsidiaries are
engaged in the manufacture of paper and plastic labels for the international
beverage and food industries. Since 1986, Mr. Rand also has been President and
principal shareholder of Rand & Company, a company engaged in ship owning and
agency, real estate investment and venture capital investment. From 1993 to
1995, Mr. Rand was Chief Executive Officer of Kredietbank Global Management,
Inc., a registered investment advisory firm specializing in the investment
management of pension and other institutional accounts. From 1990 to 1991, Mr.
Rand was Senior Vice President with Wright Investor's Service, a registered
investment advisor. From 1978 to 1986, Mr. Rand was an officer of Marine
Transport Lines, Inc. ("MTL"), an independent ship owner and operator, where he
held
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<PAGE> 25
a variety of positions, including President and Chief Operating Officer
(1979-1985) and Chairman and Chief Executive Officer (1985-1986). Mr. Rand, has
since 1988, been an underwriting member of Lloyd's and since 1987 has served as
a director of Navinvest, Ltd., a private maritime investment company.
James L. Marden, age 52, has been President, Chief Operating Officer
and a director of the Company since November 1996. From December 1994 to
September 1995, Mr. Marden was a Vice President for Strategic Planning and
Business Integration at Roadmaster Corporation ("RMC"). From October 1995 to
October 1996, Mr. Marden was an independent business consultant. From December
1993 to December 1994, Mr. Marden was President and Chief Executive Officer of
Diversified Products Corporation and from January 1990 to December 1993, he was
President and Chief Executive Officer of Ryobi Corporation.
Louis J. Conti, age 78, has served as a director of the Company since
October 1992. He was previously a director of the Company from October 1987
until October 1990. From February 1975 to February 1994, Mr. Conti was a
director of Emerson Electric Company, a publicly held company engaged in the
manufacturing and marketing of electric products for the consumer and
industrial markets. From September 1990 to February 1994, Mr. Conti was a
director of Esco Electronics Corporation, a publicly held company engaged
principally in the manufacture of defense and commercial systems and products.
From 1956 to 1982, he was an officer of GATX Corporation ("GATX"), which
provides financial, leasing capital and transportation services, where he
headed various subsidiaries of that company. Mr Conti also served on the Board
of Directors of GATX from 1969 to 1978. From 1983 until his retirement in 1985,
Mr. Conti was Chairman and Chief Executive Officer of MTL, an independent ship
owner and operator. Mr. Conti also served as a director of MTL from 1983 to
1987. From 1977 through 1985, Mr. Conti was Chairman of the Reserve Forces
Policy Board of the United States Department of Defense. Mr. Conti retired from
the U.S. Marine Corps Reserve in 1979 as a Major General.
Stephen P. Bradley, age 56, has served as a director of the Company
since March 1994. Professor Bradley is the William Ziegler Professor of
Business Administration and the Senior Associate Dean for Faculty Development
at the Harvard Business School. He is currently the Faculty Chairman of the
Executive Program in Competition and Strategy and teaches Competition and
Strategy in the MBA and executive programs. He is a past Chairman of the
Managerial Economics Area at the school. Professor Bradley received his B.E. in
Electrical Engineering from Yale University in 1963, where he was elected to
TAU BETA PI, and his M.S. and Ph.D. in Operations Research from the University
of California, Berkeley, in 1965 and 1968, respectively. Prior to coming to
Harvard, he was with the Center for Exploratory Studies of the IBM Corporation.
Professor Bradley is a member of the Board of Directors of the Controlled Risk
Insurance Company, Ltd., associate editor of Interfaces, and a past member of
the editorial board of the Harvard Business Review. Mr. Bradley is a member of
the Board of Directors of XrelleNet, Inc.
Stuart Subotnick, age 55, has served as a director of the Company
since February 1997. Mr. Subotnick has been President and Chief Executive
Officer of Metromedia since December 4, 1996 and Vice Chairman of the Board of
Directors of Metromedia since November 1, 1995 and has been Vice Chairman of
the Board and a director of Orion Pictures Corporation ("Orion") since 1992. He
has been Executive Vice President of Metromedia Company and its
predecessor-in-interest, Metromedia, Inc., for over five years. Mr. Subotnick
is director of Metromedia and Carnival Cruise Lines, Inc.
Silvia Kessel, age 46, has been a director of the Company since
February 1997. She has been Senior Vice President, Chief Financial Officer and
Treasurer of Metromedia since November 1, 1995 and Executive Vice President and
a director of Orion since January 1993. She was Senior Vice President of Orion
from June 1991 to November 1992 and has been Senior Vice President of
Metromedia Company since January 1994. Ms. Kessel was President of Kluge &
Company from January 1994 and a Managing Director of Kluge & Company (and its
predecessor) from April 1990 to January 1994. Ms. Kessel is Director of
Metromedia. Silvia Kessel served as an Executive Officer of Orion on the Filing
Date.
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During the first and second quarters of 1997, Messrs. Clay C. Long and
Carl E. Sanders had resigned from the Board of Directors. Messrs. Long and
Sanders had served on the Board since December 1994. On June 20, 1997, Mr.
Henry Fong resigned from all positions with the Company and its subsidiaries.
ADDITIONAL EXECUTIVE OFFICERS OF THE COMPANY
Charles E. Sanders, age 48, has served as the Company's Principal
Accounting Officer since November 1995 and as the Company's Vice President and
Secretary since 1993. Mr. Sanders has been Executive Vice
President-Administration and Treasurer of a principal subsidiary of the Company
since August 1994 and prior to that was Vice-President-Treasurer of a principal
subsidiary of the Company from September 1990 to August 1994. Mr. Sanders has a
B.S. degree in accounting from Southern Illinois University. Mr. Sanders has
been employed by the Company or its predecessor since 1971.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's executive officers, directors and persons who
beneficially own more than ten percent of the Common Stock to file initial
reports of ownership of the Company's securities and reports of changes in such
ownership with the Securities and Exchange Commission (the "SEC"). Persons
subject to these reporting requirements are also required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file. Based
solely on a review of copies of the SEC reporting forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the Company's fiscal year ended
December 31, 1996, all such executive officers and directors of the Company
made all required Section 16(a) filings on a timely basis, except for James L.
Marden, who inadvertently failed to timely file a Form 3 Report upon his
appointment as President and Chief Operating Officer of the Company.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning compensation
received by the Company's Chief Executive Officer and each of the three most
highly compensated executive officers (other than the Chief Executive Officer)
who earned more than $100,000 during 1996 ("Named Executive Officers") for
services
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<PAGE> 27
rendered in all capacities (including service as a director or as an officer or
director of the Company's subsidiaries) during the Company's last three years
during which the Named Executive Officer was an executive officer:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation (1) Long Term Compensation Awards
----------------------- -----------------------------
Securities
Name and Principal Other Annual Underlying All Other
Position at Bonus Compensation Restricted Stock Options Compensation
December 31, 1996 Year Salary ($) ($)(2) ($) Award(s)($) (#) ($)
- ----------------- ---- ---------- ------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Henry Fong (3) 1996 600,000(4) -- -- -- -- 1,645,061(5)
Chief Executive Officer 1995 600,000(4) -- -- -- --
1994 71,154(7) -- -- 1,453,125(8) 750,000(9) 1,515,584(6)
James L. Marden (11) 1996 41,667 -- -- -- 1,208,500(10)
President and Chief 1995 -- -- -- -- --
Operating Officer 1994 -- -- -- -- -- --
Charles E.Sanders(12) 1996 111,000 -- -- -- -- 78,886(13)
Vice-President and 1995 111,000 -- -- -- -- 100,441(14)
Secretary 1994 -- -- -- -- -- --
Edward E. Shake(15) 1996 323,020(16) -- -- -- -- 347,726(17)
Former Chief Operating 1995 450,000(16) -- -- -- -- 490,819(18)
Officer 1994 228,520(7) 67,000 -- 1,089,844(19) 281,250(2) 372,532(21)
</TABLE>
(1) The amounts shown do not include certain indirect compensation, the
value of which for each Named Executive Officer did not exceed the lesser
of $50,000 or 10% of the aggregate compensation for such officer.
(2) No amounts were earned by any of the Named Executive Officers in 1995
or 1996 under the Company's Annual Bonus Plan due to the failure to meet
Bonus targets.
(3) Mr. Fong resigned from all his positions with the Company and its
subsidiaries, including as Chief Executive Officer and director of the
Company, on June 20, 1997.
(4) Represents salaried compensation payable to Mr. Fong pursuant to the
terms of an Employment Agreement. See "--EMPLOYMENT AGREEMENTS."
(5) Includes aggregate payment of $577,015 representing further partial
payment for services rendered in 1993 in connection with the successful
completion of the offerings for the Company's Convertible Subordinated
Debentures (the "Debenture Offering") and its Senior Subordinated Notes
(the "Notes Offering") and the acquisition of the Flexible Flyer division
of Par Industries, Inc. (the "Flexible Acquisition") plus an aggregate
payment of $974,400 for services rendered in 1994 in connection with the
successful acquisition of the assets of American Playworld and for
services rendered in negotiating the Company's 1994 revolving credit
facility. Also includes an aggregate of $89,896 with respect to a split
dollar life insurance policy for Mr. Fong representing the premiums paid
for the term life insurance portion of such policy and the "loan value"
of the premiums paid for the non-term life insurance portion of such
policy. Also includes $3,750 representing the Company's 1996 ESOP
contribution on behalf of Mr. Fong. The unpaid balance for all items of
deferred compensation owed to Mr. Fong at December 31, 1996 was $800,000,
all of which was paid subsequent to year end in the first quarter of
1997. See footnote 6 below.
(6) Includes aggregate payment of $292,670 representing further partial
payment for services rendered in 1993 in connection with the successful
completion of the offerings for the Company's Convertible Subordinated
Debentures (the "Debenture Offering") and its Senior Subordinated Notes
(the "Notes
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<PAGE> 28
Offering") and the acquisition of the Flexible Flyer division of Par
Industries, Inc. (the "FlexibleAcquisition"). Payment of the foregoing
amounts was not deferred at the election of the named officer. See
footnote (10) below. Also includes the payment of $595,000 for services
rendered in connection with activities leading to the acquisition of the
Sports Subsidiaries. Also includes payment of a one-time award of
$510,000 approved by the Board in 1994. Payment of the deferred amounts
were not deferred at the election of the named officer. Also includes an
aggregate of $117,914 with respect to a split dollar life insurance
policy for Mr. Fong representing the premiums paid for the term life
insurance portion of such policy and the "loan value" of the premiums
paid for the non-term life insurance portion of such policy. The unpaid
balance for all items of deferred compensation owed to Mr. Fong at
December 31, 1995 was $2,351,415, including $800,000 in deferred
compensation awarded in connection with negotiation of the Company's then
outstanding bank loan agreement and the subsequent 1992 amendment
thereof, which deferred compensation inadvertently was not reported in
the Company's 1994 and 1995 annual report. Such compensation was not
deferred at the election of the named officer. (7) Includes $30,000
for Mr. Fong and $30,000 for Mr. Shake in 1994 for their services as
directors of the Company and its subsidiaries. Effective October 1994,
the Company revised its director compensation policy such that only
non-employee directors are eligible to receive compensation for their
service as directors. (8) Represents the value of restricted stock
granted to Mr. Fong pursuant to the Company's Key Employee Stock
Incentive Plan (the "KESIP"). Shares vest on the fifth anniversary of the
date of grant, subject to certain accelerated vesting rights, including
in the event of a Change in Control (as defined in the KESIP). On
December 31, 1996, Mr. Fong held 375,000 shares of restricted stock
valued at $468,750, based on the closing sales price of the Common Stock
on the New York Stock Exchange on the last business day prior to such
date. (9) Represents options granted to Mr. Fong under the KESIP.
Twenty percent (20%) of the total options granted vested as of the date
of grant and twenty percent (20%) vest on each anniversary of the initial
date of grant. (10) Consists of partial payments for services rendered
in 1993 in connection with the successful completion of the Debenture
Offering, the Notes Offering and the Flexible Acquisition. Payment of the
foregoing amount had not been deferred at the election of the named
officer. See footnotes 4 and 9. Excludes $595,000 payable to the named
officer, subject to conditions subsequent, for services rendered in
connection with activities leading to the acquisition of the Sports
Subsidiaries. As of December 31, 1994, such payment was contingent on the
assimilation of the Sports Subsidiaries into the Company. Also excludes a
one-time award of $510,000 approved by the Board of Directors in 1994 and
payable in 1995, which was subject to the named officer's continued
employment at such time, for services to be performed by Mr. Fong in 1995
and beyond. Payment of the deferred amounts were not deferred at the
election of the named officer.
(11) Mr. Marden became an executive officer of the Company upon his
appointment as President and Chief Operating Officer on October 30, 1996.
Accordingly, only compensation information for 1996 is reported for Mr.
Marden. Excludes $192,000 paid to Mr. Marden in 1996 pursuant to the
terms of a Severance and Consulting Agreement between Mr. Marden and the
Company entered into in 1995 in connection with the acquisition of the
Sports Subsidiaries.
(12) Mr. Sanders became an executive officer of the Company upon his
appointment as Principal Accounting Officer of the Company in 1995.
Accordingly, only compensation information for 1995 and 1996 for Mr.
Sanders is reported.
(13) Includes a one-time award of $75,000 approved by the compensation
committee of the board of directors in 1996, payable in 1996, for
services rendered in connection with divestitures in 1996. Also includes
$1,111 representing the Company's estimated matching contribution of its
401(k) plan and $2,775 representing the Company's 1996 ESOP contribution
on behalf of Mr. Sanders.
(14) Includes a one-time award of $80,000 approved by the Board of
Directors in 1994, payable in 1995, subject to the named officer's
continued employment at such time, for services to be performed by Mr.
Sanders, in 1995 and beyond, which are expected to benefit the Company.
Payment of the deferred amounts were not deferred at the election of the
named officer. Also includes $15,000 for services in
28
<PAGE> 29
connection with activities leading to the acquisition of the Sports
Subsidiaries. As of December 31, 1994, such amount was contingent on the
assimilation of the Sports Subsidiaries. Also includes $1,110
representing the Company's matching contributions under its 401(k) Plan
and $3,752 representing the Company's 1995 contribution to the Company's
1990 Employee Stock Ownership Plan and Trust (the "ESOP") on behalf of
Mr. Sanders. Such latter amount includes the market value of 925 shares
and cash of $1,487 allocated to Mr. Sanders' account for the purchase of
shares pursuant to the ESOP.
(15) Mr. Shake resigned from all positions with the Company following the
consummation of the Second Brunswick Transaction. For a discussion of
the terms of the Severance Agreement between Mr. Shake and the Company
which was entered into as of September 6, 1996 (the "Shake Severance
Agreement"), see "Employment Agreements."
(16) Represents salaried compensation paid to Mr. Shake pursuant to
the terms of an Employment Agreement. (See "--EMPLOYMENT AGREEMENTS").
Such agreement was terminated pursuant to the terms of the Shake
Severance Agreement.
(17) Includes $304,925 paid pursuant to the terms of the Shake Severance
Agreement and $42,801 representing the premiums paid with respect to the
term loan portion of a split dollar life insurance policy for Mr. Shake
and the loan value of the premiums paid for the non-term loan portion of
such policy paid prior to the date of such Severance Agreement.
(18) Includes payment of $262,500 representing final payment for services in
1993 in connection with the successful completion of the Notes Offering.
Also includes payment of a one-time award of $100,000 approved by the
Board of Directors in 1994. Also includes $60,000 representing final
payment for activities leading to the acquisition of the Sports
Subsidiaries. Payment of the deferred amounts were not deferred at the
election of the named officer. Also includes $1,500 representing the
Company's matching contribution under its 401(k) Plan and $3,752
representing the Company's 1995 ESOP contribution on behalf of Mr. Shake.
Such latter amount includes the market value of 1,000 shares of Common
Stock and cash of $1,603 allocated to Mr. Shake's account for the
purchase of shares pursuant to the ESOP. For each period indicated, all
of Mr. Shake's ESOP shares are fully vested pursuant to the terms of the
ESOP. Also includes $3,600 of premiums paid for a term life insurance
policy for Mr. Shake. Also includes an aggregate of $56,467 with respect
to a split dollar life insurance policy for the named executive officer
representing the premiums paid for the term life insurance portion of
such policy and the "loan value" of the premiums paid for the non-term
life insurance portion of such policy.
(19) Represents the value of restricted stock granted to Mr. Shake
pursuant to the KESIP. At December 31, 1996, shares vested on the fifth
anniversary of the date of grant, subject to certain accelerated vesting
rights, including in the event of a Change in Control. On December 31,
1995, Mr. Shake held 281,500 shares of restricted stock valued at
$667,969 based on the closing sales price of the Common Stock on the New
York Stock Exchange prior to such date. In connection with the terms of
the Severance Agreement, vesting of 151,875 shares of the 281,250 shares
was accelerated to September 6, 1996 and the remaining shares were
forfeited.
(20) Represents options granted to Mr. Shake under the KESIP at December
31, 1995, twenty percent (20%) of the total options granted vested as of
the date of grant and twenty percent (20%) of the total vested on each
anniversary of the date of grant. In connection with the terms of the
Severance Agreement, vesting of 39,375 options was accelerated to
September 6, 1996, and the remaining options were forfeited.
(21) Includes $367,500 awarded in 1994 for the named officer's services
in negotiating the Company's 1994 revolving credit facility. Also
includes $1,421 representing the Company's matching contribution under
its 401(k) Plan and $3,611 representing the market value of 996 shares
allocated to Mr. Shake pursuant to the ESOP. Excludes a one-time award of
$100,000 approved by the Board of Directors in 1994, which was paid in
1995, for services performed by Mr. Shake, which were expected to benefit
the Company in 1995 and beyond. Also excludes $60,000 payable to the
Named Executive Officer, subject to conditions subsequent, for activities
leading to the acquisition of the Sports Subsidiaries into the Company.
As of December 31, 1994, such payment was contingent on the assimilation
of the Sports Subsidiaries into the Company. See footnote 18. Payment of
the deferred amounts were not deferred at the election of the named
officer.
29
<PAGE> 30
The following table sets forth certain information concerning
unexercised options held at December 31, 1996 by the Named Executive
Officers listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
-------------------------------- --------------------------------------------
RATES OF STOCK PRICE APPRECIATION FOR
-------------------------------------
FOR OPTION TERM(2)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
NAME OPTIONS EMPLOYEES IN PRICE EXPIRATION 5% 10%
- ---- GRANTED (#) FISCAL YEAR ($/SH)(1) DATE $ $
----------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
James L. Marden 250,000(3)(5) 50% 1.50 10/30/06 235,835 597,638
James L. Marden 250,000(4)(5) 50% 1.50 10/30/06 235,835 597,638
</TABLE>
(1) Based on the closing price of the Common Stock on the date of grant.
Subsequent to year end, on May 28, 1997, the exercise price was reduced
from $1.50 to $1.00 per share.
(2) These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock and overall market conditions.
There can be no assurance that the amounts reflected in these columns
will be achieved or if achieved will exist at the time of any option
exercise. Option term is for 10 years.
(3) These options were granted on October 31, 1996, with incremental
monthly vesting of one-twelfth of the options beginning on November 30,
1996 and ending on October 31, 1997. Option term is for 10 years.
(4) These options were granted on October 31, 1996. Option term is for 10
years. All of such options will vest on October 31, 1997 if specific
management goals are fulfilled.
(5) In the event of a "change in control" of the Company as defined
in the option, all shares under these options shall become immediately
vested and exercisable. The following table sets forth certain
information concerning unexercised options held at December 31,1996 by
the Named Executive Officers listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)
Number of Securities Value of Unexercised In-the-
Shares Underlying Unexercised Money Options at
Acquired on Value Realized Options at FY-End (#) FY-End ($)(2)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Henry Fong --- --- 690,000/300,000 ---/---
James L. Marden --- --- 53,800/466,200 ---/---
Charles E. Sanders --- --- 56,000/8,000 ---/---
Edward E. Shake --- --- 773,423/0 ---/---
</TABLE>
(1) No options were exercised by the Named Executive Officers during 1996.
Options herein include warrants to purchase shares of Common Stock.
(2) Based on the closing sales price for the Common Stock as reported on the
New York Stock Exchange on December 31, 1996 of $1.25 per share.
30
<PAGE> 31
PENSION PLAN
The Roadmaster Corporate Retirement Benefit Plan for Salaried Employees
(the "Pension Plan"), a noncontributory defined benefit plan, was amended
effective December 31, 1989 to provide that no hours of service, years of credit
service, compensation increase or other service performed after December 31,
1989 would be counted for any purpose under the Pension Plan, so that all
benefit accruals under the Pension Plan would cease effective as of December 31,
1989 and all participants in the Pension Plan would be fully vested in their
accrued benefits effective as of December 31, 1989.
As of December 31, 1996 Mr. Sanders and Mr. Shake were the only
executive officers eligible to participate in the Pension Plan. Benefits
provided under the Pension Plan for Mr. Sanders and Mr. Shake are frozen at
$4,048 and $7,503 per year, respectively. Such benefits are payable at age 65
(normal retirement age). Benefits provided under the Pension Plan are in
addition to normal Social Security retirement benefits and maximum benefits
under the Pension Plan currently are limited to $115,641 for each participant.
EMPLOYMENT AGREEMENTS
In 1994, Messrs. Fong and Shake each entered into five year employment
agreements with the Company. In 1996, James Marden entered into a one year
employment agreement with the Company. Such employment agreement was amended
subsequent to year end to extend the term thereof to a total of four years.
Certain provisions of such Employment Agreements are discussed below.
As described above, Mr. Fong resigned from all his positions with the
Company and its subsidiaries, including as Chief Executive Officer and director
of the Company, on June 20, 1997. The Employment Agreement for Mr. Fong was
subject to automatic renewal for additional one year terms unless terminated by
either Mr. Fong or the Company upon thirty days written notice prior to the end
of the initial or successive terms. The Company and Mr. Fong have entered into
discussions with respect to the amount owed to Mr. Fong in settlement of all
amounts owed to him under the Employment Agreement or otherwise. In the event
the Company and Mr. Fong cannot agree on such amount within sixty (60) days of
Mr. Fong's resignation, each party will be able to assert any and all rights
under the Employment Agreement which they may have had at such time as if such
resignation had not occurred.
The Employment Agreement for Mr. Fong provided that for all services
rendered under such agreement, the Company would pay Mr. Fong a salary of
$600,000 per year. In addition, the Company agreed to provide Mr. Fong with
such other benefits as may, from time to time, be approved by the Board of
Directors. The Employment Agreement required Mr. Fong to devote his full time,
attention and energies to the business of the Company, except that Mr. Fong was
permitted to continue to serve as President and a director of Equitex and to
pursue such other business investments (other than as an employee) as he
elected as long as such duties and pursuits did not interfere with his duties
to the Company and did not directly or indirectly compete with the Company and
its operations.
Pursuant to his Employment Agreement, Mr. Fong agreed to certain
covenants with respect to confidential information of the Company and agreed
that during the term of his employment and for a period of twenty-four months
thereafter, irrespective of the manner or reason for termination of his
employment, that he would not engage in, supervise, assist or own any interest
in any entity engaged in substantially the same business as the Company in the
geographic areas in which the Company operates.
Mr. Fong's Employment Agreement provided for Mr. Fong's termination
"for cause" by the affirmative vote of a majority of the Board of Directors
entitled to vote thereon. "Cause" was generally defined as (i) conviction of a
felony; (ii) willful refusal by Mr. Fong to perform material duties and
responsibilities required in connection with his employment; (iii) breach of
any covenant, warranty, representation or condition in Mr. Fong's Employment
Agreement; (iv) substantial disability for a specified period or (v) any
misappropriation, theft or embezzlement of funds of the Company or any other
act of fraud or deceit.
31
<PAGE> 32
Mr. Fong's Employment Agreement also provided that it could be
terminated without cause by the affirmative vote of two-thirds of the members of
the entire Board of Directors if the Company was "profitable" and by the
affirmative vote of a majority of the Board if the Company was not "profitable."
For purposes of Mr. Fong's Employment Agreement, the Company would be deemed to
be profitable if the most current audited consolidated financial statements of
the Company and its subsidiaries for the preceding fiscal year reflected
positive net income from continuing operations calculated in accordance with
generally accepted accounting principles.
Finally, Mr. Fong's Employment Agreement also provided that it could
be terminated without cause while the Company was not profitable, in such event
the Company would have been obligated to continue to pay Mr. Fong all
compensation payable under his Employment Agreement during the remainder of its
then current term.
The terms of Mr. Shake's Employment Agreement were substantially
similar to Mr. Fong's, except that Mr. Shake's Employment Agreement provided
for a salary of $450,000 per year and further provided that if Mr. Shake's
Employment Agreement was terminated without cause while the Company was
profitable, the Company would be obligated to continue to pay Mr. Shake all
compensation payable under his Employment Agreement for the longer of the
remainder of its then current term or twenty-four months. Mr. Shake's
Employment Agreement was terminated by mutual agreement without further
obligation on the part of either party thereto. Pursuant to the Severance
Agreement entered into between Mr. Shake and the Company, Mr. Shake received
(i) a cash payment of $304,925, (ii) continuation of the split dollar life
insurance plan in accordance with its terms, (iii) accelerated vesting of
151,875 shares of Common Stock previously granted to him under the KESIP, (iv)
prorated vesting of options from the last vesting date through the date of
severance, such that the vesting of 39,375 options was accelerated, (v) the
extension of the expiration date for an aggregate of 621,548 warrants then held
by Mr. Shake to and through September 6, 1998, and (vi) an additional cash
payment of approximately $284,465 based on the Company's repurchase from him of
165,387 shares of Common Stock previously issued to him pursuant to the
exercise of Warrants. See Item 13. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS". Such shares were repurchased at a purchase price of $1.72 per
share, which was equal to the average closing price of the Common Stock over
the 30 trading days preceding the date of the Severance Agreement. Under the
terms of the Severance Agreement, Mr. Shake was obligated to repay immediately
to the Company approximately $240,100, representing principal and accrued
interest on a loan from the Company in 1993 to fund the purchase of such
shares.
Effective as of November 1, 1996, the Company entered into an
Employment Agreement with James L. Marden whereby Mr. Marden agreed to serve as
President and Chief Operating Officer of the Company. The Employment Agreement
had an initial one year term and was subject to additional one year extensions
upon agreement of the parties. Subsequent to year end, on June 12, 1997, Mr.
Marden's Employment Agreement was amended to provide for an initial term of
four years from the date of the Amendment, subject to additional one year
extensions upon agreement of the parties.
The Employment Agreement for Mr. Marden provides that for all services
provided under such agreement, the Company will pay Mr. Marden a salary of
$250,000 per year. The Employment Agreement also provides that Mr. Marden is
eligible for an annual bonus of up to $125,000, based upon the achievement of
certain performance goals and levels as determined by the Compensation
Committee of the Company's Board of Directors. The Employment Agreement also
provides Mr. Marden with a $500 per month automobile allowance, as well as such
other employee benefits generally made available to the Company's executive
officers. Pursuant to the Employment Agreement, the Company also awarded Mr.
Marden options to purchase an aggregate of 500,000 shares of Common Stock of
the Company. The Employment Agreement requires Mr. Marden to devote his full
time, energy and skill to the business of the Company.
Pursuant to his Employment Agreement, Mr. Marden has agreed to certain
covenants with respect to confidential information of the Company and has
agreed that, during the term of his employment and for a period of up to two
years thereafter, he will not engage in, directly or indirectly, any business
activity in the
32
<PAGE> 33
United States in competition with the Company. Mr. Marden's Employment
Agreement provides for termination for "cause" and for termination without
cause. "Cause" is generally defined as (i) the commission or conviction of a
felony or other act involving dishonesty; (ii) a material breach of Mr.
Marden's obligations under the Employment Agreement, or (iii) reckless or
willful failure to perform his employment duties. The Employment Agreement may
also be terminated without cause at any time, in which event Mr. Marden will be
entitled to receive severance compensation equal to his then existing base
salary for the remainder of the term of the Employment Agreement. On May 28,
1997, the outstanding options issued to Mr. Marden were amended to decrease
the exercise price thereof from $1.50 per share of Common Stock to $1.00 per
share of Common Stock.
Directors' Fees and Compensation
All directors are reimbursed for all expenses incurred in attending
board and committee meetings. Each director who is not an employee of the
Company also is paid: (i) an annual retainer of $20,000, payable in equal
monthly installments; (ii) $1,000 for each Board meeting attended and (iii)
$1,000 per committee meeting attended for committee meetings conducted on a
date different from the date of a meeting of the Board of Directors. In
addition, each non-employee director is eligible, pursuant to the Company's
Directors' Restricted Stock Plan (as described below), to receive each year
that number of shares of Common Stock having a Fair Market Value of $10,000
upon annual reelection to the Board. Effective May 1, 1997, the Compensation
Committee recommended and the Board of Directors approved a reduction in the
amount of the annual retainer to $15,000.
Directors' Restricted Stock Plan
In October 1994, the Board of Directors adopted a new multi-year
Directors' Restricted Stock Plan (the "DRSP") for its outside directors as a
means of encouraging Common Stock ownership and to more closely align the
interests of its outside directors with the interests of the Company's
stockholders in general. The DRSP is intended to be a self-administering plan
which permits the participation of all non-employee directors. The DRSP
provides that during the term of such plan, each individual who is elected to
serve as a non-employee director will, on the day immediately following the
non-employee director's election to the Board, be granted restricted stock
having a value on such date of $10,000. The number of shares to be granted is
calculated by dividing $10,000 by the Fair Market Value (as defined) of the
Common Stock on the date of grant. Annual grants in the same amount will be
made each time an individual is elected or re-elected to serve as a
non-employee director. Shares generally vest upon the last day of the
director's term for which shares were awarded; provided, however, that all
unvested shares will become one hundred percent (100%) vested upon the death,
disability or retirement of the participant or upon the effective date of a
Change in Control (as defined in the DRSP) of the Company. A total of 87,500
shares are available for grant under the DRSP, of which 22,400 shares had been
granted as of December 31, 1996. Each then non-employee director was awarded
6,957 shares on January 8, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 20, 1997, certain
information concerning ownership of Common Stock by: (i) each person who is
known by the Company to own beneficially more than 5% of the Common Stock, (ii)
each director individually, (iii) the Company's Chief Executive Officer and
each of its other Executive Officers, and (iv) all directors and executive
officers of the Company as a group. The determinations of "beneficial
ownership" of Common Stock are based upon Rule 13d-3 under the Exchange Act.
Such rule provides that shares will be deemed "beneficially owned" where a
person has, either solely or in conjunction with others, the power to vote or
to direct the voting of shares and/or the power to dispose, or to direct the
disposition of, shares or where a person has the right to acquire any such
power within 60 days after the date such "beneficial ownership" is determined.
33
<PAGE> 34
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1)
- ------------------------------------ ------------
<S> <C> <C>
Equitex, Inc(2)............................................................ 5,185,787 10.5%
James L. Marden(3)(4)........................................................ 200,100 *
Charles E. Sanders(5)(6)(7).................................................. 164,122 *
Louis J. Conti(8)(9).......................................................... 85,157 *
James H. Rand(9)(10).......................................................... 35,157 *
Stephen P. Bradley(9)(11)..................................................... 35,157 *
Stuart Subotnick (12)(13)................................................. 19,169,000 38.7%
Silvia Kessel (12)(13)............................................................. 0 *
Metromedia International Group, Inc. (12)(14)............................. 19,169,000 38.7%
All executive officers and directors as a group (7 persons)(15) .......... 19,688,693 39.5%
-----------
</TABLE>
* Less than 1%.
(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) Based on an amendment to a Schedule 13G filed February 13, 1997,
Equitex, Inc. reports its address is 7315 E. Peakview Avenue, Englewood,
Colorado 80111. Equitex also reports its share holdings include 43,750
shares issuable upon the conversion of $1,750 of the Company's
Debentures.
(3) The address of Mr. Marden is 309 Williamson Ave., Opelika, Alabama
36803.
(4) Includes an aggregate of 200,100 shares issuable pursuant to options
exercisable within 60 days.
(5) The address of Mr. Sanders is 309 Williamson Ave., Opelika, Alabama
36803.
(6) Includes 44,000 shares issuable pursuant to warrants exercisable within
60 days and 12,000 shares issuable pursuant to options exercisable
within 60 days. Includes 19,022 shares in the Company's ESOP and 401(k)
Plan allocated to Mr. Sanders as of the last Plan report date. Includes
17,100 shares of Common Stock as to which Mr. Sanders has shared
investment and voting power. Also includes 72,000 shares held directly
by Mr. Sanders as to which Mr. Sanders has sole voting and investment
power.
(7) This excludes ESOPS and 401(K) shares yet to be allocated.
(8) The address of Mr. Conti is 185 Barra Lane, Inverness, Illinois 60067.
(9) Includes 25,000 shares issuable pursuant to options exercisable within
60 days.
(10) The address of Mr. Rand is c/o Koch Label Company, L.L.C., 1011 High
Ridge Road, Stamford, Connecticut 06905.
(11) The address of Mr. Bradley is Harvard Business School, Morgan Hall, 240
Soldiers Field Road, Boston, Massachusetts 02163.
(12) The address of Mr. Subotnick, Ms. Kessel and Metromedia International
Group is One Meadowlands Plaza, East Rutherford, New Jersey 07073.
(13) Includes all 19,169,000 shares owned by Metromedia International Group,
Inc. as to which Mr. Subotnick disclaims beneficial ownership.
(14) The address of Metromedia International Group, Inc. is One Meadowlands
Plaza, East Rutherford, New Jersey 07073.
(15) Includes an aggregate of 331,100 shares issuable pursuant to warrants
and options exercisable within 60 days.
34
<PAGE> 35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company retains office space in Englewood, Colorado which formerly
served as its executive offices. Such space is provided to the Company by
Equitex which, in turn, leases such space for $2,500 per month from a
partnership of which Mr. Fong and his wife are the sole partners. Mr. Fong is
the President, a director and holder of approximately 5% of the capital stock of
Equitex. From 1991 to 1995, the Company has paid approximately 50% of the lease
payments plus the actual costs of telephone services attributable to it and the
actual costs of certain stockholder services, principally reproduction of
Company reports and associated mailing costs. In 1996, the Company paid 80% of
the lease payments plus the actual costs of telephone services attributable to
the Company and the costs of certain stockholder services, principally
reproduction of Company reports and associated mailing costs. Pursuant to such
cost-sharing arrangements, the Company made payments to Equitex of $60,152 in
1996. The Company believes these terms and its portion of the underlying lease
payment to be no less favorable than those which could be obtained from
non-affiliated parties in the same area. The Company anticipates that it will
consolidate all office functions conducted in such office space to its Peachtree
City office in 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
------------------------------------------------------------
ON FORM 8-K
-----------
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation (1)
3.2 Amended and Restated By-Laws (1)
4.1 Indenture dated as of July 15, 1993 between the Company as Issuer and
LaSalle National Bank as Trustee (1)
4.2 Indenture dated as of December 15, 1993 among the Company as Issuer and
LaSalle National Bank as Trustee (1)
10.1 Loan and Security Agreement Dated as of December 6, 1994 among
Roadmaster Corporation, Roadmaster Leisure Inc., Hutch Sports USA, Inc.,
Nelson/Weather-Rite, Inc., Willow Hosiery Company, Inc. and Bank America
Business Credit, Inc. (1)
10.2 Agreement and Plan of Reorganization dated 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. (2)
10.3 Employment Agreement for Henry Fong dated December 6, 1994 (1)
10.5 Promissory Note in the principal amount of $1,625,000 payable by
Roadmaster Corporation to the Company dated August 10, 1987 (3)
10.12 Consulting Agreement by and between Registrant and Equitex, Inc. (3)
10.14 Letter dated December 8, 1987 from the City of Olney, Illinois to
Roadmaster Corporation regarding UDAG loan (3)
10.17 Second amended and Restated Loan and Security Agreement between
Roadmaster Corporation and Bank of America, National Trust, N.A. dated
April 14, 1992 (4)
10.18 Addendum to Consulting Agreement by and between Registrant and Equitex,
Inc. dated December 15, 1990 (5)
10.25 License Agreement by and between Roadmaster Corporation and
International Sports and Fitness, Inc. dated December 18, 1991, as
amended (5)
10.26 Marketing Agreement by and between Roadmaster Corporation and
International Sports and Fitness, Inc. dated December 18, 1991, as
amended (5)
35
<PAGE> 36
10.28 Industrial Building Lease by and between J.G. Realty Co. and Hamilton
Lamp Corporation dated as of February 12, 1990 (5)
10.29 Lease by and between John Belger and Associates and Hamilton Lamp
Corporation dated as of March 15, 1990 [North Kansas City, MO] (5)
10.30 Industrial Real Estate Lease by and between the Southland Corporation
and Roadmaster Corporation dated February 11, 1993 [Tyler, TX] (5)
10.31 Sublease Agreement by and between Carrier Corporation and Roadmaster
Corporation dated September 10, 1992 [Tyler, TX] (5)
10.32 Lease Agreement by and between Helgesen Properties and Roadmaster
Corporation dated December 29, 1992 [Delavan, WI] (5)
10.33 Guaranty executed by Roadmaster Industries, Inc. in favor of MacGregor
Sporting Goods, Inc., dated August 3, 1989 (3)
10.35 Amendment to Warrant dated December 18, 1992 (5)
10.36 Amendment to Warrant dated December 21, 1992 (6)
10.38 Form of Stock Purchase Agreement and Shareholder Agreement dated
November 11, 1991 (6)
10.39 Form of Warrant dated July 6, 1992 for directors (6)
10.40 Form of Warrant dated July 6, 1992 for employees (6)
10.41 Form of Warrant dated September 9, 1992 (6)
10.42 Form of Warrant dated November 2, 1992 for directors (6)
10.43 Form of Warrant dated November 2, 1992 for employees (5)
10.48 Settlement Agreement by and between Roadmaster Industries, Inc., Thomas
W. Itin and TWI International, Inc. dated as of May 21, 1993 (5)
10.49 Mutual Release between Roadmaster Industries, Inc. and Thomas W. Itin
dated as of May 21, 1993 (5)
10.52 Asset Purchase Agreement (the "Asset Purchase Agreement") by and
between Roadmaster Industries, Inc. and Par Industries, Inc. dated June
25, 1993 (6)
10.53 Amendment to Asset Purchase Agreement, dated July 23, 1993 (6)
10.54 Amendment to Asset Purchase Agreement, dated September 14, 1993 (6)
10.55 Loan and Security Agreement, dated as of September 15, 1993
between Flexible Flyer Acquisition Corp. and Bank America Business
Credit, Inc. (the "Flexible Flyer Loan Agreement") (7)
10.56 Exchange Agreement dated October 13, 1993 between TICO, a Michigan
partnership, Thomas W. Itin, Ajay Sports, Inc., Ajay Leisure Products,
Inc., Roadmaster Industries, Inc., Roadmaster Corporation and Equitex,
Inc. (7)
10.57 Warrant dated as of August 12, 1993 issued to RAS Securities Corp. (7)
10.58 Representative's Warrant Agreement dated as of August 12, 1993 between
Roadmaster Industries, Inc. and RAS Securities Corp. (7)
10.59 Form of Warrants dated August 12, 1993 issued in connection with the
placement of stand-by financing in connection with the acquisition of
the Flexible Flyer division of Par Industries, Inc. with individual
grants identified (1)
10.60 Lease Agreement, as amended, dated September 30, 1992 by and between
the Industrial Development Board of the City of Sulligent, Alabama and
Eagle Manufacturing Company, a division of Par Industries, Inc.
[Sulligent,Alabama] (7)
10.61 Lease dated September 14, 1993 by and between Par Industries, Inc. and
Flexible Flyer Acquisition Corp. [West Point, Mississippi] (7)
10.62 Warrant Agreement dated December 16, 1993 between Jefferies & Company,
Inc. and the Company with Form of Warrant dated December 27, 1993
issuable to Jefferies & Company, Inc. (7)
10.63 Loan and Security Agreement Dated as of January 31, 1994 among
Roadmaster Corporation, Roadmaster Leisure Inc. and BankAmerica Business
Credit, Inc. (1)
10.64 Asset Purchase Agreement between Roadmaster Industries, Inc. and
American Playworld Inc. dated February 28, 1994 (1)
10.65 Key Employee Stock Incentive Plan, dated October 25, 1994 (8)
36
<PAGE> 37
10.66 Directors Restricted Stock Plan, dated October 25, 1994 (8)
10.67 Loan and Security Agreement Dated as of December 6, 1994 Amended
and Restated as of September 29, 1995 among Roadmaster Corporation,
Roadmaster Leisure Inc., Willow Hosiery Company, Inc., Hutch Sports
USA, Inc., and Roadmaster Receivables Corporation and BankAmerica
Business Credit, Inc. as the Agent for the Lenders (the "Amended and
Restated Revolver") (9)
10.68 First Amendment to the Amended and Restated Revolver dated as
of October 31, 1995 (9)
10.69 Second Amendment to the Amended and Restated Revolver dated as of
January 15, 1996 (9)
10.70 Third Amendment to the Amended and Restated Revolver dated as of
February 14, 1996 (9)
10.71 Asset Purchase Agreement between Brunswick Corporation and
Roadmaster Industries, Inc. for the Acquisition of the
Nelson/Weather-Rite Division, dated February 26, 1996, without Exhibits
(9)
10.72 Fourth Amendment to the Amended and Restated Revolver dated as of
March 8, 1996 (9) 10.73 Fifth Amendment to the Amended and Restated
Revolver dated as of March 28, 1996 (10) 10.74 Loan and Security
Agreement dated as of September 6, 1996 among Roadmaster Corporation,
Roadmaster Leisure, Inc., Willow Hosiery Company, Inc. and Hutch Sports
USA Inc., as borrowers and the financial institutions named therein and
BankAmerica Business Credit, Inc., as Agent (the "Bank Credit Agreement")
(11)
10.75 Employment Agreement for James L. Marden dated November 1, 1996
10.76 Amendment No. 1 to Employment Agreement for James L. Marden dated June
12, 1997
10.77 Loan and Security Agreement dated as of June 20, 1997 among RDM
Holdings, Inc., Sports Group, Inc., International Sports and Fitness,
Inc., Diversified Products Corporation, Willow Hosiery Company, Inc.,
Hutch Sports USA Inc and Diversified Trucking Corp., as Borrowers, the
Financial Institutions named therein and Foothill Capital Corporation, as
agent
10.78 Warrant Agreement dated June 20, 1997 from RDM Sports Group, Inc. to
Metromedia Company
11.1 Statement of Computation of Per Share Earnings
18.1 Preferability Letter
21.1 List of Registrant's subsidiaries
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule (for SEC use only)
- ---------
(1) Previously filed with the SEC and incorporated by reference from the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, filed on March 31, 1994.
(2) Previously filed with the SEC and incorporated by reference from the
Registrant's Definitive Proxy Statement for a Special Meeting of
Stockholders held on October 31, 1994, filed on September 28, 1994.
(3) Previously filed with the SEC and incorporated by reference from the
Registrant's Registration Statement, File Number 33-18366, filed
November 9, 1987, or as subsequently amended December 9, 1987 and
December 9, 1994.
(4) Previously filed with the SEC and incorporated by reference from the
Registrant's From 8-K filed April 16, 1992.
(5) Previously filed with the SEC and incorporated by reference from the
Registrant's Registration Statement, File Number 33-64230, filed on
June 10, 1993 or as subsequently amended on July 9, 1993, July 29,
1993 and December 9, 1994.
(6) Previously filed with the SEC and incorporated by reference from
the Registrant's Form 8-K filed on September 29, 1993.
(7) Previously filed with the SEC and incorporated by reference from the
Registrant's Number 33-71586 filed November 12, 1993 or as
subsequently amended on November 26, 1993, December 14, 1993 or
December 16, 1993.
(8) Previously filed with the SEC and incorporated by reference from the
Registrant's Definitive Proxy Statement for its Annual Meeting of
Stockholders held on June 14, 1995, filed on May 13, 1995.
37
<PAGE> 38
(9) Previously filed with the SEC and incorporated by reference from the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, filed April 1, 1996
(10) Previously filed with the SEC and incorporated by reference from the
Registration Form 10-Q for the quarter ended March 30, 1996 on May 14,
1996
(11) Previously filed wit the SEC and incorporated by reference from the
Registration Form 8-K filed on September 20, 1996.
(b) The consolidated financial statements and schedules filed as a part of
this Annual Report on Form 10-K are as follows:
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
1.) Consolidated Financial Statements of RDM Sports Group, Inc.
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
2.) Financial Statement Schedules
</TABLE>
Schedule II Valuation and Qualifying Accounts
(c) Reports on Form 8-K:
On November 20, 1996, the Company filed an amendment to a
current report on Form 8-K announcing the acquisition of its bicycle
and snow toy operations by Brunswick Corporation.
(d) Executive Compensation Plans and Arrangements.
(i) Form of Warrant dated July 6, 1992 for employees (10.40)
(ii) Form of Warrant dated September 9, 1992 (10.41)
(iii) Form of Warrant dated November 2, 1992 for directors (10.42)
(iv) Form of Warrant dated November 2, 1992 for employees (10.43)
(v) Form of Warrant dated July 6, 1992 for directors (10.39)
(vi) Form of Stock Purchase Agreement and Shareholder Agreement dated
November 11, 1991 (10.38)
(vii) Employment Agreement for Henry Fong dated December 6, 1994
(10.3)
(viii) Key Employee Stock Incentive Plan dated October 25, 1995
(10.65)
(ix) Directors Restricted Stock Plan dated October 25, 1995
(10.66)
(x) Employment Agreement for James L. Marden dated November 1, 1996
(10.75)
(xi) Amendment No. 1 to Employment Agreement for James L. Marden
dated July 1, 1997 (10.76)
38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
RDM SPORTS GROUP, INC.
----------------------
Registrant
By: /s/ JAMES H. RAND Date: July 1, 1997
-----------------------------------------
James H. Rand
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
By: /s/ CHARLES E. SANDERS Date: July 1, 1997
--------------------------------
Charles E. Sanders
Secretary, Principal Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ STEPHEN P. BRADLEY Date: July 1, 1997
--------------------------------------
Stephen P. Bradley
Director
By: /s/ LOUIS J. CONTI Date: July 1, 1997
--------------------------------------
Louis J. Conti
Director
By:
---------------------------------------
Silvia Kessel
Director
By: /s/ JAMES L. MARDEN Date: July 1, 1997
--------------------------------------
James L. Marden
Chief Operating Officer and Director
By: /s/ JAMES H. RAND Date: July 1, 1997
-------------------------------------
James H. Rand
Chairman of the Board,
Chief Executive Officer
and Director
By: /s/ STUART SUBOTNICK Date: July 1, 1997
---------------------------------------
Stuart Subotnick
Director
39
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders and
Board of Directors of
RDM Sports Group, Inc.:
We have audited the accompanying consolidated balance sheets of RDM SPORTS
GROUP, INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements and the schedule referred to below are the
responsibility of the 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of RDM Sports Group, Inc. and
Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
June 20, 1997
40
<PAGE> 41
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
December 31,
-----------
1996 1995
-------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $32,141 $8,417
Cash in escrow 2,615 --
Accounts and notes receivable, less allowance of
$3,251 in 1996 and $1,389 in 1995 59,835 188,573
Inventories 70,550 166,743
Prepaid expenses and other current assets 2,189 6,441
Deferred income taxes 11,987 6,232
Refundable income taxes --- 30,180
-------- --------
Total current assets 179,317 406,586
-------- --------
Property, plant and equipment 56,823 101,773
Less - Accumulated depreciation and
amortization 14,130 25,300
-------- --------
Net property, plant and equipment 42,693 76,473
-------- --------
Deferred income taxes 18,297 ---
Investments in equity securities, at market 5 1,809
Cash in escrow 10,158 ---
Deferred financing and acquisition charges 16,554 23,847
Goodwill and other intangible assets, net of accumulated
amortization of $3,165 in 1996 and $3,011 in 1995 20,929 63,933
Long-term trade receivables 509 1,639
Other long-term assets 4,750 2,820
-------- --------
Total assets $293,212 $577,107
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
41
<PAGE> 42
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(in thousands except share data)
<TABLE>
<CAPTION>
December 31,
-----------
1996 1995
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving lines of credit (Note 21) $ 74,906 $ 85,402
Current portion of long-term debt 558 1,519
Current portion of long-term liabilities 486 540
Accounts payable 46,552 97,369
Accrued expenses 41,098 48,381
-------- --------
Total current liabilities 163,600 233,211
-------- --------
Long-term liabilities:
Deferred income taxes - 2,876
Revolving lines of credit (Note 21) - 132,200
Long-term debt 55,339 147,388
Other long-term liabilities 1,035 2,704
Environmental liabilities 19,998 3,644
======== ========
Total long-term liabilities 76,372 288,812
-------- --------
-------- --------
Total liabilities $239,972 $522,023
-------- --------
Commitments and contingencies (Note 12):
Stockholders' Equity:
Preferred stock of $.01 par value per share, 10,000,000
shares authorized, no shares issued and outstanding - -
Common stock of $.01 par value per share, 100,000,000
shares authorized, 53,746,765 shares issued and
outstanding at December 31, 1996 and 54,041,527 at
December 31, 1995 537 540
</TABLE>
42
<PAGE> 43
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
(in thousands except share data)
<TABLE>
<S> <C> <C>
Additional paid-in capital 100,983 103,573
Retained loss (35,154) (35,852)
Deferred compensation (2,216) (2,896)
Net unrealized (loss) gain on equity securities (347) 281
-------- --------
63,803 65,647
Treasury stock, at cost, 4,329,598 shares at December 31, 1996
1996 and 1995 (10,563) (10,563)
-------- --------
Total stockholders' equity 53,240 55,084
-------- --------
Total liabilities and stockholders' equity $293,212 $577,107
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
43
<PAGE> 44
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales $366,683 $730,875 $455,661
Cost of sales 365,401 644,268 388,871
-------- -------- --------
Gross profit 1,282 86,607 66,790
Selling, general and administrative expenses 65,405 92,814 37,976
Impairment loss (Note 5) 1,470 23,500 ---
Restructuring expense (Note 19) 4,262 7,521 ---
Other (income) expense, net:
Interest 22,652 35,470 21,312
Gain on sale of subsidiaries (Note 1) (116,324) --- ---
Other 7,951 7,785 (394)
-------- -------- --------
(85,721) 43,255 20,918
-------- -------- --------
Income (loss) before income tax
expense and extraordinary item 15,866 (80,483) 7,896
Income tax expense (benefit) 11,360 (29,479) 2,896
-------- -------- --------
Income (loss) before extraordinary item 4,506 (51,004) 5,000
Extraordinary loss, net of $2,386 tax (Note 1) 3,731 --- ---
-------- -------- --------
Net earnings (loss) $ 775 $(51,004) $ 5,000
======== ======== ========
</TABLE>
44
<PAGE> 45
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED
(in thousands except per share data)
<TABLE>
<S> <C> <C> <C>
Earnings (loss) per common share, primary and
fully diluted:
Income (loss) before extraordinary item $ 0.09 $ (1.04) $ 0.16
Extraordinary loss (0.07) -- --
------- ------- -------
Net earnings (loss) $ 0.02 $ (1.04) $ 0.16
======= ======= =======
Weighted average number of shares outstanding:
Primary and fully diluted 49,677 49,004 31,878
</TABLE>
See Notes to Consolidated Financial Statements
45
<PAGE> 46
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings (loss) $ 775 $(51,004) $ 5,000
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 9,217 17,434 7,501
Amortization of deferred compensation 379 644 189
Loss (gain) on sale of property, plant and equipment 213 522 (99)
(Gain) loss on sale of marketable securities (568) 844 (1,034)
Gain on sale of subsidiaries (116,324) --- ---
Impairment loss 10,455 23,500 ---
Extraordinary write-off 3,731 --- ---
Changes in assets and liabilities:
Accounts receivable 82,970 (867) (20,468)
Inventories 14,069 4,503 (23,276)
Prepaid expenses and other assets 1,846 2,431 (2,499)
Cash in escrow (12,773) --- 4,247
Other assets and long term receivables (1,017) (28,681) (8,139)
Accounts payable (20,911) 8,813 (12,904)
Accrued expenses (11,695) 12,645 (2,550)
Income taxes and deferred income taxes 11,430 (27,626) 1,758
Other (1,124) (157) 5
--------- -------- --------
Net cash used in operating activities $ (29,327) $(36,999) $(52,269)
--------- -------- --------
Cash Flows From Investing Activities:
Additions to property, plant and equipment $ (9,657) $(13,534) $(14,233)
Proceeds from sale of property, plant and equipment 514 --- ---
Purchase of warrants --- --- (1,068)
Investments in equity securities 1,207 --- (622)
</TABLE>
46
<PAGE> 47
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(in thousands)
<TABLE>
<S> <C> <C> <C>
Acquisitions (2,121) (23,282) (7,366)
Proceeds from sale of subsidiaries 299,975 --- ---
--------- --------- --------
Net cash provided by (used in) investing activities $ 289,918 $ (36,816) $(23,289)
--------- --------- --------
Cash Flows From Financing Activities:
Proceeds under new revolving line of credit $ 73,828 $ --- $ ---
(Payments)/proceeds under revolving line of credit (217,602) 76,362 117,716
</TABLE>
See Notes to Consolidated Financial Statements
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
47
<PAGE> 48
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1996 1995 1994
--------- ------- --------
<S> <C> <C> <C>
Principal payments under debt agreements $ (1,578) $(1,989) $(70,097)
Retirement of debt (89,363) --- ---
Additions to borrowings --- 2,203 ---
Purchases of treasury stock --- (4,263)
Cumulative translation adjustments (291) 120 (251)
Proceeds from exercise of stock warrants --- 120 3,536
Debt refinancing costs incurred (1,861) (952) (2,140)
--------- ------- --------
Net cash (used in) provided by financing activities $(236,867) $75,854 $ 44,501
--------- ------- --------
Net Increase (Decrease) in Cash and Cash Equivalents $ 23,724 $ 2,039 $(31,057)
Cash and Cash Equivalents, beginning of period 8,417 6,378 37,435
--------- ------- --------
Cash and Cash Equivalents, end of period $ 32,141 $ 8,417 $ 6,378
========= ======= ========
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the year for:
- Interest $ 26,793 $29,501 $ 15,323
- Income taxes 1,862 (1,434) 2,690
========= ======= ========
Supplemental Schedule of Non-Cash Activities:
Issuance of treasury stock to Employee Stock Ownership Plan $ --- $ 295 $ 775
Exchange of common stock for acquisitions --- 1,500 82,958
Note receivable received on sale of equity securities --- --- 5,887
Capital lease incurred to purchase equipment 91 1,474 1,510
Note receivable in exchange for warrants exercised --- -- 1,321
========= ======= ========
Purchase of treasury stock in exchange for forgiveness of note
receivable --- --- 1,976
========= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements
48
<PAGE> 49
RDM SPORTS GROUP, INC. AND SUBSIDIARIE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------ PAID-IN
SHARES AMOUNT CAPITAL
------ ------ ----------
<S> <C> <C> <C>
Balance, December 31, 1993 31,089 $ 311 $ 15,730
Amortization of deferred compensation -- -- --
Purchase of treasury stock -- -- --
Exercise of common stock warrants 2,496 25 4,208
Purchase of common stock warrants -- -- (1,068)
Shares retired (2,201) (22) (3,942)
Issuance of common stock 20,962 209 82,827
Note receivable from stock issuance -- -- --
Unrealized loss on
available-for-sale securities -- -- --
Cumulative translation adjustments -- -- --
Deferred compensation 656 7 2,372
Accrued interest on ESOP obligation -- -- --
Expiration of put provision on
redeemable common stock 617 6 1,994
Net earnings -- -- --
Balance, December 31, 1994 53,619 $ 536 $ 102,121
------ --------- ---------
Amortization of deferred compensation -- -- (78)
Note receivable from stock issuance -- -- --
Exercise of common stock warrants 90 1 197
Shares retired (90) (1) (225)
Acquisitions and other 422 4 1,559
Minimum pension liability -- -- --
Unrealized gain on
available-for-sale securities -- -- --
Cumulative translation adjustments -- -- --
Net loss -- -- --
Balance, December 31, 1995 54,041 $ 540 $ 103,574
------ --------- ---------
Amortization of deferred compensation -- -- --
Cancellation of shares (165) (2) (267)
Minimum pension liability -- -- --
Cancellation of deferred compensation (129) (1) (479)
Minimum purchase price guarantees on acquisitions -- -- (1,845)
Repayment on related party note receivable -- -- --
Unrealized loss on available-for-sale securities -- -- --
Cumulative translation adjustments -- -- --
Net earnings -- -- 775
------ --------- ---------
Balance, December 31, 1996 53,747 $ 537 $ 100,983
====== ========= =========
<CAPTION>
UNREALIZED TOTAL
RETAINED TREASURY DEFERRED GAIN/LOSS ON STOCKHOLDERS'
EARNINGS STOCK COMPENSATION EQUITY SECURITIES EQUITY
-------- -------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 10,959 $ (8,689) $(1,935) $ -- $ 16,376
Amortization of deferred compensation -- -- 189 -- 189
Purchase of treasury stock -- (6,091) -- -- (6,091)
Exercise of common stock warrants -- -- -- -- 4,233
Purchase of common stock warrants -- -- -- -- (1,068)
Shares retired -- 3,964 -- -- --
Issuance of common stock -- -- -- -- 83,036
Note receivable from stock issuance (292) -- -- -- (292)
Unrealized loss on
available-for-sale securities -- -- -- (643) (643)
Cumulative translation adjustments (251) -- -- -- (251)
Deferred compensation -- (38) (1,437) -- 904
Accrued interest on ESOP obligation -- -- (296) -- (296)
Expiration of put provision on
redeemable common stock -- -- -- -- 2,000
Net earnings 5,000 -- -- -- 5,000
Balance, December 31, 1994 $ 15,416 $(10,854) $(3,479) $(643) $103,097
-------- -------- ------- ----- --------
Amortization of deferred compensation -- -- 647 -- 569
Note receivable from stock issuance 56 -- -- -- 56
Exercise of common stock warrants -- -- -- -- 198
Shares retired -- 226 -- -- --
Acquisitions and other -- 65 (64) -- 1,564
Minimum pension liability (440) -- -- -- (440)
Unrealized gain on
available-for-sale securities -- -- -- 924 924
Cumulative translation adjustments 120 -- -- -- 120
Net loss (51,004) -- -- -- (51,004)
-------- -------- ------- ----- --------
Balance, December 31, 1995 $(35,852) $(10,563) $(2,896) $ 281 $ 55,084
Amortization of deferred compensation -- -- 381 -- 381
Cancellation of shares -- -- -- -- (269)
Minimum pension liability (10) -- -- -- (10)
Cancellation of deferred compensation -- -- 299 -- (181)
Minimum purchase price guarantees on acquisitions -- -- -- -- (1,845)
Repayment on related party note receivable 224 -- -- -- 224
Unrealized loss on available-for-sale securities -- -- -- (628) (628)
Cumulative translation adjustments (291) -- -- -- (291)
Net earnings -- -- 775 -- --
-------- -------- ------- ----- --------
Balance, December 31, 1996 $(35,154) $(10,563) $(2,216) $(347) $ 53,240
======== ======== ======= ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 50
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(1) BACKGROUND
RDM Sports Group, Inc. (the "Company" or "RDM"), formerly known as
Roadmaster Industries, Inc., a Delaware corporation formed on June 1, 1987,
manufactures and distributes, through its subsidiaries, a broad range of
products, including: fitness equipment, such as, stationary aerobic equipment,
multi-stationed weight systems and benches; toy products, such as toy horses,
bulk plastic toys, swing sets, trampolines, and children's lamps; and selected
other recreation products; including sports hosiery, team sports equipment, and
backyard and lawn games. The Company's main operating subsidiaries include:
Diversified Products Corporation ("DP"), Willow Hosiery Company, Inc.
("Willow"), Hutch Sports USA, Inc. ("Hutch"), RDM Sports and Leisure, Inc. ("RDM
Leisure") and TQ, Inc. ("TQ).
The principal markets for the Company's products are mass
merchandisers located primarily in the United States and, to a lesser extent,
Canada.
Sale of Camping Products Operations
On March 8, 1996, the Company completed the sale of the assets of its
Nelson/Weather-Rite, Inc. camping subsidiary, including MZH, Inc., to Brunswick
Corporation ("Brunswick") for cash consideration of $120.0 million (the "First
Brunswick Transaction"). The sale included the purchase of all assets, and the
assumption of accounts payable and accrued liabilities, including deferred tax
liabilities, all of which totaled in the aggregate $10.0 million. The final
purchase price, as adjusted for ordinary post closing adjustments, based on
closing working capital levels was reduced by $2.2 million. The Company used
the net proceeds to reduce its outstanding revolving credit facility by
approximately $110.0 million. The Company recognized a pre-tax gain of $24.4
million on such sale in 1996. In 1996, the Company's camping products
operations contributed approximately $19.2 million in revenue and $1.2 million
in operating profit for the year then ended.
Sale of Bicycle and Snow Toys Operations
On September 6, 1996, the Company completed the sale of the assets of
the Company's bicycle and snow toy products businesses (which also includes
tricycles, wagons, and junior ride-ons) to Brunswick for approximately $189.7
million in cash, as adjusted ("the Second Brunswick Transaction"). The Second
Brunswick transaction included the purchase of certain assets and the
assumption of accounts payable, accrued liabilities, and Industrial Revenue
Bonds affiliated with the bicycle and snow toy products businesses. In
connection with the sale, a long term lease of the Company's former Olney,
Illinois facility was entered into and an escrow account in the amount of $10.0
million was established to secure the costs of the environmental remediation of
the property at the Olney, Illinois facility, for which the Company has
indemnified Brunswick. In connection with the Settlement Agreement, the Company
granted a relocation credit in the amount of $2.2 million to Brunswick which
approximates three years rent. The Company recognized a pre-tax gain of $91.1
million on the sale in 1996 and used the net proceeds to reduce its outstanding
indebtedness and for other corporate purposes. In 1996, the Company's bicycle
and toy snow products businesses contributed approximately $106.0 million in
sales and $3.6 million in operating profit for the year then ended.
Extinguishment of Debt
On August 2, 1996, the Company commenced an Offer to Purchase and
Consent Solicitation (the "Offer") to the holders of its 11.75% Senior
Subordinated Notes due 2002 (the "Notes"), whereby the Company offered to
purchase up to all of the outstanding Notes not held by the Company ($90.1
million) at a purchase price equal
50
<PAGE> 51
to one hundred percent (100%) of such Notes' principal amount, plus accrued but
unpaid interest. Such Offer terminated on August 29, 1996. Consents to the
required Waivers under the Indenture were obtained from the holders of $88.4
million principal amount of the Notes and the Waivers to the relevant indenture
provisions were effected thereafter. Of such amount, $88.0 million was tendered
for purchase using proceeds from the sale of the bicycle and snow toy products
operations. In connection with the repurchase, the Company recorded an
extraordinary loss on the extinguishment of the Notes in the amount of $3.7
million, net of tax which represented the write-off of deferred debt charges.
Following consummation of the Offer, $2.1 million principal amount of the Notes
were outstanding and not held by the Company.
The following presents, on an unaudited pro forma basis, the Company's
results of operations as though the dispositions and related transactions had
occurred on January 1, 1995 for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Unaudited Proforma
(in thousands except per share data) As of December 31,
-----------------------
1996 1995
--------- --------
<S> <C> <C>
Net sales $241,892 $423,361
(Loss) income before taxes (90,914) 13,602
Net loss before extraordinary item (55,910) (48,204)
========= ========
Loss per share:
Primary and fully diluted $ (1.12) $ (0.98)
========= ========
</TABLE>
(2) LIQUIDITY
Historically, the Company's working capital has been obtained
primarily from revolving lines of credit from banks and internally generated
funds. On a consolidated basis, during 1996, the Company's operations used cash
of approximately $29.3 million. The seasonal nature of the Company's sales
imposes fluctuating demands on its cash flow, due to the temporary buildup of
inventories in anticipation of, and receivables subsequent to, the peak
seasonal period, which historically has occurred around November of each year.
The Company had operating losses of $69.8 million, and $37.2 million
for the years ended December 31, 1996 and 1995, respectively. The Company's
consolidated cash, cash equivalents and cash in escrow pursuant to various
contractual obligations balance at December 31, 1996 was $44.9 million, of
which funds $12.8 million was restricted as to use. The Company obtained
waivers from the lenders in 1995 and amended its then existing revolving line
of credit agreement in 1995 and in the first quarter of 1996. The Company was
not in compliance with various financial covenants under its Bank Credit
Agreement as of December 31, 1996. In the first quarter of 1997, the Company
experienced operating losses of $5.1 million, used $15.6 million of cash for
operating purposes, and was not in compliance with various financial covenants
under its Bank Credit Agreement until the termination of such agreement in
connection with the execution of the New Loan Facility (as defined below). At
no time was the Company in default with respect to the payment of indebtedness
under the Bank Credit Agreement or the predecessor agreements thereto as in
effect in 1995 and 1996. In connection with the Second Brunswick Transaction,
on September 6, 1996, the Company terminated its then existing bank credit
facility and entered into a new bank credit agreement (the "Bank Credit
Agreement"). The Bank Credit Agreement was for a three year term, maturing
September 1999, and provided for borrowings up to $130.0 million based on
certain inventories and accounts receivable. Interest was calculated at the
Agent's referenced rate (generally the "prime rate") plus 1.25% and included a
LIBOR rate option which equaled LIBOR plus 1.25%. The monthly unused facility
fee was .25% on the available unused portion of the facility provided by the
Bank Credit Agreement. At December 31, 1996, the Company had outstanding
borrowings of $74.9 million under the Bank Credit Agreement and was not in
compliance with various financial covenants contained therein.
51
<PAGE> 52
On June 20, 1997, the Company entered into a new $100 million
revolving and term credit facility pursuant to a Loan and Security Agreement
(the "Loan Agreement") between the Company's borrowing subsidiaries and certain
financial institutions. See Note (21) "Subsequent Events".
Management believes the availability of such funds is a necessary
component of the Company's strategy to improve its operating and financial
performance. The Company believes that borrowings available under the New Loan
Facility and internally generated funds should be adequate to implement the
strategies discussed below.
In 1996, the Company began to implement, and in 1997 is continuing to
implement, various strategies intended to improve its financial condition and
operating performance. These strategies include expense reduction programs,
inventory management reduction programs, reorganization of the fitness
production facility, production related employee training programs, reduction
in number of products offered, a shift from manufacturing of certain products
to sourcing, extensive piloting and testing of new product introductions, and
implementations of stringent quality assurance measures. Management expects the
full effects of such strategies will not be fully realized, if at all, until
late 1997.
3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain prior year amounts have been
reclassified to conform to the current year's presentation.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
translated into U.S. dollars using current exchange rates in effect at the
balance sheet date for assets and liabilities and weighted average exchange
rates for revenues and expenses. The resulting translation adjustments are
accumulated as a separate component of stockholders' equity and are included
within retained earnings on the Consolidated Balance Sheet. The financial
statements have been prepared from records maintained in the country in which
the enterprise is located and follows generally accepted accounting principals
of the United States of America.
Investments
The Company invests in various equity securities. In May, 1993, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," ("SFAS 115") which requires certain debt
securities to be reported at amortized cost, certain debt and equity securities
to be reported at market with current recognition of unrealized gains and
losses, and certain debt and equity securities to be reported at market with
unrealized gains and losses as a separate component of stockholders' equity.
The Company adopted the provisions of the new standard for investments held as
of or acquired after January 1, 1994. In accordance with the Statement, prior
period financial statements have not been restated to reflect the change in
accounting principle. The cumulative effect of adopting SFAS 115 as of January
1, 1994 was not material.
Management determines the appropriate classification of investments as
held-to-maturity or available-for-sale at the time of purchase and reevaluates
such designation as of each balance sheet date. The Company has classified all
investments as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses reported in stockholders'
equity. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in
investment income. The cost of securities sold is based on the specific
identification method.
52
<PAGE> 53
Cash and Cash Equivalents and Cash in Escrow
The Company considers cash equivalents to be temporary investments
that are readily convertible to cash and have original maturities of three
months or less.
Cash in escrow represents cash that is legally restricted as to use.
The current portion predominately includes cash restricted for collateral on
letters of credit and cash in escrow to provide for various contingent
liabilities as required under the First and Second Brunswick Transactions. The
long-term portion represents cash in escrow for settlement of the Olney,
Illinois environmental matters as required under the Second Brunswick
Transaction (See Note 12 "Commitments and Contingencies-Environmental
Matters"). During the first quarter of 1997, an additional $7 million of cash
became restricted for collateral on letters of credit.
Inventories
Inventories are valued at the lower of cost or market and include the
combined costs of purchased materials, labor, and manufacturing overhead. Cost
of raw materials are determined using the first-in, first-out ("FIFO") method.
Costs (net of an obsolescence reserve) of work-in-process and finished goods
are determined using the FIFO method.
In the fourth quarter of 1996, the Company changed from the last-in,
first-out ("LIFO") method of valuing inventory to the FIFO method. The Company
believes this change will result in a better matching of revenues/expenses and
measurement of operating results by properly recognizing the effect of
productivity improvements and relatively short product life cycles in the
Company's cost of sales as related to the Company's remaining businesses. The
accounting change was adopted effective January 1, 1996. As the effect of the
change on the current and prior reporting periods was immaterial, the financial
statements for those periods have not been restated.
Depreciation and Amortization
Depreciation and amortization of plant and equipment are computed
using the straight-line method over the estimated useful lives of the related
assets: 15-20 years for buildings and 5-15 years for machinery and equipment.
Goodwill and other intangible assets, representing costs in excess of net
assets acquired, are amortized over 40 years using the straight-line method.
The Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining estimated useful life
of goodwill and other intangible assets may warrant revision or that the
remaining balance of goodwill and other intangible assets may not be
recoverable. The Company's policy is to recognize any impairment through the
reduction of current earnings in the period in which such determination is made
(See Note 5 "Impairment of Long-Lived Assets").
Goodwill and other intangible assets are presented in the consolidated
balance sheets net of accumulated amortization of $3.2 million at December 31,
1996 and $3.0 million at December 31, 1995. Other assets and deferred charges
are presented in the consolidated balance sheets net of accumulated
amortization of $10.5 million at December 31, 1996 and $6.6 million at December
31, 1995.
Income Taxes
Deferred income taxes are provided for differences between the
financial statement and income tax basis of assets and liabilities using
enacted tax law. Deferred income tax expense is based on the change in the net
deferred income tax asset or liability from period to period. The Company does
not provide income taxes on the undistributed earnings of its foreign
subsidiaries that are deemed to be permanently reinvested (See Note 10 "Income
Taxes").
53
<PAGE> 54
Research and Development
Expenditures for research and development are charged to operations in
the year incurred. Such costs aggregated $3.0 million in 1996, $3.7 million in
1995, and $1.9 million in 1994.
Product Warranty Costs
Estimated product warranty costs are provided at the time the Company
sells the product, based on experience.
Advertising Costs
Expenditures for advertising are charged to operations in the year
incurred. Such costs aggregated $1.1 million in 1996, $2.9 million in 1995, and
$2.7 million in 1994.
Major Customers
One of the Company's customers accounted for 24.8%, 26.2%, and 28.2% of
net sales during 1996, 1995, and 1994 respectively. No other customer accounted
for more than 10% of sales in 1996.
The Company sells to mass merchandisers, including national retailers,
regional retailers, and smaller customers. At December 31, 1996 and 1995, the
Company had approximately 89% and 83%, respectively, of trade accounts
receivable due from national retailers. The Company's credit granting process
includes analyses of each potential customer's financial condition. In some
situations, cash deposits and/or other collateral are required before the
Company authorizes a sale. The Company grants credit up to specific amounts
after sufficient favorable experience is achieved or if its analysis of the
customer's financial condition and operating cash flows provide sufficient
comfort.
Fair Value of Financial Instruments
The following assumptions are used to estimate the fair value of each
class of financial instruments:
Cash and Short-term Investments: The carrying amount approximates fair value
because of the short maturity of those instruments.
Long-term Investments: The fair values of the Company's investments are
estimated based on quoted market prices for those investments at December 31,
1996 and 1995.
Long-term Debt: The fair value of the Company's long-term debt is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities.
Environmental Remediation Costs
The Company accrues for losses associated with environmental
remediation obligations when such losses are probable and reasonably estimable.
Accruals for estimated losses from environmental remediation obligations
generally are recognized no later than completion of the remedial feasibility
study. Such accruals are adjusted as further information develops or
circumstances change. Costs of future expenditures for environmental remediation
are not discounted to their present value. See Note 11 "Commitments and
Contingencies".
54
<PAGE> 55
(4) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
Company's significant estimates included in the financial statements relate to
the following items:
Income Taxes: See Note 10 "Income Taxes".
Inventory: The Company's inventory value includes estimates related to excess
and obsolete and the net realizability of inventory. These reserves have been
based on estimated projected future utility of products and projected sales
values of inventoried items. Changes in the assumptions as well as actual
experience could cause these estimates to change in the near-term.
Warranty/Sales Returns and Allowances: The reserves established for sales
allowance and warranty charges are based on management's estimate of the amount
expected to be paid considering historical experience and current programs in
effect. Changes in the assumptions as well as actual experience could cause
these estimates to change in the near-term.
Environmental Remediation: See Note (11) "Commitments and Contingencies".
(5) IMPAIRMENT OF LONG-LIVED ASSETS
In the fourth quarter of 1995, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". The application of the statement requires the Company to
evaluate facts and circumstances that indicate the costs of certain property,
plant, and equipment and intangible assets may be impaired. The evaluation is
based upon the estimated future net cash flows (undiscounted and without
interest charges) associated with the property, plant, and equipment and
intangible assets compared to the carrying value of the asset to determine
whether a write-down to fair value is required.
The Company has included in its December 31, 1996 and 1995 Consolidated
Statement of Operations an impairment loss of $1.5 million and $23.5 million,
respectively. These amounts relate to the goodwill associated with the 1994
acquisition of the "Sport Subsidiaries" (collectively referring to DP,
Nelson/Weather-Rite, Willow, and Hutch) acquired from The Actava Group, Inc.
("Actava") related to the Willow and DP businesses, respectively. Based upon the
Company's undiscounted cash flow projections of these businesses, the Company
determined it would not be able to recover the associated goodwill. The amounts
of the impairment loss are based upon the Company's determination of fair value
based on discounted cash flow methodology over a fifteen year period.
(6) REVOLVING LINES OF CREDIT
At December 31, 1996 and 1995, the Company had a $130.0 million and
$275.0 million revolving credit facility, respectively.
55
<PAGE> 56
Amounts outstanding under the revolving lines of credit facilities at
the dates indicated were:
<TABLE>
<CAPTION>
(in thousands) December 31,
-----------------------
1996 1995
-------- --------
<S> <S> <S>
Current:
Revolver $ 74,906 $ 85,402
======== ========
Long-Term:
Revolver $ -- $132,200
======== ========
</TABLE>
The amount classified as long-term at December 31, 1995, represents the
minimum borrowings that were expected to be outstanding during the proceeding
next twelve months.
In September 1995, the Company amended and restated its then existing
bank credit facility which had been entered into in 1994. Such amended and
restated facility (the "Amended and Restated Revolver") provided for a term loan
facility and a revolving credit facility of up to $300.0 million, subject to
restrictions on borrowings pursuant to certain covenants in the indenture, as
amended, for the Company's Notes. The revolving credit facility provided for
borrowings of up to $275.0 million based on eligible trade receivables and
inventory. At December 31, 1995, the Amended and Restated Revolver's interest
rate was 9.25%. The term of the Amended and Restated Revolver was through
September 29, 1998, and provided for automatic renewals for successive one year
terms unless terminated by either the lenders or the Company.
The Amended and Restated Revolver required the maintenance of various
financial covenants including minimum net worth, fixed maturity coverages and
minimum working capital levels. In the first quarter of 1996, the Company was
not in compliance with several of its loan covenants calculated as of December
31, 1995. These events of non-compliance were waived as of December 31, 1995 by
the lenders under the Amended and Restated Revolver pursuant to the further
amendment and restatement of the Revolver in the first quarter of 1996. At no
time was the Company in default with respect to the payment of indebtedness
under the Amended and Restated Revolver.
On September 6, 1996, the Company terminated its existing bank credit
facility (as amended, the "Amended and Restated Revolver") and entered into a
new bank credit agreement (the "Bank Credit Agreement"). The Bank Credit
Agreement was for a three year term, maturing September 1999, and provided
borrowings of up to $130.0 million based on certain inventories and accounts
receivable. Interest was calculated at the Agent's referenced rate (generally
the "prime rate") plus 1.25% and included a LIBOR option which equals LIBOR plus
1.25%. The monthly unused facility fee was .25% on the available unused portion
of the facility provided by the Bank Credit Agreement. At December 31, 1996, the
Company had outstanding borrowings of $74.9 million under the Bank Credit
Agreement.
The Bank Credit Agreement required maintenance of various financial
covenants including minimum net worth, fixed maturity coverages, and minimum
working levels. As of December 31, 1996, and through June 20, 1997, the Company
was not in compliance with several of its loan covenants. (See Note 21
"Subsequent Events-Debt Refinancing"). Unutilized credit available under this
facility was approximately $50.5 million at December 31, 1996. At December 31,
1996, the Company had outstanding commercial letters of credit totaling
approximately $4.6 million.
56
<PAGE> 57
(7) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
(in thousands) December 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Raw materials $ 37,370 58,960
Work in process 2,729 9,570
Finished goods 30,451 98,213
-------- --------
$ 70,550 $166,743
======== ========
</TABLE>
In the fourth quarter of 1996, the Company changed from the LIFO method
of valuing inventory to the FIFO method. The Company believes this change will
result in a better matching of revenues and expenses and measurement of
operating results by properly recognizing the effect of productivity
improvements and relatively short product life cycles in the Company's cost of
sales as related to the Company's remaining businesses. The accounting change
was adopted effective January 1, 1996. As the effect of the change on the prior
reporting periods was immaterial and the financial statements for those periods
have not been restated.
(8) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following:
<TABLE>
<CAPTION>
(in thousands) December 31,
------------------------
1996 1995
------ ---------
<S> <C> <C>
Land $ 1,294 $ 1,420
Buildings 16,110 18,357
Machinery and Equipment 39,419 81,996
======= =========
$56,823 $ 101,773
======= =========
</TABLE>
Additions and improvements to property, plant and equipment are
capitalized while maintenance and repairs are charged to expense as incurred.
Upon disposal or retirement of property, plant and equipment, the cost and
accumulated depreciation are eliminated from the accounts and the gain or loss
on the transaction is included in earnings.
Included in machinery and equipment at December 31, 1996 and 1995 is
approximately $1.1 million and $4.6 million, respectively, of equipment under
capital leases.
Depreciation expense was $7.6 million in 1996, $9.7 million in 1995,
and $4.7 million in 1994.
57
<PAGE> 58
(9) LONG-TERM DEBT
Long-Term Debt is summarized as follows at:
<TABLE>
<CAPTION>
(dollars in thousands) December 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Note payable to a bank, interest at 7%, payable in 60
monthly installments through June 1998 $ -- $ 380
Senior Subordinated Notes, interest at 11.75%,
payable January 15 and July 15, due July 2002 2,065 90,357
Convertible Subordinated Debentures, interest at 8%,
payable February 15 and August 15, due August 2003 51,742 51,742
Urban Development Action Grant ("UDAG") Agreement
dated August 30, 1983, interest at 6% in first 10 years
and 4.5% less than prime with a maximum of 8% in
second 10 years, maturing 1987 to 2003, secured by
guarantee of Equitex, Inc. -- 889
Industrial Development Revenue Bonds, interest at 62%
of bank prime rate as defined, due 2001 -- 1,739
Industrial Development Revenue Bonds, variable interest
rates ranging from 5.69% to 7.14%, due in quarterly principal
payments of $53 from 1989 to 1999 -- 1,003
Secured loan agreement with City of Effingham, Illinois,
interest at 3%, payable in 60 monthly installments
through July 1998 -- 156
Secured Kentucky Economic Development Authority notes payable
monthly (in whole or in part from State of Kentucky
Withholding
Taxes) with variable interest rates ranging from 5% to 8%
maturing 2000 to 2002, secured by equipment 418 --
Secured LCADD note, payable in monthly principal and interest
installments through July 1998, with interest at 4%, secured
equipment 34 --
Secured KHIC note, payable in monthly principal and interest
installments through February 1999, with interest at 7%,
secured
by certain inventory and trade receivables of TQ subsidiary 675 --
Obligations under capital leases 963 2,561
Other -- 80
------- --------
Total $55,897 $148,907
Current maturities 558 1,519
------- --------
Total long-term debt $55,339 $147,388
======= ========
</TABLE>
58
<PAGE> 59
Aggregate maturities are as follows: 1997, $558,000; 1998, $581,000;
1999, $337,000; 2000, $259,000; 2001, $274,000; and thereafter, $53.9 million.
In August 1993, the Company issued $51.7 million of its 8% Convertible
Subordinated Debentures ("the Debentures") due 2003. The Debentures are
convertible into the Company's $0.01 par value common stock at $4.00 per share.
The Company can call the Debentures on or after September 15, 1996 subject to
the attainment of certain minimum stock price levels. The Debentures were issued
to repay certain term loans under the RDM Loan Agreement, provide funds for the
acquisition of Flexible Flyer, and for general corporate purposes.
In December 1993, the Company issued $100.0 million of its 11.75%
Senior Subordinated Notes (the "Notes") due 2002. The Notes were issued to
diminish the Company's reliance on traditional asset-based revolving lines of
credit and establish a more permanent capital structure in connection with the
Company's long-term growth objectives. The funds were used to partially repay
amounts due under the RDM Loan Agreement, meet seasonal working capital
requirements and provide for the Company's three year, $35.0 million capital
expenditures budget. Much of the additional expenditures were targeted for cost
reduction projects and tooling of new products. The Company repurchased $7.3
million of its Notes in January 1994 and $5.0 million in November 1994. In
August 1995, in a private transaction, the Company sold $2.4 million of its
Notes held in treasury (See Note 1 "Background - Extinguishment of Debt").
On August 2, 1996, the Company commenced an Offer to Purchase and
Consent Solicitation (the "Offer") to the holders of its Notes, whereby the
Company off1ered to purchase up to all of the then outstanding Notes not held by
the Company ($90.1 million) at a purchase price equal to one hundred percent
(100%) of such Notes' principal amount, plus accrued but unpaid interest. Such
Offer terminated on August 29, 1996. Consents to the required Waivers under the
Indenture were obtained from the holders of $88.4 million principal amount of
the Notes and the Waivers to the relevant Indenture provisions were effected
thereafter. Of such amount, $88.0 million also were purchased.
Deferred offering costs are amortized primarily on the effective
interest rate method over the life of the related obligations. Deferred offering
costs, net of accumulated amortization at December 31, 1996 and 1995, were $8.7
million and $12.5 million, respectively.
Under terms of the UDAG agreement between the Company, the City of
Olney, Illinois, and the United States Department of Housing and Urban
Development ("HUD"), the Company agreed to invest matching funds to renovate,
expand, and upgrade its plant and equipment. The Company failed to comply with
the schedule of investing funds and, in 1986, HUD terminated the UDAG grant but
indicated it would not accelerate the then outstanding loan balance. The City of
Olney, Illinois, which administers the UDAG loan, waived the matching
requirement under the UDAG agreement and indicated it would not accelerate the
loan so long as the Company repaid the loan according to scheduled maturities.
The Company, during 1996, repaid the debt facility.
59
<PAGE> 60
(10) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1996,
1995, and 1994 consists of:
<TABLE>
<CAPTION>
(in thousands) Year Ended December 31, 1996
---------------------------------
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Federal $ 22,529 ($12,272) $ 10,257
State 3,149 (1,515) 1,634
-------- -------- --------
$ 25,678 ($13,787) $ 11,891
Foreign (531) -- 531
-------- -------- --------
$ 25,147 ($13,787) $ 11,360
======== ======== ========
<CAPTION>
(in thousands) Year Ended December 31, 1995
--------------------------------
Current Deferred Total
------- -------- -----
Federal ($31,659) $ 6,411 ($25,248)
State (5,955) 1,202 (4,753)
-------- -------- --------
($37,614) $ 7,613 ($30,001)
Foreign 522 -- 522
-------- -------- --------
($37,092) $ 7,613 ($29,479)
======== ======== ========
</TABLE>
60
<PAGE> 61
The Company's effective tax rate varies from the statutory Federal
income tax rate as a result of the following items for the years ended December
31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
(in thousands) Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at U.S.
statutory rate $ 5,395 $(27,364) $ 2,685
Increases resulting from--
Foreign taxes in excess of U.S.
statutory tax rate (261) 622 496
State income taxes, net of
Federal income tax benefit 1,182 (3,187) 313
Jobs tax credit -- (500) (21)
Capital losses utilization -- -- (559)
Non-deductible goodwill 5,038 -- --
Other, net 6 950 (18)
-------- -------- -------
Tax expense (benefit) at $ 11,360 $(29,479) $ 2,896
effective rate ======== ======== =======
</TABLE>
61
<PAGE> 62
Deferred income taxes reflect the net tax effect of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards. At December 31, 1996 and 1995, the
net deferred tax assets of $30.3 million and $3.4 million, respectively were
included in the Consolidated Balance Sheets as follows:
<TABLE>
<CAPTION>
(in thousands) December 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory and related reserves $ 3,493 $ 2,064
Warranty and other reserves 20,004 12,448
Alternative minimum tax and jobs credit
carryforwards 2,050 1,550
Deferred compensation 1,457 1,904
Net operating loss carryforward 10,238 --
All other, net 102 690
Valuation allowance (3,579) (3,579)
-------- --------
Total deferred tax assets $ 33,765 $ 15,077
======== ========
(in thousands) December 31,
--------------------
1996 1995
-------- --------
<CAPTION>
Deferred tax liabilities:
LIFO $ --- $ 4,398)
Property, plant and equipment (1,997) (4,048)
Unrealized gain on equity securities (124) (200)
All other, net (1,360) (3,075)
-------- --------
Total deferred tax liabilities $ (3,481) $ 11,721)
======== ========
Net deferred tax assets $ 30,284 $ 3,356
======== ========
</TABLE>
Related to the acquisition of the Sports Subsidiaries as of December 6,
1994, a preliminary allocation had been provided for a valuation allowance
related to the acquired net deferred tax assets. During 1995, the Company
completed its purchase accounting to record the final acquired net deferred tax
assets and made an adjustment to the
62
<PAGE> 63
initial valuation allowance. Subsequent tax benefits related to the valuation
allowance established will be recorded into income. As of December 31, 1996, the
remaining valuation allowance is $3.6 million. The valuation allowance was
established due to the poor earnings history of the acquired Sports
Subsidiaries, excluding Nelson/Weather-Rite.
In management's opinion, it is more likely than not that future taxable
income will be sufficient to fully utilize the deferred tax assets, net of the
valuation allowance, which existed at December 31, 1996. This belief is based
upon, among other factors, changes in the Company's operations that are expected
to generate future taxable income, consideration of available tax planning
strategies, and the length of time available to utilize the net operating loss
("NOL") carryforwards. If the Company is unable to generate sufficient taxable
income through operating results, increases in the valuation allowance will be
required through a charge to expense. The Company's NOL carryforwards primarily
expire in 2010.
(11) LEASES
The Company leases certain equipment and machinery under noncancellable
operating leases. Rent expense was $3.5 million in 1996, $9.9 million in 1995,
and $3.8 million in 1994.
The Company leases certain equipment under capital leases. Future
aggregate minimum lease payments under capital and operating leases that have
initial or remaining noncancellable lease terms in excess of one year as of
December 31, 1996, are as follows:
(in thousands)
<TABLE>
<CAPTION>
Capital Operating
Year ended December 31 Leases Leases
- ---------------------- ------- --------
<S> <C> <C>
1997 $ 269 $15,475
1998 262 14,763
1999 215 12,556
2000 196 8,813
2001 190 2,420
Thereafter 48 3,688
------- -------
$ 1,180 $57,715
=======
Less: Interest expense 217
-------
Present value of futyre minimum $ 963
lease payments =======
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES
Revenue Canada Assessment
RDM Leisure, files a separate Canadian income tax return. Revenue
Canada has proposed a reassessment of amounts due under income tax returns
previously filed. The Company intends to vigorously oppose any reassessment and
believes that, in the event of an unfavorable outcome, amounts payable (net of
potential recoveries) will not have a material adverse impact on the Company's
annual consolidated results of operations or financial condition.
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<PAGE> 64
Environmental Matters
The Company is subject to regulation under federal, state, local, and
provincial laws and regulations governing pollution and protection of human
health and the environment, including air emissions, water discharges,
management and clean-up of solid and hazardous substances, and wastes. In
connection therewith, the Company has been identified as a Potentially
Responsible Party ("PRP") for hazardous waste in connection with the Four County
Landfill Superfund proceeding in Rochester, Indiana, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CECLA" or "Superfund"). In management's opinion, based on the
proceeding and investigations to date and the amount of wastes sent by the
Company to the Four County Landfill, the costs associated with the cleanup at
this site will not have a material effect on the Company's financial condition
or results of operations.
The Company is currently conducting remedial activities as part of the
State of Illinois' Voluntary Cleanup Program at its former Olney, Illinois
manufacturing facility. This site contains approximately 3,000 barrels of paint
waste and solvents which were buried between 1974 and 1978, in addition to,
disposal pits and settling basins. In connection with the Second Brunswick
transaction, the Company established an accrual of $16.4 million, on an
undiscounted basis, related to the Olney location. The accrual is based on
remediation studies performed by its environmental engineering firm,
Environmental Science & Engineering, Inc. ("ESE").
The Company is working with the Alabama Department of Environmental
Management ("ADEM") with respect to an inactive chrome plating tank at its
Opelika facility. The Company has submitted a Risk-Based Closure Report seeking
a Clean Closure Equivalency Determination with respect to the chrome tank area,
which would, if granted, avoid further corrective action near the chrome tank
area and additional long-term groundwater monitoring. In addition, in connection
with the Resource Conservation and Recovery Act ("RCRA") facility assessment,
the EPA identified 45 solid-waste management units and one area for further
study at the Opelika facility. The Company has accrued $3.6 million on an
undiscounted basis for future studies and cleanup efforts related to such sites.
The Company and its subsidiaries are involved in certain other legal
actions and claims arising in the ordinary course of business. In addition, from
time to time the Company becomes aware of certain environmental remediation
related matters which may result in the incurrence of non-reimbursable costs.
Management believes that the resolution of such contingencies will not have a
materially adverse impact on the Company's annual consolidated results of
operations or financial position.
(13) BENEFIT PLANS
The Company maintains three Employee Stock Ownership Plans (the "Plans"
or "ESOP") for union and non-union employees. Each ESOP incorporates salary
deferral and employer matching contribution features ("401(k)"). The Company
makes basic contributions to the Plans in amounts necessary to pay any maturing
obligations under any outstanding ESOP loans. The ESOP had no maturity
obligations at December 31, 1996. Additionally, the Company periodically makes
discretionary contributions of shares of its common stock or cash for the
benefit of eligible employees.
The Company sponsors a 401(k) savings plan under which eligible U.S.
employees may choose to save up to 15% of their salary income on a pre-tax
basis, subject to certain Internal Revenue Service ("IRS") limits. The Company
matches 4% of employee contributions with Company common stock up to a maximum
of 1% of net income. The shares for this purpose are provided principally by the
Company's ESOP, supplemented as needed by newly issued shares. The Company makes
annual contributions to the ESOP. The ESOP shares were initially purchased with
a loan from the Company and subsequently pledged as collateral for the loan. As
the debt is repaid over a 10 year period, shares are released from collateral
and allocated to participating employees. The Company accounts for its ESOP in
accordance with Statement of Position 93-6. Accordingly, the unearned shares are
reported as deferred compensation in the Consolidated Balance Sheet. As shares
are earned, the Company reports
64
<PAGE> 65
compensation expense equal to the current market price of the shares, and the
shares become outstanding for earnings per share computations.
Compensation expense for the 401(k) match and the ESOP is estimated to
be $700,000 for 1996 and was $696,000 in 1995. The ESOP shares as of December
31, 1996 and 1995 were as follows:
(in thousands, except share amounts) Year Ended December 31,
--------------------------
1996 1995
---------- ----------
Allocated shares 1,509,448 2,081,651
Shares released for allocation 69,412 69,412
Unreleased shares 555,295 624,706
---------- ----------
Total ESOP shares 2,134,155 2,775,769
Total value of ESOP shares $ 2,667 $ 6,606
========== ==========
The Company has received favorable tax qualification determination
letters from the IRS on all three of its Plans.
The Company also maintains three qualified defined benefit plans on a
curtailed basis. Net periodic pension income for the years ended December 31,
1996 and 1995 consisted of the following:
(in thousands) Year Ended December 31,
-----------------------
1996 1995
------ -----
Interest costs on projected benefit obligations $ 460 $ 477
Actual return on plan assets (587) (545)
Net amortization and deferral 19 55
------ -----
Net periodic pension income $ (108) $ (13)
====== =====
The following table sets forth the funded status at December 31, 1996
and 1995 of the pension plans and amounts recognized in the Company's
consolidated financial statements as of December 31, 1996 and 1995:
(in thousands) As of December 31,
------------------------
1996 1995
--------- ---------
Actuarial present value of:
Accumulated benefit obligation, including
vested benefits of $7,376 and $7,389,
respectively $ 7,376 $ 7,389
======= =======
Projected benefit obligation $ 7,376 $ 7,389
Plan assets at fair value 7,580 7,175
------- -------
Plan assets in excess of/(less than) projected $ 204 $ (214)
benefit obligation
Unrecognized net experience loss 802 909
Minimum pension liability (726) (709)
======= =======
Prepaid (accrued) pension cost $ 280 $ (14)
======= =======
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<PAGE> 66
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 6.5% both in 1996 and
1995. The expected long-term rate of return on assets was 8.5% in both 1996 and
1995. No rate of increase in future compensation levels is considered since the
plans are frozen.
Plan assets are invested in a collective guaranteed investment contract
fund, a collective equity investment fund and temporary investments (See Note 21
"Subsequent Events-Termination of Benefits Plans").
The Company acquired the Actava Group Inc. Sports Group Profit Sharing
Plan ("Actava Plan") and the Diversified Products Corporation Profit
Sharing/401(k) Plan ("DP Plan") with the 1994 acquisition of the Sports
Subsidiaries. The Actava Plan is a defined contribution plan for the employees
of Nelson/Weather-Rite and Willow whose plan assets are invested in money market
funds, bond funds and U.S. Treasury Bills. The DP Plan is a defined contribution
plan for the employees of DP whose plan assets are primarily invested in a
guaranteed interest contract. Both plans were inactive during 1996 and 1995.
(14) RELATED-PARTY TRANSACTIONS
In December 1996, the Company completed a number of transactions
involving its subsidiaries and an officer. The Company contributed $15.0 million
to the capital of RDM Holdings, Inc. (f/k/a/ Roadmaster Corporation) ("RDMHI"),
a wholly-owned subsidiary of the Company, by means of promissory notes that it
received as dividends from Willow and Hutch, wholly-owned subsidiaries of the
Company. In addition, the Company contributed $5.0 million to the capital of
Diversified Products Corporation ("DP"), a wholly-owned subsidiary of the
Company, by means of a promissory note that it received from RDMHI. DP and RDMHI
used these notes to purchase 28 and 83 shares, respectively, of Class B Common
Stock of RDM Environmental Remediation Management ("RDMERM"), another
wholly-owned subsidiary of the Company. As part of the sale of its stock to DP
and RDMHI, RDMERM assumed up to a maximum of $20 million of possible
environmental clean-up costs and expenses at the Olney, Illinois and Opelika,
Alabama facilities. DP and RDMHI remain liable for these possible environmental
clean-up costs if RDMERM is unable to satisfy these obligations. DP and RDMHI
subsequently sold, at a price of $72.07 per share, the shares of Class B Common
stock of RDMERM to the Vice President/Chief Legal Counsel. Such officer agreed
that upon complete satisfaction of the Company's environmental clean-up
liabilities, or at the option of the person or RDMERM, the shares of Class B
Common Stock could be put back to or be called by RDMERM under the specified
terms of the stock. The redemption value of the RDMERM Class B Common shares
held by that person would be the Net Worth per share of RDMERM, but in no event
shall the redemption value exceed $2,500 per share. As a general matter, the
value of this RDMERM stock will be dependent upon the ability of RDMERM, which
has no other significant business or assets, to satisfy the Company's existing
environmental liabilities for less than $20 million, which was within
approximate range of the estimated 1996 environmental liabilities for the above
mentioned subsidiaries. Consequently, the holders of this RDMERM stock have a
direct incentive to minimize costs of satisfying the environmental liabilities.
On October 7, 1993, the Company 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. The Company
became the exclusive worldwide distributor of MacGregor' brand baseball,
softball, basketball, football, soccer, hockey, volleyball, racquet sports, and
other products. In September 1996, the Company purchased the exclusive rights to
use the MacGregor name for all sports products excluding: apparel, shoes, balls
sold to institutions, bags, and various other small items. Henry Fong, who
formerly served as the Company's Chairman of the Board, Chief Executive Officer
and as a director, is serving or has served as a director of MacGregor.
Equitex is a holder of approximately 10.3% of the outstanding Common
Stock of the Company. Mr. Fong, the CEO of Equitex, also was the Chairman of the
Board, CEO and a director of the Company at December 31, 1996. Equitex earned
management fees in 1996, 1995, and 1994 of $0, $144,000, and $144,000,
respectively.
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<PAGE> 67
(15) COMMON STOCK
During 1994, the Company issued warrants to purchase up to a total of
1,297,320 shares of the Company's Common Stock at prices ranging from $3.63 to
$4.06 per share. In addition, warrants to purchase 2,496,371 shares were issued
with an exercise price of the fair market value of the Company's Common Stock at
the date of exercise.
During 1995, the Company issued warrants to purchase up to a total of
1,573,950 shares of the Company's Common Stock at prices ranging from $2.56 to
$4.00 per share. In addition, warrants to purchase 90,000 shares were issued
with an exercise price of the fair market value of the Company's Common Stock at
the date of exercise.
During 1996, the Company issued warrants to purchase up to a total of
500,000 shares of the Company's Common Stock at a price of $1.50 per share.
Stock option and warrant transactions are summarized below for the
three year period ended December 31, 1996:
<TABLE>
<CAPTION>
Number Exercise
of Shares Price Range
------------ -------------
<S> <C> <C>
Options and warrants:
Options and warrants outstanding at January 1, 1994 7,210,913 $1.33 - $6.60
Granted 1,297,320 $3.63 - $4.06
Exercised (2,496,371) $1.33 - $1.50
Canceled (401,434) $1.33 - $1.50
Forfeitures (132,000) $1.33 - $1.50
Options and warrants outstanding at December 31, 5,478,428 $1.33 - $6.60
1994
Granted 1,573,950 $2.56 - $4.00
Exercised (90,000) $ 1.33
Forfeitures (104,000) $1.33 - $4.00
----------- -------------
Options and warrants outstanding at December 31, 6,858,378 $1.33 - $6.60
1995
Granted 500,000 $ 1.50
Canceled (30,000) $ 4.06
Forfeitures (210,375) $1.48 - $4.00
----------- -------------
Options and warrants outstanding at December 31, 7,118,003 $1.33 - $6.60
1996 =========== =============
</TABLE>
As of December 31, 1996, the Company had a total of 7,118,003 shares of
Common Stock reserved for issuance upon exercise of warrants ($1.33-$6.60
exercise price per share).
(16) EARNINGS PER COMMON SHARE
In 1996 and 1995, primary and fully diluted earnings per common share
were based on the weighted average number of common shares outstanding during
the year.
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<PAGE> 68
In 1994, primary earnings per common share were based on the weighted
average number of common shares outstanding during the year and common stock
equivalent shares assumed to be exercised with the proceeds used to repurchase
common shares at the average market price for the year.
In 1994, fully diluted earnings per common share further assumed that
the proceeds of common equivalent shares were used to repurchase common shares
as of the beginning of the year, at the higher of the market price at the close
of the period or the average market price for the year, to reflect maximum
potential dilution.
(17) ACQUISITIONS
TQ ACQUISITION
On March 31, 1996, the Company purchased the remaining 75 shares of
common stock of TQ, Inc. ("TQ"), a company in which the Company had a 25%
ownership interest at December 31, 1995, making the Company the sole owner of
TQ. TQ is a manufacturer of gift sets, sports clothing, and sports equipment
almost entirely for the Company's Hutch subsidiary. The purchase price of
$250,000 exceeded the fair value of the net assets acquired by $1.3 million. The
excess is recorded as goodwill in the accompanying Consolidated Balance Sheet
and is amortized over a life of 40 years. Final purchase price
allocations/adjustments are expected to be made in 1997.
ACQUISITION OF MZH
In April 1995, the Company finalized the acquisition of certain assets
and the business of MZH, a manufacturer and marketer of sleeping bags. MZH had
revenues of approximately $28 million in 1994. The purchase price included $21.5
million in cash, 400,000 shares of the Company's common stock valued at $1.5
million and the assumption of certain liabilities. MZH was sold during 1996,
along with the assets of Nelson/Weather-Rite (see Note 1 "Background").
In connection with the acquisition, the Company granted a price
guarantee for the 400,000 shares issued. The seller was guaranteed a price of
$3.75 per share by the Company. In the event the seller sold the shares at a
price below $3.75, the Company was required to pay the seller the difference
between the price received and $3.75 per share. In 1996, the Company paid
$225,000 to the seller of MZH under the price guarantee for the shares issued.
The payment resulted in a decrease to additional paid-in-capital.
ACQUISITION OF FORSTER
In March 1995, Hutch acquired the sporting goods division of Forster
Manufacturing Company for $7.4 million in cash. The product categories acquired
include various backyard and lawn games, including croquet, bocce ball and
volleyball.
The proforma effect of the 1995 acquisitions on the 1995 financial
statements was not material.
ACQUISITION OF THE SPORTS SUBSIDIARIES
On December 6, 1994, the Company exchanged with Actava all of the
issued and outstanding capital shares of DP, Hutch, Nelson/Weather-Rite, and
Willow, wholly-owned subsidiaries of Actava, for an aggregate 19,169,000 shares
of the Company's Common Stock, par value $0.01 per share, valued at $76.7
million.
Such acquisition has been accounted for as a purchase, and the net
assets and results of operations are included in the Company's Consolidated
Financial Statements beginning December 7, 1994. The purchase price has been
allocated to the assets and liabilities of the Sports Subsidiaries based on
their estimated fair values. The purchase price and expenses associated with the
acquisition exceeded the fair value of net assets by $71.0 million.
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<PAGE> 69
These amounts were initially included in goodwill and other intangible assets
and were subsequently written off in accordance with SFAS No. 121.
The assets of Nelson/Weather-Rite, along with assets acquired from MZH,
were sold to Brunswick during 1996 (see Note 1 "Background").
ACQUISITION OF AMERICAN PLAYWORLD
In February 1994, the Company acquired the assets and business of
American Playworld. American Playworld was a manufacturer of trampolines
distributing mainly to mass merchants and had revenues of approximately $17.0
million in 1993. The purchase price included $7.0 million in cash, 606,061
shares of the Company's Common Stock valued at $2.5 million, and the assumption
of certain trade payables. y In connection with the acquisition, the Company
granted a price guarantee for the 606,061 shares issued. The seller was
guaranteed a price of $4.125 per share by the Company. In the event the seller
sold the shares at a price below $4.125, the Company was required to pay the
seller the difference between the price received and $4.125 per share. In 1996,
the Company paid $1.6 million to the seller of American Playworld under the
price guarantee for the shares issued. The payment resulted in a decrease to
additional paid-in-capital.
ACQUISITION OF FLEXIBLE FLYER COMPANY
On September 14, 1993, the Company purchased from Par Industries, Inc.
("Par") certain assets and the business of, and assumed certain recorded
liabilities incurred in the ordinary course of business by, Flexible Flyer
Company, a division of Par. The price paid by the Company for the Flexible Flyer
assets and business was approximately $23.0 million. The purchase financing
included the issuance of 617,165 shares of redeemable common stock valued at
$2.0 million and the assumption of $4.2 million of accounts payable. In
addition, the principal stockholders of Par agreed to a five-year non-compete
arrangement for which the Company will pay an additional $1.5 million over the
five-year period following the closing date of the Flexible Flyer acquisition.
The acquisition was accounted for as a purchase, and the net assets and
results of operations are included in the Company's Consolidated Financial
Statements beginning September 14, 1993. The purchase price was allocated to the
assets and liabilities of Flexible Flyer based on their estimated fair values.
The purchase price and expenses associated with the acquisition exceeded the
fair value of Flexible Flyer's net assets by approximately $6.6 million.
These amounts have been included in goodwill and other intangible assets.
The following unaudited pro forma information combines the consolidated
results of operations of the Company, Flexible Flyer, American Playworld and the
Sports Subsidiaries as if the acquisitions had occurred on January 1 of the
respective years, after giving effect to amortization of goodwill and
non-competition agreements and increased interest expense at approximately 8% on
average borrowings to finance the acquisition. The pro forma results of
operations exclude salary expense for the terminated salary employees not
rehired by the Company, as provided for in the Flexible Flyer Acquisition
Agreement, and direct costs associated with assets not purchased or liabilities
not assumed as provided by the Flexible Flyer Acquisition Agreement. The pro
forma information is not necessarily indicative of the results of operations
which would have actually been obtained during such periods.
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<PAGE> 70
(in thousands except per share data) Unaudited
As of December 31,
1994
------------------
Net sales $759,373
Income before taxes 4,437
Net income 2,795
========
Earnings per share
$ 0.06
Primary ========
(18) STOCK-BASED COMPENSATION PLANS
The Company has established five stock option/warrant plans: the April
1992 Directors Stock Purchase Plan ("April 1992 Plan"); the July 1992 Stock
Purchase Plan ("July 1992 Plan"); the November 1992 Stock Purchase Plan
("November 1992 Plan"); the Key Employee Stock Incentive Program ("KESIP Plan");
and the 1994 Directors' Stock Option Plan for Non-Employee Directors ("1994
Plan"). The April 1992 Plan, July 1992 Plan, and November 1992 Plan provide for
directors, non-director officers, and key employees warrants to purchase shares
of Common Stock. The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
stock options awarded under these plans been determined consistent with FASB
Statement No. 123, the Company's net income and earnings per share would have
been reduced to the following pro forma amounts:
(in thousands except per share data)
1996 1995
----- -----
Net Income (Loss):
As Reported $ 775 $(51,004)
Pro Forma 746 (51,004)
Primary Earnings Per Share:
As Reported $0.02 $ (1.04)
Pro Forma 0.02 (1.04)
Fully Diluted Earnings Per Share:
As Reported $0.02 $ (1.04)
Pro Forma 0.02 (1.04)
Because the FASB Statement No. 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The Company may grant options/warrants for up to 9,260,800 shares under
the various stock option plans as of December 31, 1996. The Company has granted
options/warrants on 7,265,550 shares through December 31, 1996. Under the
various stock option plans, the optionee may purchase shares of Common Stock at
fair market value on the date of grant. The April 1992 Plan options vest
immediately on the date of grant and expire after July 6, 1999. The options
granted under the July 1992 Plan and November 1992 Plan vest after four years
and expire on July 6, 1999 and November 2, 1999, respectively. Under the KESIP
Plan, options vest over four years and expire after ten years. The 1994 Plan
options vest immediately and expire after ten years.
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<PAGE> 71
A summary of the status of the Company's stock option plans at December
31, 1996, 1995, and 1994 and changes during the years then ended is presented in
the table and narrative below:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- -------------------------- ---------------------------
Shares Weighted Shares Weighted Shares Weighted
(000s) Avg. Price (000s) Avg. Price (000s) Avg. Price
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 4,244 $2.51 4,438 $ 2.50 3,822 $ 1.38
Granted 500 1.50 -- -- 1,930 3.98
Exercised -- -- 90 1.33 1,152 1.41
Forfeited 240 3.16 104 3.30 132 1.40
Expired -- -- -- -- 30 1.46
----- ----- ----- -------- ------ ------
Outstanding at end of year 4,504 $2.36 4,244 $ 2.51 4,438 $ 2.50
Exercisable at end of year 3,438 $2.19 2,949 $ 2.11 2,447 $ 1.91
Weighted average fair value
of options granted $ 1.18 $ --
</TABLE>
2,890,253 of the 4,503,628 options outstanding at December 31, 1996,
have exercise prices between $1.33 and $1.50 per share, with a weighted average
exercise price of $1.39 and a weighted average remaining life of 4.43 years.
2,350,920 of these options are exercisable; their weighted average exercise
price is $1.37. The remaining 1,694,375 options have exercise prices between
$3.00 and $4.06 per share, with a weighted average price of $3.98 and a weighted
average remaining contractual life of 6.07 years. 1,086,625 of these options are
exercisable; their weighted average exercise price is $3.97.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for the single grant in 1996: risk free interest rate of 6.53
percent; expected dividend yield of 0.00%; expected life of 10.0 years; and
expected volatility of 64.37%.
(19) RESTRUCTURING CHARGE
In December 1995, the Company recorded a restructuring charge of $7.5
million, primarily related to the closure of its Tyler, Texas manufacturing
facility and the downsizing of its European distribution operations. The
operations of the Tyler facility were integrated with the Company's Opelika,
Alabama manufacturing operations enabling the Company to reduce fixed costs and
increase utilization and efficiency of existing manufacturing facilities. The
components of the restructuring charge include $1.4 million for employee
severance, $3.9 million to cover lease obligations for facilities which will no
longer be needed and $2.2 million for the maintenance, security and other
facility related carrying costs. Total cash expenditures of $7.5 million are
included in this charge. All employees were notified of this restructuring by
December 31, 1995. In connection with the closure of the Tyler, Texas
manufacturing facility, an additional $4.3 million was provided for in the third
quarter of 1996. This charge related primarily to the non-cash write-off of
tooling associated with the production process at the Tyler facility. As of
December 31, 1996, the restructuring reserve of $2.2 million relates primarily
to the Tyler, Texas facility lease obligations.
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<PAGE> 72
(20) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share data) 1996 Quarter Ended
-------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
December 31 September 28 June 30 April 1
----------- ------------ ------- -------
<S> <C> <C> <C> <C>
Net sales $ 62,448 $ 70,483 $ 104,338 $129,414
Gross profit (11,087) (14,816) 10,963 16,222
Net earnings (loss) before extraordinary
item 363(1) 4,646(2) (5,133) 4,630
Extraordinary item -- (3,731) -- --
---------------------------------------------------------------------------
Net earnings (loss) 363 915 (5,133) 4,630
Per Common Share -
Net earnings (loss) before
extraordinary
item $ 0.01 $ 0.09 $ (0.10) $ 0.09
Extraordinary item -- (0.07) -- --
---------------------------------------------------------------------------
Net earnings (loss) $ 0.01 $ 0.02 $ (0.10) $ 0.09
</TABLE>
<TABLE>
<CAPTION>
(in thousands, except per share data) 1995 Quarter Ended
-----------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
December 31 September 30 July 1 April 1
----------- ------------ ------ -------
<S> <C> <C> <C> <C>
Net sales $207,395 $175,221 $172,713 $175,546
Gross profit 18,496 24,376 19,778 23,957
Net (loss) earnings (41,745)(3) (2,203) (5,579) (1,477)
Per Common Share -
Net (loss) earnings $ (0.85) $ (0.04) $ (0.11) $ (0.03)
</TABLE>
1. This loss includes costs associated with the impairment loss.
2. This loss includes costs associated with the restructuring costs.
3. This loss includes costs associated with the impairment loss and
restructuring costs.
(21) SUBSEQUENT EVENTS
Debt Refinancing
On June 20, 1997 (the "Closing Date"), the Company entered into a new
$100 million revolving and term credit facility (the "New Loan Facility")
pursuant to a Loan and Security Agreement (the "Loan Agreement") between the
Company's borrowing subsidiaries and certain financial institutions. Borrowers
under the New Loan Facility are the Company's operating subsidiaries and the
first tier holding company subsidiary for the operating subsidiaries. The New
Loan Facility replaced the Bank Credit Agreement which was repaid in full plus
$500,000 in prepayment fees. Borrowings under the New Loan Facility are
guaranteed by the Company and are secured by substantially all of the assets of
the Company and all of its subsidiaries. In addition, the New Loan Facility is
guaranteed by a letter of credit in the amount of $15 million in favor of the
lenders there under (the "Lenders"), which letter of credit was obtained by the
Metromedia Company, an affiliate of Metromedia International Group,
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<PAGE> 73
Inc. ("MIG"), the Company's largest stockholder. Such Letter of Credit cannot be
drawn until five days after a payment default under the New Loan Facility and
fifteen days after a non-payment default. Metromedia is also entitled to receive
copies of all notices required under the Loan Agreement.
The New Loan Facility provides up to a $75 million revolving credit
facility and two term loan tranches aggregating $25 million. The New Loan
Facility has a four year term. Borrowings under the revolving credit portion of
the New Loan Facility are based on eligible inventory and receivables.
Borrowings and other obligations under the New Loan Facility bear interest at a
per annum interest rate equal to the base rate of the reference financial
institution (the "Reference Rate") plus one percent (1%) except $10 million of
the term loans ("Tranche A") bears interest at the Reference Rate plus 1.5%. The
rate for borrowings under the revolving credit facility is subject to decrease
to 0.5% above the Reference Rate based on the achievement of certain pricing
benchmarks and is subject to increase by 4% in the event borrowings against
inventories exceed certain levels under specified circumstances. All borrowings
are subject to an interest rate increase of 4% upon the occurrence and during
the continuance of an Event of Default as defined in the Loan Agreement. The
Reference Rate as of the date of the Loan Agreement was 8.5% per annum.
The Loan Agreement also provides for a $750,000 closing fee, plus an
unused line fee equal to 0.25% of the average unused portion of the maximum
revolving amount (i.e. $75 million), plus an annual facility fee equal to .50%
of the total initial facility (i.e. $100 million). Additional fees and expenses
are payable to the agent for the Lenders. In consideration of providing the
letter of credit, the affiliate of MIG was granted 3 million warrants to
purchase Common Stock of the Company at an exercise price of $.50 per share. The
Warrants have a ten year term and are exercisable beginning ninety (90) days
from the Closing Date. Prepayment fees on the Bank Credit Agreement, origination
fees on the New Loan Facility, brokerage, and other closing costs incurred by
the Company in connection with the New Loan Facility aggregated approximately
$2.7 million, the majority of which were paid on the Closing Date.
The Loan Agreement contains numerous financial and non-financial
covenants, including limitations on the incurrence of additional indebtedness,
limitations on the incurrence of liens, limitations on capital expenditures,
limitations on the sale of assets, maintenance of specified ratios of current
assets to current liabilities, total liabilities to tangible net worth and
minimum tangible net worth, all as defined in the Loan Agreement. The Loan
Agreement also contains provisions requiring additional payments to the Lenders
in the event of the early termination of the Loan Agreement.
Resignation of Chairman of the Board and Chief Executive Officer
Henry Fong resigned from all his positions with the Company and its
subsidiaries, including as Chief Executive Officer and a director of the
Company, on June 20, 1997. Mr. Fong's employment agreement was subject to
automatic renewal for additional one year terms unless terminated by either Mr.
Fong or the Company upon thirty days written notice prior to the end of the
initial or successive terms. The Company and Mr. Fong have entered into
discussions with respect to the amount owed to Mr. Fong in settlement of all
amounts owed to him under his employment agreement or otherwise. In the event
the Company and Mr. Fong cannot agree on such amount within sixty (60) days of
Mr. Fong's resignation, each party will be able to assert any and all rights
under the Employment Agreement which they may have had at such time as if such
resignation had not occurred.
Finally, Mr. Fong's Employment Agreement provided that it could be
terminated without cause while the Company was not profitable, in such event the
Company would have been obligated to continue to pay Mr. Fong his compensation
payable under his Employment Agreement during the remainder of its then current
term. There are no amounts reflected in the financial statements at December 31,
1996, relative to the amounts owed to Mr. Fong, if any, under the Employment
Agreement.
73
<PAGE> 74
Termination of Benefit Plans
During 1997, the Company made a determination, subject to approval of
its Board of Directors, to terminate the three qualified benefit plans (See Note
13 "Benefit Plans"). The Company estimates that there will be no impact on
pension expense related to these terminations. The Company is also in the
process of terminating the Actava Plan and the DP Plan.
(22) NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share"
("SFAS 128"). SFAS 128 is effective for financial statements for periods ending
after December 15, 1997. The Company will adopt this statement and reflect its
disclosures in the Company's 1997 financial statements. SFAS 128 requires dual
presentation of basic and diluted earnings per share, as defined. This statement
requires that prior period earnings per share data be restated. As a result,
earnings per share as of December 31, 1996, 1995 and 1994 would reflect basic
and diluted earnings (loss) per share of $0.02, ($1.04) and $0.17, respectively.
74
<PAGE> 75
SCHEDULE II
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
--------- ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful receivables-
Year Ended-
December 31, 1996 $1,389 $4,749 $ -- $(2,887)(1) $3,251
December 31, 1995 1,744 689 2,339 (3,383) $1,389
December 31, 1994 411 82 1,300(2) (49)(3) $1,744
Valuation Allowance for deferred
tax assets-
Year Ended-
December 31, 1996 $3,579 $ -- $ -- $ -- $3,579
December 31, 1995 4,152 -- -- (573) $3,579
December 31, 1994 -- -- 4,296(2) (144) $4,152
</TABLE>
Notes: (1) $754 of total deductions represents amounts sold in
conjunction with the First and Second Brunswick
Transactions.
(2) Represents amounts assumed through the acquisition of the
Sports Subsidiaries.
(3) Represents amounts charged off as uncollectible.
<PAGE> 76
INDEX TO EXHIBITS
Exhibit
<TABLE>
<CAPTION>
Number Exhibit Description
- ------ -------------------
<S> <C>
10.75 Employment Agreement for James L. Marden dated November 1, 1996
10.76 Amendment No. 1 to Employment Agreement for James L. Marden dated June 12, 1997
10.77 Loan and Security Agreement dated as of June 20, 1997 among RDM Holdings, Inc., Sports
Group, Inc., International Sports and Fitness, Inc., Diversified
Products Corporation, Willow Hosiery Company, Inc., Hutch Sports USA
Inc., and Diversified Trucking Corp., as Borrowers, the Financial
Institutions named therein and Foothill Capital Corporation, as agent
10.78 Warrant Agreement dated June 20, 1997 from RDM Sports Group, Inc. to Metromedia Company
11.1 Statement of Computation of Per Share Earnings
18.1 Preferability Letter
21.1 List of Registrant's subsidiaries
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 10.75
EMPLOYMENT AGREEMENT - JAMES L. MARDEN
<PAGE> 2
AGREEMENT
This Agreement is made as of November 1, 1996, between James L. Marden
(hereinafter "Executive"), and Roadmaster Industries, Inc., a Delaware
corporation ("Roadmaster"). Executive and Roadmaster are hereinafter sometimes
together referred to as the "Parties."
In consideration of the mutual covenants, promises and agreements in
this Agreement, the Parties agree as follows:
1. Employment. Roadmaster hereby employs Executive as the President
and Chief Operating Officer of Roadmaster, and the President and Chief
Executive Officer of the DP Fitness Division of Roadmaster Corporation, and
Executive accepts these positions, subject to the terms and conditions of this
Agreement, for a period of one (1) year, subject to additional one year
additional terms upon agreement of the Parties, to be reflected in a signed
writing executed by authorized officers of Roadmaster and by the Executive.
2. Duties of Executive. Executive shall faithfully, diligently and to
the best of his ability serve Roadmaster, under the direction and supervision
of Chairman and Chief Executive Officer (the "CEO") of Roadmaster and according
to existing Roadmaster policies. Executive shall diligently perform and
accomplish those duties, tasks, and responsibilities assigned to him by
Roadmaster's CEO, and in particular to cause the DP Fitness Division of
Roadmaster to meet those goals set forth in Exhibit A, attached. Executive
shall devote all of his working time, energy and skill to perform these duties,
and shall not engage in any other employment or work for compensation. However,
Executive shall be permitted to pursue other business investments (other than
as an Executive or employee) and directorships (which may provide
remuneration), as long as these do not interfere or compete with Executive's
duties to Roadmaster. In addition, Executive has been nominated for a seat on
Roadmaster's Board of Directors, and if elected by the shareholders shall serve
as a director without additional compensation.
3. Compensation and Benefits. Executive's initial salary shall be Two
Hundred Fifty Thousand Dollars ($250,000.00) per year. After one year,
Executive's compensation shall be reviewed according to Roadmaster's prevailing
salary practices and Executive's performance. Roadmaster currently pays salary
in twenty-four equal semi-monthly installments, but may elect to pay salary
more or less frequently, and shall pay Executive his salary according to
Roadmaster's then prevailing practices. Executive shall be eligible for an
annual bonus of up to One Hundred Twenty-Five Thousand Dollars ($125,000.00),
based upon the achievement of those goals set forth in Exhibit A (which shall
provide for a bonus based upon meeting performance goals and levels as
determined by the Compensation Committee of Roadmaster). Roadmaster shall
provide Executive with a Five Hundred Dollar ($500.00) per month automobile
allowance. Roadmaster shall provide Executive the opportunity to participate in
the insurance and other benefit plans made available to other executives of
Roadmaster, on a basis consistent with those provided to other executives of
Roadmaster in similar positions.
1
<PAGE> 3
4. Executive's Options. Roadmaster has awarded to Executive an option
to purchase 250,000 shares of the common stock of Roadmaster (the "First
Option"), with the First Option exercise price being the closing price of
Roadmaster common stock on the New York Stock exchange on October 31, 1996,
namely $1.50 per share, times the number of shares of Roadmaster common stock
purchased upon exercise of the First Option. The First Option shall be in the
form attached as Exhibit B to this Agreement. The First Option shall vest in
eleven (11) installments of 20,900 shares each at the end of each month during
Executive's employment by Roadmaster under this Agreement, and 20,100 shares at
the end of the twelfth month of Executive's employment by Roadmaster under this
Agreement. The First Option may be exercised in whole or in part at any time to
the extent that the right to purchase shares has vested, all pursuant to the
terms of the First Option. Roadmaster shall award the Executive an option to
purchase an additional 250,000 shares of the common stock of Roadmaster (the
"Second Option"), with the Second Option exercise price being the closing price
of Roadmaster common stock on the New York Stock Exchange on October 31, 1996,
namely $1.50 per share, times the number of shares of Roadmaster common stock
purchased upon exercise of the Second Option. The Second Option shall be in the
form attached as Exhibit C to this Agreement. The Second Option shall be
awarded and shall vest upon fulfillment by Executive of those goals specified
in Exhibit A attached.
5. Change in Control. Change in Control of the Company means: (i) a
sale, merger, or transfer of all or substantially all of the assets of the
Company; (ii) if any "Person" or "Group" of Persons (as such terms are
determined pursuant to Sections 13(d) and 14(d) of the Exchange Act and the
rules and regulations promulgated thereunder) either alone or in conjunction
with its "Affiliates" (as that term is defined in Rule 405 under the Securities
Act), other than a person or group consisting solely of Management Stockholders
or their "Affiliates" (as that term is defined in Rule 405 under the Securities
Act), becomes the beneficial owner, directly or indirectly, of voting
securities of the Company representing, or securities convertible into, or
exchangeable for, securities representing more than fifty percent (50%) of the
combined voting power of the Company's then outstanding securities eligible to
vote for the election of Directors; or (iii) if any "Person" or "Group" of
Persons (as such terms are determined pursuant to Section 13(d) and 14(d) of
the Exchange Act and the rules and regulations promulgated thereunder) either
alone or in conjunction with its "Affiliates" (as that term is defined in Rule
405 under the Securities Act), acquires the right or power to nominate and/or
control, directly or indirectly, whether through the ownership of voting
securities of the Company, by contract or otherwise, a majority of the members
of the Company's Board of Directors without having first received the prior
written consent of at least two-thirds (including a majority of the Management
Directors) of the members of the Board of Directors of the Company then in
office prior to such person or group of persons acquiring such right or power.
In the event a Change in Control: (a) all shares under the First and
Second Options shall become immediately vested one hundred percent (100%) and
shall remain exercisable for their entire term, and (b) Roadmaster shall pay
Executive an amount equal to one year's base salary, in equal installments
payable on the same payment dates used for payment of salary to Roadmaster's
other management personnel. Executive agrees that execution and delivery of
Roadmaster's customary release is a condition precedent to the payment of any
severance compensation.
2
<PAGE> 4
6. Location. Executive agrees that the primary location for his
performance of his duties shall be the facility of DP Fitness Division located
in Opelika, Alabama.
7. Confidentiality. As used in this Agreement, the term "Confidential
Information" shall mean any and all information not readily available to the
public, including but not limited to documents, reports, summaries, data
compilations, programs, devices, designs, strategies, or methods which
constitute, discuss, relate or concern (a) the financial condition, results of
operations or compensation of the management of Roadmaster, Roadmaster
subsidiaries and any subsidiaries of Roadmaster's subsidiaries (together, the
"Company"); (b) the terms and conditions (including prices) of sales and offers
of sales of products and services of the Company, (c) the terms, conditions or
current status of the Company's relationship or transactions with any of the
Company's customers or suppliers; (d) the identities and business practices and
preferences of the Company's actual and prospective customers and suppliers, or
of any officer, employee or agent thereof with whom the Company may
communicate; (e) the invention, product ideas, trade secrets, market
techniques, skills, ideas, strategic plans and market data possessed,
developed, accumulated, or acquired by the Company; (f) any communications
between the Company, its officers, directors, shareholders or employees, and
any attorney employed or retained by the Company for any purpose, or any person
retained or employed by those attorneys in representing the Company; (g) the
terms and conditions of this Agreement; (h) any information regarding any
potential merger, acquisition, divestiture, purchase or sale of assets, joint
venture, or other business combination or financing in which the Company may
contemplate participation; and (i) any other information from which the Company
derives actual or potential economic value from the information not being
generally known to other persons or entities who might obtain economic value
from its disclosure or use, or which gives the Company an opportunity to obtain
an advantage over its competitors who do not know or use the information.
Executive acknowledges and agrees that the Company is engaged in a number of
highly competitive businesses, and has expended, and will expend, significant
sums and invested significant resources to develop and maintain the secrecy of
the Confidential Information. The Company has obtained a valuable economic
asset which has enabled it to maintain positive business relationships with its
customers and suppliers. Executive acknowledges and agrees that if the
Confidential Information were disclosed to another person or entity or used for
the benefit of anyone other than the Company, the Company would suffer
irreparable harm. Executive acknowledges and agrees (a) that the Confidential
Information is and at all times will remain the sole property of the Company;
(b) Executive will use his best efforts and the utmost diligence to protect the
Confidential Information from disclosure to any other person or entity (except
to the extent that the use or disclosure of Confidential Information is
required in order for the Company to do business or obtain business benefit) ;
and (c) shall not use any of the Confidential Information for his own benefit
or that of any other person or entity other than the Company, including but not
limited to any Confidential Information which Executive may learn, create,
develop or modify in connection with his employment. The Executive acknowledges
and agrees that any Confidential Information which is made or becomes available
to him does so solely in order to permit him to perform his duties under this
Agreement, and agrees that in the event his employment is terminated hereunder
for any reason, he will not take and will promptly return all tangible
Confidential Information, and any copies, abstracts, notes or other documents
or records which constitute, discuss, relate, refer to or summarize any
Confidential Information.
3
<PAGE> 5
8. Non-Competition. The Executive agrees that during the term of this
Agreement, Executive will not, without the written consent of Roadmaster,
engage in or become directly or indirectly interested in any business activity
or entity, whether as owner, partner, officer, director, employee, stockholder
(except that Executive may be the owner of less than one percent of the stock
of a company traded on a major public stock exchange), trustee, beneficiary,
consultant, lessor or lessee, which engages in any business activity in the USA
competitive with the Company. Provided that Roadmaster is paying Executive any
severance compensation due under this Agreement, Executive agrees that for two
(2) years following any termination of his employment (but only for one (1)
year following a termination pursuant to subpart (b) of paragraph 11),
Executive will not, without the written consent of Roadmaster, engage in or
become directly or indirectly interested in any business activity or entity,
whether as owner, partner, officer, director, employee, stockholder (except
that Executive may be the owner of less than one percent of the stock of a
company traded on a major public stock exchange), trustee, beneficiary,
consultant, lessor or lessee, which engages in any business activity in the USA
competitive with the Company. The Executive agrees that he will not during the
term of this Agreement, and for two (2) years following any termination of his
employment, either directly, indirectly or in concert with others, seek to
influence or induce any person employed by the Company to become employed by
any person or entity in competition with the Company.
9. Enforcement. It is the desire of the Parties that the provisions of
paragraphs 6 and 7 be enforced to the fullest extent permitted by law, and to
the extent that any part or portion thereof is determined to be void or
invalid, then the Agreement shall be applied and enforced to the maximum extent
permitted by law, and this Agreement shall be interpreted as if it had been
amended to contain only those terms and restrictions permitted under applicable
law and public policy. Employee acknowledges and agrees that the Company will
be irreparably harmed by any violation or threatened violation of paragraph 6
or 7 of this Agreement, and that any violation or threatened violation of those
paragraphs can be enjoined or otherwise restrained by any court of competent
jurisdiction, without notice and without bond.
10. Inventions. Executive shall disclose to Roadmaster any and all
inventions, including contributions, improvements, ideas or discoveries,
whether patentable or not, conceived or made by Executive, alone or jointly
with others, while he is employed by Roadmaster, which inventions shall be the
sole property of Roadmaster. Executive hereby agrees to assign all interests in
inventions to Roadmaster, and to assist in every proper way, and to execute at
any time (whether or not the Executive is still employed by Roadmaster) all
papers requested of Executive by Roadmaster to secure for Roadmaster patent
rights to any invention in this and any foreign countries selected by
Roadmaster. This Agreement does not apply to an invention for which no
equipment, supplies, facilities or trade secret information of Roadmaster was
used and which was developed entirely on Executive's own time, unless (a) the
invention relates (I) to the business of Roadmaster, or (ii) to Roadmaster's
actual or demonstrably anticipated research or development, or (b) the
invention results from any work performed by Executive for Roadmaster.
11. Termination for Cause. Roadmaster may terminate this Agreement for
cause if (a) the Executive commits any act of fraud, theft or is convicted of a
felony or other charge involving dishonesty or moral turpitude; (b) Executive
commits or causes a material breach of this Agreement; or (c) Executive
willfully or recklessly fails to perform his duties in the position for which
he is employed. If Roadmaster
4
<PAGE> 6
terminates Executive for cause, Executive shall not be entitled to any
further compensation from Roadmaster under this Agreement or otherwise. If
Executive is formally charged by requisite official processes with a felony or
other charge involving dishonesty or moral turpitude, then Roadmaster may place
Executive on a paid leave of absence pending resolution of the charges.
12. Termination for Other Causes. This Agreement shall be terminated
upon any of the following: (a) death of the Executive; or (b) the disabling
injury, or illness, or other disability of the Executive for 180 days out of
any one year period. Termination for any of the foregoing shall terminate the
Executive's entitlement to compensation, except under any Roadmaster employee
benefits in which the Executive participates, such as life insurance or
disability insurance.
13. Termination Without Cause. Roadmaster may terminate Executive at
will, without cause, at any time. If Roadmaster terminates the Executive
without cause during the term of this Agreement, then Roadmaster shall pay
Executive as severance compensation (a) Executive's then existing base salary
at the time of the termination for the remaining term of the Agreement, payable
on the same payment dates used for payment of salary to Roadmaster's other
management personnel.
14. No Other Reliance. The Parties represent and warrant that each has
relied upon his or its own judgment and the judgment of their respective legal
counsel regarding every aspect of this Agreement, and that no statements or
representations (expressed or implied) were made by the Company or any of the
Company's agents, employees, officers, directors or legal representatives that
have influenced or induced the Executive to execute this Agreement.
15. Entire Agreement. This Agreement reflects the entire understanding
between the Parties and no statements, promises or inducements by Roadmaster or
any agent of Company shall be valid or binding unless they are contained in
this Agreement. This Agreement constitutes the entire agreement between the
Parties and fully supersedes and replaces any and all alleged or actual prior
agreements or understandings between the Parties.
16. Notices. Any notice required hereunder shall be in writing and
shall be properly served (a) if delivered in Person, or (b) if sent by
facsimile transmission, confirmed by delivery, mail or recognized overnight air
courier service, or (c) if sent by certified or registered mail letter with
return air courier service, in any case addressed to the Parties at the
following addresses, or those other addresses of which the sending party has
been given notice as provided for in this paragraph:
If to Roadmaster: Roadmaster Industries, Inc.
309 Williamson Avenue
Opelika, Alabama 36803 USA
Attn: Mr. Charles E. Sanders, Executive
Vice President
Facsimile Number: (334) 745-1090
5
<PAGE> 7
With a copy to: David E. Schaper
Vice President & General Counsel
Roadmaster Corporation
10275 West Higgins Road, Suite 540
Rosemont, Illinois 62450 USA
Facsimile Number: (847) 635-0487
If to Executive: James L. Marden
--------------------------------
--------------------------------
Peachtree City, Georgia
With a copy to:
--------------------------------
--------------------------------
--------------------------------
Facsimile Number:
---------------
Notice shall be effective on the date of personal delivery of the
notice, one day after the sending of the facsimile transmission, or seven (7)
days after mailing (if sent only by registered or certified mail).
17. Assignment. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and assigns; provided,
however, that neither party may assign or delegate or subcontract its rights or
obligations under this Agreement except with the prior written consent of the
other party except that Roadmaster may, without Executive's consent, assign or
transfer this Agreement in whole or part to any of Roadmaster's subsidiaries of
substantially equivalent financial capability.
18. Non-Waiver. The waiver of any breach of the terms of this
Agreement shall not constitute the waiver of any other or further breach under
this Agreement, whether or not of a like kind or nature.
19. Remedies. All rights and remedies of the Parties stated herein are
non-exclusive and in addition to other rights and remedies provided by law.
20. Severability. In the event that any one or more of the terms,
conditions or provisions of this Agreement is held invalid, illegal or
unenforceable, that term, condition or provision shall be severed and the
remaining terms, conditions and provisions shall remain binding and effective.
6
<PAGE> 8
21. Choice of Law. This Agreement shall be governed by and interpreted
under the laws of the State of Georgia, United States of America.
22. Counterparts. This Agreement may be executed in two or more
identical counterparts, which together shall constitute one agreement.
JAMES L. MARDEN ROADMASTER INDUSTRIES, INC.
("Executive") ("Roadmaster")
- -------------------------------- By:
------------------------------
Its:
-------------------------
7
<PAGE> 1
EXHIBIT 10.76
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
FOR
JAMES L. MARDEN
8
<PAGE> 2
AMENDMENT AGREEMENT NO. 1
THIS AMENDMENT AGREEMENT NO. 1 (the "Amendment") is being entered into
as of this ____ day of _______, 1997 between James L. Marden (hereinafter,
"Executive") and RDM Sports Group, Inc., formerly known as Roadmaster
Industries, Inc., a Delaware corporation ("RDM"). Executive and RDM are
hereinafter sometimes together referred to as the "Parties.
W I T N E S S E T H:
WHEREAS, Executive and RDM have heretofore entered into that certain
Agreement dated as of November 1, 1996 (the "Agreement"), whereby RDM employed
Executive as the President and Chief Operating Officer of RDM according to the
terms and subject to the conditions provided in the Agreement; and
WHEREAS, Executive and RDM desire to amend certain provisions of the
Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
hereinafter set forth and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Executive and RDM hereby
agree as follows:
1. All references in the Agreement to "Roadmaster Industries, Inc."
shall be stricken and shall refer instead to "RDM Sports Group, Inc.," and all
references in the Agreement to "Roadmaster" shall be stricken and shall refer
instead to "RDM."
2. Section 1 of the Agreement shall be deleted in its entirety and the
following shall be substituted in lieu thereof:
"1. Employment. RDM hereby employs Executive as the President
and Chief Operation Officer of RDM, and the President and Chief
Executive Officer of the DP Fitness Division of RDM, and Executive
accepts these positions, subject to the terms and conditions of
this Agreement, for a period of four (4) years, subject to
additional one (1) year additional terms upon agreement of the
Parties, to be reflected in a signed writing executed by authorized
officers of RDM and by the Executive."
3. Section 3 of the Agreement shall be deleted in its entirety and the
following shall be substituted in lieu thereof:
"3. Compensation and Benefits. Executive's initial salary shall be
Two Hundred fifty Thousand Dollars ($250,000.00) per year. After
the first year of the term of this Agreement, and annually
thereafter, Executive's compensation shall be reviewed by
1
<PAGE> 3
RDM's Board of Directors or a committee thereof according to
RDM's prevailing salary practices and Executive's performance. RDM
currently pays salary in twenty-four equal semi-monthly
installments per year, but may elect to pay salary more or less
frequently, and shall pay Executive his salary according to RDM's
then prevailing practices. Executive shall be eligible for an
annual bonus of up to One Hundred Twenty-Five Thousand Dollars
($125,000.00), based upon the achievement of those goals set forth
in Exhibit A (which shall provide for a bonus based upon meeting
performance goals an levels as determined by the Compensation
Committee of RDM). RDM shall provide Executive with a Five Hundred
Dollar ($500.00) per month automobile allowance. RDM shall provide
executive the opportunity to participate in the insurance and other
benefit plans made available to other executives of RDM on a basis
consistent with those provided to other executives of RDM in
similar positions."
4. This Amendment constitutes the entire agreement and understanding
of the parties relating to the amendment of the Agreement and it supersedes all
prior agreements, correspondence, arrangements and understandings relating to
its subject matter except that all provisions of the Agreement that were not
amended or otherwise modified by this Amendment shall remain unchanged and in
full force and effect.
5. All capitalized terms used herein which are not separately defined
herein, are used as defined in the Agreement.
6. The parties agree that this Amendment shall be governed by and
construed in accordance with the internal laws of the State of Georgia.
IN WITNESS WHEREOF, each of the parties have caused this Amendment to
be executed on its behalf by its duly authorized officers, as of the date
hereinabove first written.
----------------------------------------
James L. Marden, "Executive"
RDM SPORTS GROUP, INC.
By:
-------------------------------------
Title:
----------------------------------
2
<PAGE> 1
EXHIBIT 10.77
LOAN AND SECURITY AGREEMENT DATED AS OF JUNE 20, 1997
3
<PAGE> 2
================================================================================
$100,000,000
LOAN AND SECURITY AGREEMENT
among
RDM HOLDINGS, INC., SPORTS GROUP, INC.,
INTERNATIONAL SPORTS AND FITNESS, INC.,
DIVERSIFIED PRODUCTS CORPORATION,
WILLOW HOSIERY COMPANY, INC., HUTCH SPORTS USA INC., and
DIVERSIFIED TRUCKING CORP.,
as Borrowers,
THE FINANCIAL INSTITUTIONS NAMED HEREIN,
as Lenders,
and
FOOTHILL CAPITAL CORPORATION,
as Agent
June 20, 1997
================================================================================
1
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S><C> <C>
1. DEFINITIONS AND CONSTRUCTION..................................................................................-1-
1.1 Definitions..............................................................................................-1-
1.2 Accounting Terms........................................................................................-19-
1.3 Code....................................................................................................-19-
1.4 Construction............................................................................................-19-
1.5 Schedules and Exhibits..................................................................................-19-
2. LOAN AND TERMS OF PAYMENT....................................................................................-19-
2.1 Revolving Advances......................................................................................-19-
2.2 Letters of Credit.......................................................................................-26-
2.4 Payments................................................................................................-30-
2.5 Overadvances............................................................................................-31-
2.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations...................................-31-
2.7 Collection of Accounts..................................................................................-32-
2.8 Crediting Payments; Application of Collections..........................................................-33-
2.9 Designated Account......................................................................................-33-
2.10 Maintenance of Loan Account; Statements of Obligations..................................................-34-
2.11 Fees....................................................................................................-34-
2.12 Joint and Several Liability.............................................................................-35-
2.13 Tax Indemnity...........................................................................................-35-
2.14 Payments in United States Dollars.......................................................................-37-
2.15 Capital Adequacy........................................................................................-37-
3. CONDITIONS; TERM OF AGREEMENT................................................................................-37-
3.1 Conditions Precedent to the Initial Advance, Letter of Credit and the Fixed Period Loans................-37-
3.2 Conditions Precedent to all Advances, all Letters of Credit and the Fixed Period Loans..................-40-
3.3 Condition Subsequent....................................................................................-40-
3.4 Term....................................................................................................-41-
3.5 Effect of Termination...................................................................................-41-
3.6 Early Termination by Borrowers..........................................................................-41-
3.7 Termination Upon Event of Default.......................................................................-41-
4. CREATION OF SECURITY INTEREST................................................................................-41-
4.1 Grant of Security Interest..............................................................................-41-
4.2 Negotiable Collateral...................................................................................-42-
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral..................................-42-
4.4 Delivery of Additional Documentation Required...........................................................-42-
4.5 Power of Attorney.......................................................................................-42-
4.6 Right to Inspect........................................................................................-43-
</TABLE>
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<TABLE>
<S><C> <C>
5. REPRESENTATIONS AND WARRANTIES...............................................................................-43-
5.1 No Encumbrances.........................................................................................-43-
5.2 Eligible Accounts.......................................................................................-43-
5.3 Eligible Inventory......................................................................................-43-
5.4 Equipment...............................................................................................-43-
5.5 Location of Inventory and Equipment.....................................................................-44-
5.6 Inventory Records.......................................................................................-44-
5.7 Location of Chief Executive Office; FEIN................................................................-44-
5.8 Due Organization and Qualification; Subsidiaries........................................................-44-
5.9 Due Authorization; No Conflict..........................................................................-44-
5.10 Litigation..............................................................................................-45-
5.11 No Material Adverse Change. ............................................................................-45-
5.12 Solvency................................................................................................-45-
5.13 Employee Benefits.......................................................................................-45-
5.14 Environmental Condition.................................................................................-46-
5.15 Licenses................................................................................................-46-
5.16 Other Representations and Warranties....................................................................-46-
6. AFFIRMATIVE COVENANTS........................................................................................-46-
6.1 Accounting System.......................................................................................-46-
6.2 Collateral and Other Reporting..........................................................................-46-
6.3 Financial Statements, Reports, Certificates.............................................................-47-
6.4 Tax Returns.............................................................................................-48-
6.5 Guarantor Reports.......................................................................................-48-
6.6 Returns.................................................................................................-48-
6.7 Title to Equipment......................................................................................-49-
6.8 Maintenance of Equipment................................................................................-49-
6.9 Taxes...................................................................................................-49-
6.10 Insurance...............................................................................................-49-
6.11 No Setoffs or Counterclaims.............................................................................-50-
6.12 Location of Inventory and Equipment.....................................................................-51-
6.13 Compliance with Laws....................................................................................-51-
6.14 Employee Benefits.......................................................................................-51-
6.15 Leases..................................................................................................-52-
6.16 Other Loan Parties......................................................................................-52-
7. NEGATIVE COVENANTS...........................................................................................-52-
7.1 Indebtedness............................................................................................-52-
7.2 Liens...................................................................................................-52-
7.3 Restrictions on Fundamental Changes.....................................................................-53-
7.4 Disposal of Assets......................................................................................-53-
7.5 Change Name.............................................................................................-53-
7.6 Guarantee...............................................................................................-53-
7.7 Nature of Business......................................................................................-53-
7.8 Payments, Prepayments and Amendments....................................................................-53-
7.9 Change of Control.......................................................................................-54-
7.10 Consignments............................................................................................-54-
7.11 Distributions...........................................................................................-54-
7.12 Accounting Methods......................................................................................-54-
</TABLE>
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<TABLE>
<S> <C> <C>
7.13 Investments.............................................................................................-54-
7.14 Transactions with Affiliates............................................................................-54-
7.15 Suspension..............................................................................................-54-
7.16 Compensation............................................................................................-54-
7.17 Use of Proceeds.........................................................................................-55-
7.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees......................-55-
7.19 No Prohibited Transactions Under ERISA..................................................................-55-
7.20 Financial Covenants.....................................................................................-56-
7.21 Capital Expenditures....................................................................................-57-
7.22 Management..............................................................................................-57-
8. EVENTS OF DEFAULT............................................................................................-57-
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.......................................................................-59-
9.1 Rights and Remedies......................................................................................-59-
9.2 Remedies Cumulative......................................................................................-61-
10.TAXES AND EXPENSES...........................................................................................-61-
11.WAIVERS; INDEMNIFICATION.....................................................................................-62-
11.1 Demand; Protest; etc....................................................................................-62-
11.2 The Lender Group's Liability for Collateral.............................................................-62-
11.3 Indemnification.........................................................................................-62-
12.NOTICES......................................................................................................-62-
13.CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER...................................................................-63-
14.DESTRUCTION OF BORROWERS' DOCUMENTS..........................................................................-64-
15.ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS...................................................................-65-
15.1 Assignments and Participations..........................................................................-65-
15.2 Successors..............................................................................................-67-
16.AMENDMENTS; WAIVERS..........................................................................................-67-
16.1 Amendments and Waivers..................................................................................-67-
16.2 No Waivers; Cumulative Remedies.........................................................................-68-
17.AGENT; THE LENDER GROUP......................................................................................-68-
17.1 Appointment and Authorization of Agent..................................................................-68-
17.2 Delegation of Duties....................................................................................-69-
17.3 Liability of Agent-Related Persons......................................................................-69-
17.4 Reliance by Agent.......................................................................................-70-
17.5 Notice of Default or Event of Default...................................................................-70-
17.6 Credit Decision.........................................................................................-71-
17.7 Costs and Expenses; Indemnification.....................................................................-71-
17.8 Agent in Individual Capacity............................................................................-72-
17.9 Successor Agent.........................................................................................-72-
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C> <C>
17.10 Withholding Tax.........................................................................................-72-
17.11 Collateral Matters......................................................................................-73-
17.12 Restrictions on Actions by Lenders; Sharing of Payments.................................................-74-
17.13 Agency for Perfection...................................................................................-75-
17.14 Payments by Agent to the Lenders........................................................................-75-
17.15 Concerning the Collateral and Related Loan Documents....................................................-75-
17.16 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports
and Information.........................................................................................-75-
17.17 Several Obligations; No Liability.......................................................................-77-
18.GENERAL PROVISIONS...........................................................................................-77-
18.1 Effectiveness...........................................................................................-77-
18.2 Section Headings........................................................................................-77-
18.3 Interpretation..........................................................................................-77-
18.4 Severability of Provisions..............................................................................-77-
18.5 Counterparts; Telefacsimile Execution...................................................................-77-
18.6 Revival and Reinstatement of Obligations................................................................-78-
18.7 Integration.............................................................................................-78-
18.8 Time is of the Essence..................................................................................-78-
</TABLE>
iv
<PAGE> 7
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C> <C>
Schedule C-1 Commitments
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 5.7 Location of Chief Executive Office of Each Borrower
Schedule 5.8 Subsidiaries
Schedule 5.9 Status of Liens
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.14 Hazardous Materials
Schedule 5.15 Licenses
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.16 Director/Management Compensation Plan
Exhibit A-1 Form of Assignment and Acceptance
Exhibit C-1 Form of Compliance Certificate
</TABLE>
v
<PAGE> 8
$100,000,000
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into
as of June 20, 1997, among RDM HOLDINGS, INC., a Delaware corporation, SPORTS
GROUP, INC., an Alabama corporation, INTERNATIONAL SPORTS AND FITNESS, INC., a
Delaware corporation, DIVERSIFIED PRODUCTS CORPORATION, an Alabama corporation,
WILLOW HOSIERY COMPANY, INC., a New York corporation, HUTCH SPORTS USA INC., a
Delaware corporation and DIVERSIFIED TRUCKING CORP., an Alabama corporation
(collectively, "Borrowers", individually "Borrower"), on the one hand, and the
financial institutions listed on the signature pages hereof (such financial
institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a "Lender" and collectively as the
"Lenders"), and FOOTHILL CAPITAL CORPORATION, as Agent, on the other hand.
The parties agree as follows:
I. DEFINITIONS AND CONSTRUCTION.
A. DEFINITIONS. As used in this Agreement, the following terms shall
have the following definitions:
"Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account.
"Accounts" means, with respect to any Person, all currently existing
and hereafter arising accounts, contract rights, and all other forms of
obligations owing to such Person arising out of the sale or lease of goods or
the rendition of services by such Person, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security
therefor.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person who
directly or indirectly controls, is controlled by, is under common control with
or is a director or officer of such Person. For purposes of this definition,
"control" means the possession, directly or indirectly, of the power to vote
five percent (5%) or more of the securities having ordinary voting power for
the election of directors or the direct or indirect power to direct the
management and policies of a Person.
"Agent" means Foothill, solely in its capacity as agent for the
Lenders, and shall include any successor agent.
"Agent's Account" has the meaning set forth in Section 2.7.
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<PAGE> 9
"Agent Advance" has the meaning set forth in Section 2.1(h).
"Agent Loan" has the meaning set forth in Section 2.1(g).
"Agent-Related Persons" means Agent, together with its Affiliates,
and the officers, directors, employees, counsel, agents, and attorneys-in-fact
of Agent and such Affiliates.
"Agreement" has the meaning set forth in the preamble hereto.
"Assignee" has the meaning set forth in Section 15.1.
"Assignment and Acceptance" has the meaning set forth in Section
15.1 (a) and shall be in the form of Exhibit A-1.
"Authorized Person" means any officer or other employee of Borrowers
"Availability" means, as of the date of determination, the result
(so long as such result is a positive number) of (a) the lesser of the
Borrowing Base or the Maximum Revolving Amount, less (b) the Revolving Facility
Usage.
"Average Unused Portion of Maximum Revolving Amount" means, as of
any date of determination, (a) the Maximum Revolving Amount, less (b) the sum
of (i) the average Daily Balance of Advances that were outstanding during the
immediately preceding month, plus (ii) the average Daily Balance of the undrawn
Letters of Credit that were outstanding during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
Section 101 et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which any Borrower, any Subsidiary of any Borrower, or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
"Borrower Stock Pledge Agreement" means that certain Borrower Stock
Pledge Agreement of even date by and among Hutch Sports USA Inc., Sports Group,
Inc., International Sports and Fitness, Inc., RDM Holdings, Inc., and Agent, in
form and substance satisfactory to Agent.
"Borrower Trademark Security Agreement" means that certain Borrower
Trademark Security Agreement of even date by and among the Borrowers and
Foothill, in form and substance satisfactory to Agent.
-2-
<PAGE> 10
"Borrowers" and "Borrower" have the meanings set forth in the
preamble to this Agreement.
"Borrower's Books" means, with respect to each Borrower, all of
such Borrower's books and records including: ledgers; records indicating,
summarizing, or evidencing such Borrower's properties or assets (including the
Collateral) or liabilities; all information relating to such Borrower's
business operations or financial condition; and all computer programs, disk or
tape files, printouts, runs, or other computer prepared information.
"Borrowing" means a borrowing hereunder consisting of Advances made
on the same day by the Lenders, or by Agent in the case of an Agent Loan or an
Agent Advance.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"Canadian Subsidiary" means RDM Sports & Leisure Inc., an Ontario
corporation.
"Canadian Guaranty" means that certain Guarantee and Indemnity of
even date herewith executed and delivered by the Canadian Subsidiary, in form
and substance satisfactory to the Agent.
"Canadian Security Agreement" means that certain General Security
Agreement of even date herewith between the Canadian Subsidiary and the Agent,
in form and substance satisfactory to the Agent.
"Change of Control" shall be deemed to have occurred at such time
as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) (other than an underwriter in connection
with a public offering) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of
more than twenty-five percent (25%) of the total voting power of all classes of
stock then outstanding of any Borrower or the Canadian Subsidiary entitled to
vote in the election of directors.
"Closing Date" means the date of the first to occur of the making
of the initial Advance, or the issuance of the initial Letter of Credit.
"Code" means the Georgia Uniform Commercial Code.
-3-
<PAGE> 11
"Collateral" means, with respect to each Borrower, all real and
personal property of such Borrower, whether now existing or hereafter arising,
including without limitation each of the following:
1. the Accounts of such Borrower;
2. Borrower's Books;
3. the Equipment;
4. the General Intangibles;
5. the Inventory of such Borrower;
6. the Negotiable Collateral;
7. the Real Property Collateral;
8. any money, or other assets of such Borrower
that now or hereafter come into the possession, custody, or control of the
Lender Group; and
9. the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts of such Borrower,
Borrower's Books, Equipment, General Intangibles, Inventory of such Borrower,
Negotiable Collateral, Real Property, money, deposit accounts, or other tangible
or intangible property resulting from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion thereof or interest
therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee
waiver, bailee letter, or acknowledgement agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a Lien
upon, or having rights or interests in the Equipment or Inventory of Borrowers
and the Canadian Subsidiary, in each case, in form and substance satisfactory
to Agent.
"Collections" means all cash, checks, notes, instruments, and other
items of payment(including, insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
"Commitment" means, at any time with respect to a Lender, the
principal amount set forth beside such Lender's name under the heading
"Commitment" on Schedule C-1 or on the signature page of the Assignment and
Acceptance pursuant to which such Lender became a Lender hereunder in
accordance with the provisions of Section 15.1, as such Commitment may be
adjusted from time to time in accordance with the provisions of Section 15.1
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<PAGE> 12
and "Commitments" means, collectively, the aggregate amount of the commitments
of all of the Lenders.
"Compliance Certificate" means a certificate substantially in the
form of Exhibit C-1 and delivered by the chief accounting officers of Borrowers
to Agent.
"Consolidated Current Assets" means, as of any date of
determination, the aggregate amount of the consolidated current assets of the
Loan Parties that would, in accordance with GAAP, be classified on a balance
sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of
determination, the aggregate amount of the consolidated current liabilities of
the Loan Parties that would, in accordance with GAAP, be classified on a
balance sheet as current liabilities. For purposes of this definition, all
Obligations outstanding under this Agreement shall be deemed to be current
liabilities without regard to whether they would be deemed to be so under GAAP.
"Cost" means the lower of cost or fair market value in accordance
with GAAP.
"Credit Enhancement" shall mean that certain $15,000,000 letter of
credit issued to the Agent for the benefit of the Lender Group, in form and
substance satisfactory to Agent and issued by a bank satisfactory to Agent.
"Daily Balance" means the amount of an Obligation owed at the end
of a given day.
"deems itself insecure" means that the Person deems itself insecure
in accordance with the provisions of Section 1-208 of the Code.
"Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"Defaulting Lender" has the meaning set forth in Section 2.1
(f)(ii).
"Defaulting Lenders Rate" means the Reference Rate for the first
three (3) days from and after the date the relevant payment is due and
thereafter at the interest rate then applicable to Advances.
"Deposit Account Agreement" means that certain Assignment of
Deposit Account among The Chase Manhattan Bank, the Agent and RDM Environmental
Remediation Management, Inc., in form and substance satisfactory to the Agent.
-5-
<PAGE> 13
"Designated Account" means account number 443911 of Borrowers
maintained with Borrowers' Designated Account Bank, or such other deposit
account of Borrowers (located within the United States) which has been
designated, in writing and from time to time, by any Borrower to Agent.
"Designated Account Bank" means LaSalle National Bank, whose office
is located at 120 S. LaSalle Street, Chicago, Illinois and whose ABA number is
071000505, or such other bank as Foothill and Borrowers may designate from time
to time.
"Dilution" means, in each case based upon the experience of the
immediately prior three (3) months, the result of dividing the Dollar amount of
(a) bad debt write-downs, discounts, advertising, returns, promotions, credits,
or other dilution with respect to the Accounts of Borrowers and the Canadian
Subsidiary, by (b) Borrowers' and the Canadian Subsidiary's Collections
(excluding extraordinary items) plus the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination, an
amount sufficient to reduce the Lenders' advance rate against Eligible Accounts
by one percentage point for each percentage point by which Dilution is in
excess of five percent (5%).
"Disbursement Letter" means an instructional letter executed and
delivered by any Borrower to Agent regarding the extensions of credit to be
made on the Closing Date, the form and substance of which shall be satisfactory
to Agent.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in Section
3.6.
"EBITDA" means, for any period, the consolidated net income (or net
loss) of the Loan Parties for such period as determined in accordance with
GAAP, plus (i) the sum of, without duplication, the following for the Loan
Parties, (A) the excess, if any, of gross interest expense for such period over
gross interest income for such period, in each case determined in accordance
with GAAP, (B) total income tax expense, (C) depreciation expense, (D)
amortization expense net of negative goodwill amortization and (E) non-cash
losses (provided that any such losses do not at any time result in a cash
outlay by any Loan Party), which include the cumulative effect on earnings from
the adoption of GAAP pronouncements, less (ii) extraordinary gains for the Loan
Parties.
"Eligible Accounts" means those Accounts net of customary reserves,
including but not limited to reserves for sales returns and allowances (the
amount of such sales returns and
-6-
<PAGE> 14
allowances reserve to be determined in Agent's discretion except with respect
to sales returns and allowances for which the applicable Borrower or the
Canadian Subsidiary, as the case may be, is issuing its debit and credit
memorandum in the ordinary course in which case the amount of such reserve
shall be equal to fifty percent (50%) of such Borrower's or the Canadian
Subsidiary's, as the case may be, general ledger reserve for such sales returns
and allowances), unapplied cash, cash on delivery sales, charge backs, debit
memorandums (to the extent not elsewhere reserved) and such other reserves as
determined by Agent in its reasonable discretion, created by Borrowers and the
Canadian Subsidiary in the ordinary course of business, that arise out of
Borrowers' and the Canadian Subsidiary's sale of goods or rendition of
services, that strictly comply with each and all of the representations and
warranties respecting Accounts made by Borrowers and the Canadian Subsidiary to
the Lender Group in the Loan Documents, and that are and at all times continue
to be acceptable to Agent in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by Agent in Agent's
reasonable credit judgment. Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed
to pay within sixty (60) days of due date or Accounts with selling terms of
more than ninety (90) days from invoice date;
(b) Accounts owed by an Account Debtor or its
Affiliates where 50% or more of all Accounts owed by that Account Debtor (or
its Affiliates) are deemed ineligible under clause (a) above;
(c) Accounts with respect to which the Account
Debtor is an employee, Affiliate, or agent of the applicable Borrower or the
Canadian Subsidiary, as the case may be;
(d) Accounts with respect to which goods are
placed on consignment, guaranteed sale, sale or return, sale on approval, bill
and hold, or other terms by reason of which the payment by the Account Debtor
may be conditional;
(e) Accounts that are not payable in Dollars
or Canadian dollars or with respect to which the Account Debtor: (i) does not
maintain its chief executive office in the United States or Canada, or (ii) is
not organized under the laws of the United States or any State thereof or Canada
or any province thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof, unless (y) the Account is supported by an irrevocable
letter of credit satisfactory to Agent (as to form, substance, and issuer or
domestic confirming bank) that has been delivered to Agent and is directly
drawable by Agent, or (z) the Account is covered by credit insurance in form
and amount, and by an insurer, satisfactory to Agent;
(f) Accounts with respect to which the Account
Debtor is either (i) the United States or any department, agency, or
instrumentality of
-7-
<PAGE> 15
the United States (exclusive, however, of Accounts with respect to which the
applicable Borrower or the Canadian Subsidiary, as the case may be, has
complied, to the satisfaction of Agent, with the Assignment of Claims Act, 31
U.S.C. Section 3727), or (ii) any State of the United States (exclusive,
however, of Accounts owed by any State that does not have a statutory
counterpart to the Assignment of Claims Act);
(g) Accounts with respect to which the Account
Debtor is a creditor of the applicable Borrower or the Canadian Subsidiary,
as the case may be, (including without limitation Accounts with respect to which
commissions are due to the Account Debtor as a commission agent), has asserted
a right of setoff, has disputed its liability, or has made any claim with
respect to the Account, to the extent of such debt, right of setoff, disputed
amount or claim;
(h) Accounts with respect to an Account Debtor
(other than Sears, Target, Toys R Us, Sports Authority, Home Shopping Club and
Wal-Mart) whose total obligations owing to Borrowers and the Canadian
Subsidiary exceed ten (10%) of all Eligible Accounts, to the extent of the
obligations owing by such Account Debtor in excess of such percentage;
(i) Accounts with respect to Sears, Target, Toys
R Us, Sports Authority, or Home Shopping Club, as an Account Debtor, whose total
obligations owing to Borrowers and the Canadian Subsidiary exceed twenty
percent (20%) of all Eligible Accounts, to the extent of the obligations owing
by such Account Debtor in excess of such percentage;
(j) Accounts with respect to Wal-Mart, as
Account Debtor, whose total obligations owing to Borrowers and the Canadian
Subsidiary exceed twenty-five percent (25%) of all Eligible Accounts, to the
extent of the obligations owing by such Account Debtor in excess of such
percentage;
(k) Accounts with respect to which the Account
Debtor is subject to any Insolvency Proceeding, or becomes insolvent, or goes
out of business;
(l) Accounts the collection of which Agent, in
its reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(m) Accounts with respect to which the goods
giving rise to such Account have not been shipped and billed to the Account
Debtor, the services giving rise to such Account have not been performed and
accepted by the Account Debtor, or the Account otherwise does not represent a
final sale;
(n) Accounts with respect to which the Account
Debtor is located in the states of New Jersey, Minnesota, or West Virginia
(or any other state that requires a creditor to file a Business Activity Report
or similar document in order to bring suit or otherwise enforce its remedies
against such
-8-
<PAGE> 16
Account Debtor in the courts or through any judicial process of such state),
unless the applicable Borrower or the Canadian Subsidiary, as the case may be,
has qualified to do business in New Jersey, Minnesota, West Virginia, or such
other states, or has filed a Notice of Business Activities Report with the
applicable division of taxation, the department of revenue, or with such other
state offices, as appropriate, for the then-current year, or is exempt from
such filing requirement;
(o) Accounts that represent progress payments
or other advance billings that are due prior to the completion of performance
by the applicable Borrower or the Canadian Subsidiary, as the case may be, of
the subject contract for goods or services; and
(p) Accounts with respect to which the Agent
does not have a first priority perfected security interest, including without
limitation Accounts owed to the Canadian Subsidiary by an Account Debtor
located in one of the Maritime Provinces.
"Eligible In-Transit Inventory" means those items of
Inventory of the Borrowers and the Canadian Subsidiary that do not qualify
as Eligible Landed Inventory solely because they are not in a location set forth
on Schedule E-1 but: (a) such Inventory is currently in-transit from a location
not set forth on Schedule E-1 to a location set forth on Schedule E-1, (b)
title to such Inventory has passed to the applicable Borrower or the Canadian
Subsidiary, as the case may be, (c) documents of title with respect to such
Inventory have been delivered to Agent or its agent; (d) such Inventory is
insured against types of loss, damage, hazards, and risks, and in amounts,
satisfactory to Agent in its discretion, and (e) such Inventory has been paid
for or, if purchased under an Inventory Letter of Credit, such Inventory Letter
of Credit either has been drawn upon in full and reimbursed, or expired
undrawn; in each case, with documentation therefor in form and substance
satisfactory to Agent in its discretion.
"Eligible Inventory" means the Eligible In-Transit
Inventory and the Eligible Landed Inventory net of reserves, including but not
limited to reserves for slow moving Inventory of the Borrowers and the Canadian
Subsidiary, work-in-process Inventory of the Borrowers and the Canadian
Subsidiary incorrectly classified as raw materials, miscounts and outsourcing
variances and such other reserves determined by Agent in its reasonable
discretion.
"Eligible Landed Inventory" means Inventory of the
Borrowers and the Canadian Subsidiary consisting of first quality finished
goods held for sale in the ordinary course of Borrowers' and the Canadian
Subsidiary's business and raw materials for such finished goods, that are
located at or in-transit between Borrowers' and the Canadian Subsidiary's
premises identified on Schedule E-1, that strictly comply with each and all of
the representations and warranties respecting Inventory made by Borrowers and
the Canadian Subsidiary to the Lender Group in the Loan Documents, and that
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<PAGE> 17
are and at all times continue to be acceptable to the Agent in all respects;
provided, however, that standards of eligibility may be fixed and revised from
time to time by the Agent in the Agent's reasonable credit judgment. In
determining the amount to be so included, Inventory of Borrowers and the
Canadian Subsidiary shall be valued at the lower of cost or market on a basis
consistent with Borrowers' and the Canadian Subsidiary's current and historical
accounting practices. An item of Inventory shall not be included in Eligible
Landed Inventory if:
(a) it is not owned solely by a Borrower or the Canadian
Subsidiary or a Borrower or the Canadian Subsidiary does not have good, valid,
and marketable title thereto;
(b) it is not located at one of the locations set forth on
Schedule E-1;
(c) it is not located on property owned or leased by a
Borrower or the Canadian Subsidiary or in a contract warehouse, in each case,
subject to a Collateral Access Agreement executed by the mortgagee, lessor, the
warehouseman, or other third party, as the case may be, and segregated or
otherwise separately identifiable from goods of others, if any, stored on the
premises;
(d) it is not subject to a valid and perfected first
priority security interest in favor of the Agent;
(e) it consists of goods returned or rejected by the
applicable Borrower's or the Canadian Subsidiary's customers or goods in
transit; and
(f) it is obsolete or slow moving, a restrictive or custom
item, work-in-process, a component that is not part of finished goods, or
constitutes spare parts, packaging and shipping materials, paints and enamels,
manuals and brochures, supplies used or consumed in a Borrower's or the
Canadian Subsidiary's business, Inventory subject to a Lien in favor of any
third Person, bill and hold goods, defective goods, "seconds," or Inventory
acquired on consignment.
"Eligible Transferee" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having total
assets in excess of $5,000,000,000, or the asset based lending Affiliate of
such bank, (b) a commercial bank organized under the laws of any other country
which is a member of the Organization for Economic Cooperation and Development
or a political subdivision of any such country, and having total assets in
excess of $5,000,000,000, or the asset based lending Affiliate of such bank;
provided that such bank is acting through a branch or agency located in the
United States, (c) a finance company, insurance or other financial institution,
or fund that is engaged in making, purchasing, or otherwise investing in
commercial loans in the ordinary course of its business
-10-
<PAGE> 18
and having total assets in excess of $500,000,000, (d) any Affiliate (other
than individuals) of an existing Lender, and (e) any other Person approved by
Agent and, so long as no Default or Event of Default exists, approved by
Borrowers.
"Equipment" means, with respect to each Borrower all of
such Borrower's present and hereafter acquired machinery, machine tools,
motors, equipment, furniture, furnishings, fixtures, vehicles (including motor
vehicles and trailers), tools, parts, goods (other than consumer goods, farm
products, or Inventory), wherever located, including, (a) any interest of such
Borrower in any of the foregoing, and (b) all attachments, accessories,
accessions, replacements, substitutions, additions, and improvements to any of
the foregoing.
"ERISA" means the Employee Retirement Income Security Act
of 1974, 29 U.S.C. Section Section 1000 et seq., amendments thereto, successor
statutes, and regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to
ERISA whose employees are treated as employed by the same employer as the
employees of any Borrower under IRC Section 414(b), (b) any trade or business
subject to ERISA whose employees are treated as employed by the same employer
as the employees of any Borrower under IRC Section 414(c), (c) solely for
purposes of Section 302 of ERISA and Section 412 of the IRC, any organization
subject to ERISA that is a member of an affiliated service group of which any
Borrower is a member under IRC Section 414(m), or (d) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any party subject to ERISA
that is a party to an arrangement with any Borrower and whose employees are
aggregated with the employees of any Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to
any Benefit Plan or Multiemployer Plan, (b) the withdrawal of any Borrower, any
of its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year
in which it was a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a
distress termination (as described in Section 4041(c) of ERISA), (d) the
institution by the PBGC of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) that provides a basis under
Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan,
or (ii) that may result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA, (f) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of any Borrower, any of its
Subsidiaries or ERISA Affiliates from a Multiemployer Plan, or (g) providing any
security to any Plan under Section 401(a)(29) of the IRC by any Borrower or its
Subsidiaries or any of their ERISA Affiliates.
"Event of Default" has the meaning set forth in Section 8.
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<PAGE> 19
"Existing Lender" means BankAmerica Business Credit, Inc.,
as agent for the lenders party to that certain Loan and Security Agreement
dated as of September 6, 1996 among Roadmaster Corporation now known as RDM
Holdings, Inc., Roadmaster Leisure Inc. now known as RDM Sports & Leisure Inc.,
Willow Hosiery Company, Inc. and Hutch Sports, Inc. now known as Hutch Sports
USA Inc., as borrowers, the lenders party thereto and BankAmerica Business
Credit, Inc., as agent for the lenders.
"FEIN" means Federal Employer Identification Number.
"Fixed Period Loans" means the Tranche A Fixed Period Loans
and the Tranche B Fixed Period Loans.
"Foothill" means Foothill Capital Corporation, a California
corporation.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"General Intangibles" means, with respect to each Borrower,
all of such Borrower's present and future general intangibles and other
personal property (including contract rights, rights arising under common law,
statutes, or regulations, choses or things in action, goodwill, patents, trade
names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase
orders, customer lists, monies due or recoverable from pension funds, route
lists, rights to payment and other rights under any royalty or licensing
agreements, infringement claims, computer programs, information contained on
computer disks or tapes, literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund claims), other than
goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Hazardous Materials" means (a) substances that are defined
or listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural
gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any flammable substances
or explosives or any radioactive materials, and (d) asbestos in any form or
-12-
<PAGE> 20
electrical equipment that contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty (50) parts per million.
"Indebtedness" means: (a) all obligations of Borrowers for
borrowed money, (b) all obligations of Borrowers evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations of Borrowers in respect of letters of credit, bankers acceptances,
interest rate swaps, or other financial products, (c) all obligations of
Borrowers under capital leases, (d) all obligations or liabilities of others
secured by a Lien on any property or asset of Borrowers, irrespective of
whether such obligation or liability is assumed, and (e) any obligation of
Borrowers guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to Borrowers) any indebtedness,
lease, dividend, letter of credit, or other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by
or against any Person under any provision of the Bankruptcy Code or any other
proceeding under any other bankruptcy or insolvency law of any jurisdiction,
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extensions generally with creditors, or proceedings seeking
reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Inventory" means, with respect to any Person, all present
and future inventory in which such Person has any interest, including goods
held for sale or lease or to be furnished under a contract of service and all
of such Person's present and future raw materials, work in process, finished
goods, and packing and shipping materials, wherever located.
"Inventory Letter of Credit" means a documentary Letter of
Credit issued to support the purchase by a Borrower of Inventory prior to
transit to a location set forth on Schedule E-1, that provides that all draws
thereunder must require presentation of customary documentation (including, if
applicable, commercial invoices, packing list, certificate of origin, bill of
lading or airwaybill, customs clearance documents, quota statement, inspection
certificate, beneficiaries statement, and bill of exchange, bills of lading,
dock warrants, dock receipts, warehouse receipts, or other documents of title)
in form and substance satisfactory to Agent and reflecting the passage to such
Borrower of title to first quality Inventory conforming to such Borrower's
contract with the seller thereof. Any such Letter of Credit shall cease to be
an "Inventory Letter of Credit" at such time, if any, as the goods purchased
thereunder become Eligible Landed Inventory.
"Inventory Reserves" means reserves (determined from time
to time by Agent in its discretion) for (a) the estimated costs relating to
unpaid freight charges, warehousing or storage charges, taxes, duties, and
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<PAGE> 21
other similar unpaid costs associated with the acquisition of Eligible
In-Transit Inventory by Borrowers, plus (b) the estimated reclamation claims of
unpaid sellers of Inventory sold to Borrowers and the Canadian Subsidiary.
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Lender" and "Lenders" have the respective meanings set
forth in the preamble to this Agreement, and shall include any other Person
made a party to this Agreement in accordance with the provisions of Section
15.1.
"Lender Group" means, individually and collectively, each
of the individual Lenders and Agent.
"Lender Group Expenses" means all: costs or expenses
(including taxes, and insurance premiums) required to be paid by Borrowers
under any of the Loan Documents that are paid or incurred by the Lender Group;
fees or charges paid or incurred by the Lender Group in connection with the
Lender Group's transactions with Borrowers, including, fees or charges for
photocopying, notarization, couriers and messengers, telecommunication, public
record searches (including tax lien, litigation, and UCC searches and including
searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication, appraisal
(including periodic Personal Property Collateral or Real Property Collateral
appraisals), real estate surveys, real estate title policies and endorsements,
and environmental audits; costs and expenses incurred by Agent in the
disbursement of funds to Borrowers (by wire transfer or otherwise); charges
paid or incurred by Agent resulting from the dishonor of checks; costs and
expenses paid or incurred by Agent to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Personal Property Collateral or the Real Property
Collateral, or any portion thereof, irrespective of whether a sale is
consummated; costs and expenses paid or incurred by the Lender Group in
examining each Borrower's Books; costs and expenses of third party claims or
any other suit paid or incurred by the Lender Group in enforcing or defending
the Loan Documents or in connection with the transactions contemplated by the
Loan Documents or the Lender Group's relationship with Borrowers or any
guarantor; and the Lender Group's reasonable attorneys fees and expenses
incurred in advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing (including attorneys fees and expenses
incurred in connection with a "workout," a "restructuring," or an Insolvency
Proceeding concerning any Borrower or any guarantor of the Obligations),
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<PAGE> 22
defending, or concerning the Loan Documents, irrespective of whether suit is
brought.
"Letter of Credit" means an L/C or an L/C Guaranty, as the
context requires.
"Lien" means any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, statute, or
contract, whether such interest shall be recorded or perfected, and whether
such interest shall be contingent upon the occurrence of some future event or
events or the existence of some future circumstance or circumstances, including
the lien or security interest arising from a mortgage, deed of trust,
encumbrance, pledge, hypothecation, assignment, deposit arrangement, security
agreement, adverse claim or charge, conditional sale or trust receipt, or from
a lease, consignment, or bailment for security purposes and also including
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases, and other title exceptions and encumbrances
affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Disbursement
Letter, the Letters of Credit, the Lockbox Agreements, the Borrower Stock
Pledge Agreement, the Stock Pledge Agreement, the Parent Stock Pledge
Agreement, the Subsidiary Guaranty, the Parent Guaranty, the Trademark Security
Agreement, Borrower Trademark Security Agreement, the Parent Trademark Security
Agreement, Security Agreement, the Parent Security Agreement, the Metromedia
Subordination Agreement, the Subordination Agreement, the Canadian Guaranty,
the Canadian Security Agreement, the Deposit Account Agreement, the Credit
Enhancement, any note or notes executed by any Borrower and payable to the
Lender Group, and any other agreement entered into, now or in the future, in
connection with this Agreement.
"Loan Parties" means the Borrowers, RDM and the other
direct and indirect Subsidiaries of RDM, any one of whom shall be referred to
as a "Loan Party".
"Lockbox Account" shall mean a depositary account
established pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Agent, each of which is among a Borrower or the
Canadian Subsidiary, as the case may be, Agent, and one of the Lockbox Banks.
"Lockbox Banks" means LaSalle National Bank, Fifth Third
Bank, Bank of Montreal, Farmers National Bank, and such other banks as Foothill
and Borrower may designate from time to time.
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<PAGE> 23
"Lockboxes" has the meaning set forth in Section 2.7.
"Maritime Provinces" means the Canadian Provinces of
Newfoundland and Prince Edward Island.
"Material Adverse Change" means (a) a material adverse
change in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of any Borrower, (b) the
material impairment of any Borrower's ability to perform its obligations under
the Loan Documents to which it is a party or of the Lender Group to enforce the
Obligations or realize upon the Collateral, (c) a material adverse effect on
the value of the Collateral or the amount that the Lender Group would be likely
to receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation of such Collateral, or (d) a material
impairment of the priority of the Lender Group's Liens with respect to the
Collateral.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Amount" means, as of any date of determination,
the sum of (a) the Maximum Revolving Amount and (b) the then outstanding
principal balance of the Fixed Period Loans.
"Maximum Revolving Amount" means $75,000,000.
"Metromedia Subordination Agreement" means that certain
Metromedia Guaranty, Subordination, Subrogation and Drawing Agreement of even
date by and among Metromedia Company, the Loan Parties and the Agent, in form
and substance satisfactory to Agent.
"Mortgages" means one or more mortgages, deeds of trust, or
deeds to secure debt, executed by a Borrower in favor of Agent, the form and
substance of which shall be satisfactory to Agent, that encumber the Real
Property Collateral and the related improvements thereto.
"Multiemployer Plan" means a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) to which any Loan Party, any of its
Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to
contribute, within the past six years.
"Negotiable Collateral" means, with respect to each
Borrower, all of such Borrower's present and future letters of credit, notes,
drafts, instruments, investment property, security entitlements, securities
(including the shares of stock of Subsidiaries of such Borrower), documents,
personal property leases (wherein such Borrower is the lessor), chattel paper,
and such Borrower's Books relating to any of the foregoing.
"Net Orderly Liquidation Value" means the estimated net
amount, expressed in terms of money, projected to be obtainable, over a finite
-16-
<PAGE> 24
period, for Inventory sold under the direction of a secured party. For purposes
of this definition, the express intent of sale in this manner is liquidation
through continued operation of the entity, with the secured party responsible
for all operating expenses and the beneficiary of all sales proceeds.
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrowers' Loan Account pursuant
hereto), obligations, fees, charges, costs, or Lender Group Expenses (including
any fees or expenses that, but for the provisions of the Bankruptcy Code, would
have accrued), lease payments, guaranties, covenants, and duties owing by
Borrowers to the Lender Group of any kind and description (pursuant to or
evidenced by this Agreement and the other Loan Documents, and irrespective of
whether for the payment of money), whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including any debt, liability, or obligation owing from Borrowers to others
that the Lender Group may have obtained by assignment or otherwise, and further
including all interest not paid when due and all Lender Group Expenses that
Borrowers are required to pay or reimburse by the Loan Documents, by law, or
otherwise.
"Originating Lender" has the meaning set forth in Section
15.1(e).
"Overadvance" has the meaning set forth in Section 2.5.
"Parent Guaranty" means that certain Guaranty Agreement of
even date executed and delivered by RDM, in form and substance satisfactory to
Agent.
"Parent Security Agreement" means that certain Security
Agreement (RDM Sports Group, Inc.) of even date by and between RDM and Agent,
in form and substance satisfactory to Agent.
"Parent Stock Pledge Agreement" means that certain Stock
Pledge Agreement (RDM Sports Group, Inc.) of even date by and between RDM and
Agent, in form and substance satisfactory to Agent.
"Parent Trademark Security Agreement" means that certain
Trademark Security Agreement (RDM Sports Group, Inc.) of even date by and
between RDM and Agent, in form and substance satisfactory to Agent.
"Participant" has the meaning set forth in Section 15.1(e).
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<PAGE> 25
"Pay-Off Letter" means a letter, in form and substance
reasonably satisfactory to Agent, from Existing Lender respecting the amount
necessary to repay in full all of the obligations of certain Borrowers owing to
Existing Lender and obtain a termination or release of all of the Liens
existing in favor of Existing Lender in and to the properties or assets of such
Borrowers.
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens held or to be held by the
Lender Group, (b) Liens for unpaid taxes that either (i) are not yet due and
payable or (ii) are the subject of Permitted Protests, (c) Liens set forth on
Schedule P-1, (d) the interests of lessors under operating leases and purchase
money security interests and Liens of lessors under capital leases to the
extent that the acquisition or lease of the underlying asset is permitted under
Section 7.21 and so long as the Lien only attaches to the asset purchased or
acquired and only secures the purchase price of the asset, (e) Liens arising by
operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of
business of Borrowers or the Canadian Subsidiary, as the case may be and not in
connection with the borrowing of money, and which Liens either (i) are for sums
not yet due and payable, or (ii) are the subject of Permitted Protests, (f)
Liens arising from deposits made in connection with obtaining worker's
compensation or other unemployment insurance, (g) Liens or deposits to secure
performance of bids, tenders, or leases (to the extent permitted under this
Agreement), incurred in the ordinary course of business of Borrowers or the
Canadian Subsidiary, as the case may be and not in connection with the
borrowing of money, (h) Liens arising by reason of security for surety or
appeal bonds in the ordinary course of business of Borrowers or the Canadian
Subsidiary, as the case may be, (i) Liens of or resulting from any judgment or
award that would not cause a Material Adverse Change and as to which the time
for the appeal or petition for rehearing of which has not yet expired, or in
respect of which Borrowers or the Canadian Subsidiary, as the case may be are
in good faith prosecuting an appeal or proceeding for a review, and in respect
of which a stay of execution pending such appeal or proceeding for review has
been secured, (j) Liens with respect to the Real Property Collateral that are
exceptions to the commitments for title insurance issued in connection with the
Mortgages, as accepted by Agent, and (k) with respect to any Real Property that
is not part of the Real Property Collateral, easements, rights of way, zoning
and similar covenants and restrictions, and similar encumbrances that
customarily exist on properties of Persons engaged in similar activities and
similarly situated and that in any event do not materially interfere with or
impair the use or operation of the Collateral by Borrowers or the Canadian
Subsidiary, as the case may be or the value of the Lender Group's Lien thereon
or therein, or materially interfere with the ordinary conduct of the business
of Borrowers or the Canadian Subsidiary, as the case may be.
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<PAGE> 26
"Permitted Protest" means the right of Borrowers to protest
any Lien (other than any such Lien that secures the Obligations), tax (other
than payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the books of Borrowers in an amount that is
reasonably satisfactory to Agent, (b) any such protest is instituted and
diligently prosecuted by Borrowers in good faith, and (c) Agent is satisfied
that, while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Liens of the Lender Group
in and to the Collateral.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships,
limited liability partnerships, joint ventures, trusts, land trusts, business
trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other
than the Real Property Collateral.
"Plan" means any employee benefit plan, program, or
arrangement maintained or contributed to by any Borrower or with respect to
which it may incur liability.
"Pricing Benchmarks" means (a) the sum of the outstanding
balance of the Obligations hereunder as of the last day of each fiscal year of
the Loan Parties, divided by (b) EBITDA for the twelve month period then ended,
which amount must be equal to or less than the following amounts for the twelve
month period then ended:
<TABLE>
<CAPTION>
Measurement Date: Maximum Amount:
----------------- ---------------
<S> <C>
December 31, 1997 5.865
December 31, 1998 3.089
December 31, 1999
and thereafter 2.479
</TABLE>
"Pro-Rata Share" means, with respect to a Lender, a
fraction (expressed as a percentage), the numerator of which is the amount of
such Lender's Commitment and the denominator of which is the aggregate amount
of the Commitments.
"RDM" means RDM Sports Group, Inc., a Delaware corporation.
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<PAGE> 27
"Real Property" means, with respect to each Borrower, any
estates or interests in real property now owned or hereafter acquired by such
Borrower.
"Real Property Collateral" means the parcel or parcels of
real property and the related improvements thereto identified on Schedule R-1,
and any Real Property hereafter acquired by any Borrower, and any assignments
of rents and leases relating to any Real Property.
"Reference Rate" means the variable rate of interest, per
annum, most recently announced by Norwest Bank Minnesota, National Association,
or any successor thereto, as its "base rate," irrespective of whether such
announced rate is the best rate available from such financial institution.
"Reportable Event" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of 30 days notice to the PBGC is waived under
applicable regulations.
"Required Lenders" means, at any time, Agent together with
such other Lenders whose Pro Rata Shares together with Agent's Pro Rata Share
aggregate 50.1% or more of the Commitments.
"Retiree Health Plan" means an "employee welfare benefit
plan" within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"Revolving Facility Usage" means, as of any date of
determination, the aggregate amount of Advances and undrawn or unreimbursed
Letters of Credit outstanding.
"Security Agreement" means that certain Security Agreement
of even date by and among the direct and indirect Subsidiaries of RDM that are
not Borrowers (other than the Canadian Subsidiary) and Agent, in form and
substance satisfactory to Agent.
"Settlement" has the meaning set forth in Section
2.1(i)(i).
"Settlement Date" has the meaning set forth in Section
2.1(i)(i).
"Solvent" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and
assets of such Person are greater than the sum of the debts, including
contingent liabilities, of such Person, (b) the present fair salable value of
the properties and assets of such Person is not less than the amount
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<PAGE> 28
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured, (c) such Person is able to realize upon
its properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it
will, incur debts beyond such Person's ability to pay as such debts mature, and
(e) such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount that, in light
of all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Stock Pledge Agreement" means that certain Subsidiary
Stock Pledge Agreement of even date by and among NWR, Inc., Roadmaster North
American Corporation and Agent, in form and substance satisfactory to Agent,
and such other Subsidiary Stock Pledge Agreements in form and substance
satisfactory to the Agent as are required to be executed by any new
Subsidiaries of RDM.
"Subordinated Debentures" means (i) those certain 11 3/4%
Senior Subordinated Notes due 2002 in the original principal amount of
$100,000,000 issued pursuant to that certain Indenture dated as of December 15,
1993 as modified by that certain First Supplemental Indenture dated as of
November 15, 1994, between Roadmaster Industries, Inc. n/k/a RDM Sports Group,
Inc. and LaSalle National Bank, as Trustee and (ii) those certain 8%
Convertible Subordinated Debentures due 2003 in the original principal amount
of $51,745,000 issued pursuant to that certain Indenture dated as of July 15,
1995 between Roadmaster Industries, Inc. n/k/a RDM Sports Group, Inc. and
LaSalle National Bank, as Trustee.
"Subordination Agreement" means that certain Subordination
Agreement of even date between the Borrowers, RDM, the other direct and
indirect Subsidiaries of RDM (other than the Canadian Subsidiary) and the
Agent, in form and substance satisfactory to the Agent.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors (or
appoint other comparable managers) of such corporation, partnership, limited
liability company, or other entity.
"Subsidiary Guaranty" means that certain Subsidiary
Guaranty Agreement of even date executed and delivered by the direct and
indirect Subsidiaries of RDM that are not Borrowers (other than the Canadian
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<PAGE> 29
Subsidiary) to Agent, in form and substance satisfactory to Agent, and
such other Subsidiary Guaranty Agreements in form and substance satisfactory to
the Agent as are required to be executed by any new Subsidiaries of RDM.
"Super-Majority Lenders" means, at any time, Agent together
with such other Lenders whose Pro-Rata Shares together with Agent's Pro Rata
Share aggregate 66.67% or more of the Commitments.
"Tangible Net Worth" means, as of any date of
determination, the difference of (a) Loan Parties' total stockholder's equity,
minus (b) the sum of: (i) all Intangible Assets of Loan Parties, (ii) all of
Loan Parties' prepaid expenses, (iii) all amounts due to Loan Parties from
non-Loan Party Affiliates, (iv) amounts listed as deferred tax-current assets
on the Loan Parties' consolidated financial statements and (v) amounts listed
as deferred tax-long term assets on the Loan Parties' consolidated financial
statements, plus (c) the sum of (i) amounts listed as deferred tax-long term
liabilities on the Loan Parties' consolidated financial statements, and (ii)
the amount outstanding under the Subordinated Debentures.
"Trademark Security Agreement" means that certain
Subsidiary Trademark Security Agreement of even date by and among the direct
and indirect Subsidiaries of RDM that are not Borrowers and Agent, in form and
substance satisfactory to Agent, and such other Subsidiary Trademark Security
Agreements as are required to be executed by any new Subsidiaries of RDM.
"Tranche A Fixed Period Loan" has the meaning set forth in
Section 2.3.
"Tranche B Fixed Period Loan" has the meaning set forth in
Section 2.3
"Voidable Transfer" has the meaning set forth in Section
15.8.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP; provided, however,
to the extent a change in GAAP materially affects the financial covenants set
forth in Section 7.20 hereof, upon the mutual agreement by the Borrowers, the
Agent and the Required Lenders, in their reasonable discretion, such covenants
will be reset to give effect to such change in GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrowers" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Loan Parties on a consolidated basis
unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined
in the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
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1.4 CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. An Event of Default shall "continue" or be "continuing" until such
Event of Default has been waived in writing by the requisite members of the
Lender Group. Section, subsection, clause, schedule, and exhibit references are
to this Agreement unless otherwise specified. Any reference in this Agreement
or in the Loan Documents to this Agreement or any of the Loan Documents shall
include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and
exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this Agreement,
each Lender agrees to make advances in United States dollars ("Advances") to
Borrowers in an amount at any one time outstanding not to exceed such Lender's
Pro Rata Share of an amount equal to the lesser of (i) the Maximum Revolving
Amount less the outstanding balance of all undrawn or unreimbursed Letters of
Credit, and (ii) the Borrowing Base less (A) the aggregate amount of all
undrawn or unreimbursed Letters of Credit (other than Inventory Letters of
Credit), less (B) one hundred percent (100%) minus the applicable Inventory
advance rate shown as a percentage, multiplied by the aggregate amount of all
undrawn or unreimbursed Inventory Letters of Credit, less (C) the aggregate
amount of the Inventory Reserves. For purposes of this Agreement, "Borrowing
Base", as of any date of determination, shall mean the result of:
(x) the lesser of (i) eighty-five percent (85%) of
Eligible Accounts, less the amount, if any, of the Dilution
Reserve, and (ii) an amount equal to Borrowers' and the
Canadian Subsidiary's Collections with respect to Accounts
of the Borrowers and the Canadian Subsidiary for the
immediately preceding ninety (90) day period, plus
(y) the lowest of
(i) eighty percent (80%) of the Net Orderly
Liquidation Value of all Eligible Inventory, as determined
by Foothill from time to time,
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(ii) the aggregate of (A) sixty percent (60%) of the
Cost of Eligible Inventory consisting of finished goods and
(B) the lowest of (y) $12,000,000 from the Closing Date
through September 30, 1997, $8,000,000 from October 1, 1997
through December 31, 1997 and $5,000,000 thereafter and (z)
thirty-five percent (35%) of the Cost of Eligible Inventory
consisting of raw materials, such percentage to be reduced
to the following percentages as of the dates set forth in
the table below:
<TABLE>
<CAPTION>
Date of Applicable
Reduction Percentage
--------- ----------
<S> <C>
October 1, 1997 thirty percent (30%)
November 1, 1997 twenty-five percent (25%)
December 1, 1997 twenty percent (20%)
January 1, 1998 fifteen percent (15%)
February 1, 1998 and thereafter ten percent (10%); and
</TABLE>
(iii) one hundred (100%) of the amount of credit
availability created by clause (x) above, minus
(z) the aggregate amount of reserves, if any, established
by Agent under Sections 2.1(b), 6.15 and 10 and, from and
after October 1, 1997, an availability reserve in the
amount of $2,500,000.
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Agent may create reasonable reserves against or reduce its
advance rates based upon Eligible Accounts or Eligible Inventory without
declaring an Event of Default if it determines that there has occurred a
Material Adverse Change.
(c) Amounts borrowed pursuant to this Section 2.1 may be repaid
and, subject to the terms and conditions of this Agreement, reborrowed at any
time during the term of this Agreement.
(d) Procedure for Borrowing. Each Borrowing shall be made upon a
Borrower's irrevocable request therefor delivered to Agent (which notice must
be received by Agent no later than 12:00 Noon (Rosemont, Illinois time) on the
Funding Date if such advance is for $5,000,000 or less or no later than 12:00
Noon (Rosemont, Illinois time) on the Business Day immediately preceding the
requested Funding Date if such advance is for more
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than $5,000,000) specifying (i) the amount of the Borrowing; and (ii) the
requested Funding Date, which shall be a Business Day.
(e) Agent's Election. Promptly after receipt of a request for a
Borrowing pursuant to Section 2.1(d) in excess of $5,000,000, the Agent shall
elect, in its discretion, (i) to have the terms of Section 2.1(f) apply to such
requested Borrowing, or (ii) to make an Agent Loan pursuant to the terms of
Section 2.1(g) in the amount of the requested Borrowing. Any requested
Borrowing of $5,000,000 or less shall be made as an Agent Loan pursuant to the
terms of Section 2.1(g).
(f) Making of Advances.
(i) In the event that the Agent shall elect to have the
terms of this Section 2.1(f) apply to a requested Borrowing in excess of
$5,000,000 as described in Section 2.1(e), then promptly after receipt of a
request for a Borrowing pursuant to Section 2.1(d), the Agent shall notify the
Lenders, not later than 3:00 p.m. (Rosemont, Illinois time) on the Business Day
immediately preceding the Funding Date applicable thereto, by telephone and
promptly followed by telecopy, or other similar form of transmission, of the
requested Borrowing. Each Lender shall make the amount of such Lender's Pro
Rata Share of the requested Borrowing available to the Agent in same day funds,
to such account of the Agent as the Agent may designate, not later than 2:00
p.m. (Rosemont, Illinois time) on the Funding Date applicable thereto. After
the Agent's receipt of the proceeds of such Advances, upon satisfaction of the
applicable conditions precedent set forth in Sections 3.1 and 3.2, the Agent
shall make the proceeds of such Advances available to Borrowers on the
applicable Funding Date by transferring same day funds equal to the proceeds of
such Advances received by the Agent to the Designated Deposit Account;
provided, however, that, subject to the provisions of Section 2.1(l), the Agent
shall not request any Lender to make, and no Lender shall have the obligation
to make, any Advance if the Agent shall have received written notice from any
Lender, or otherwise has actual knowledge, that (A) one or more of the
applicable conditions precedent set forth in Sections 3.1 or 3.2 will not be
satisfied on the requested Funding Date for the applicable Borrowing, or (B)
the requested Borrowing would exceed the Availability on such Funding Date.
(ii) Unless Agent receives notice from a Lender on or
prior to the Closing Date or, with respect to any Borrowing after the Closing
Date, at least one Business Day prior to the date of such Borrowing, that such
Lender will not make available as and when required hereunder to Agent for the
account of Borrowers the amount of that Lender's Pro Rata Share of the
Borrowing, Agent may assume that each Lender has made or will make such amount
available to Agent in immediately available funds on the Funding Date and Agent
may (but shall not be so required), in reliance upon such assumption, make
available to Borrowers on such date a corresponding amount. If and to the
extent any Lender shall not have made its full amount available to Agent in
immediately available funds and Agent in such circumstances has made
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available to Borrowers such amount, that Lender shall on the Business Day
following such Funding Date make such amount available to Agent, together with
interest at the Defaulting Lenders Rate for each day during such period. A
notice from Agent submitted to any Lender with respect to amounts owing under
this subsection shall be conclusive, absent manifest error. If such amount is
paid to Agent such payment to Agent shall constitute such Lender's Advance on
the date of Borrowing for all purposes of this Agreement. If such amount is not
paid to Agent on the Business Day following the Funding Date, Agent will notify
Borrowers of such failure to fund and, upon demand by Agent, Borrowers shall
pay such amount to Agent for Agent's account, together with interest thereon
for each day elapsed since the date of such Borrowing, at a rate per annum
equal to the interest rate applicable at the time to the Advances composing
such Borrowing; provided, however, that any such payment by Borrowers shall be
made without prejudice to any rights Borrowers may have against such Lender.
The failure of any Lender to make any Advance on any Funding Date shall not
relieve any other Lender of any obligation hereunder to make an Advance on such
Funding Date, but no Lender shall be responsible for the failure of any other
Lender to make the Advance to be made by such other Lender on any Funding Date.
Any Lender that fails to make any Advance that it is required to make hereunder
on any Funding Date and that has not cured such failure by making such Advance
within one Business Day after written demand upon it by Agent to do so, shall
constitute a "Defaulting Lender" for purposes of this Agreement until such
Advance is made.
(iii) Agent shall not be obligated to transfer to a
Defaulting Lender any payments made by Borrowers to Agent for the Defaulting
Lender's benefit; nor shall a Defaulting Lender be entitled to the sharing of
any payments hereunder. Amounts payable to a Defaulting Lender shall instead be
paid to or retained by Agent. Agent may hold and, in its discretion, re-lend to
Borrowers the amount of all such payments received or retained by it for the
account of such Defaulting Lender. Solely for the purposes of voting or
consenting to matters with respect to the Loan Documents and determining Pro
Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender" and
such Defaulting Lender's Commitment shall be deemed to be zero. This section
shall remain effective with respect to such Defaulting Lender until (A) the
Obligations under this Agreement shall have been declared or shall have become
immediately due and payable or (B) the requisite non-Defaulting Lenders, Agent,
and Borrowers shall have waived such Defaulting Lender's default in writing.
The operation of this section shall not be construed to increase or otherwise
affect the Commitment of any non-Defaulting Lender, or relieve or excuse the
performance by Borrowers of their duties and obligations hereunder.
(g) Making of Agent Loans.
(i) In the event the Agent shall elect to have the terms of
this Section 2.1(g) apply to a requested Borrowing in excess of $5,000,000 as
described in Section 2.1(e) or in the event of any requested Borrowing of
$5,000,000 or less, Agent shall make an Advance in the amount of
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such Borrowing (any such Advance made solely by Agent pursuant to this Section
2.1(g) being referred to as an "Agent Loan" and such Advances being referred to
collectively as "Agent Loans") available to Borrowers on the Funding Date
applicable thereto by transferring same day funds to Borrowers' Designated
Deposit Account. Each Agent Loan is an Advance hereunder and shall be subject
to all the terms and conditions applicable to other Advances, except that all
payments thereon shall be payable to Agent solely for its own account (and for
the account of the holder of any participation interest with respect to such
Advance). Subject to the provisions of Section 2.1(l), the Agent shall not make
any Agent Loan if the Agent shall have received written notice from any Lender,
or otherwise has actual knowledge, that (i) one or more of the applicable
conditions precedent set forth in Sections 3.1 or 3.2 will not be satisfied on
the requested Funding Date for the applicable Borrowing, or (ii) the requested
Borrowing would exceed the Availability on such Funding Date. Agent shall not
otherwise be required to determine whether the applicable conditions precedent
set forth in Sections 3.1 or 3.2 have been satisfied on the Funding Date
applicable thereto prior to making, in its sole discretion, any Agent Loan.
(ii) The Agent Loans shall be secured by the Collateral and
shall constitute Advances and Obligations hereunder, and shall bear interest at
the rate applicable from time to time to Obligations pursuant to Section 2.6.
(h) Agent Advances.
(i) Agent hereby is authorized by Borrowers and the Lenders,
from time to time in Agent's sole discretion, (1) after the occurrence of a
Default or an Event of Default (but without constituting a waiver of such
Default or Event of Default), or (2) at any time that any of the other
applicable conditions precedent set forth in Section 3.1 or 3.2 have not been
satisfied, to make Advances to Borrowers on behalf of the Lenders which Agent,
in its reasonable business judgment, deems necessary or desirable (A) to
preserve or protect the Collateral, or any portion thereof, (B) to enhance the
likelihood of, or maximize the amount of, repayment of the Obligations, or (C)
to pay any other amount chargeable to Borrowers pursuant to the terms of this
Agreement, including Lender Group Expenses and the costs, fees, and expenses
described in Section 10 (any of the Advances described in this Section 2.1(h)
being hereinafter referred to as "Agent Advances"); provided, that Agent shall
not make any Agent Advances to Borrowers without the consent of the Required
Lenders if the amount thereof would exceed $5,000,000 in the aggregate at any
one time.
(ii) Agent Advances shall be repayable on demand and
secured by the Collateral, shall constitute Advances and Obligations hereunder,
and shall bear interest at the rate applicable from time to time to the
Obligations pursuant to Section 2.6.
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(i) Settlement. It is agreed that each Lender's funded
portion of the Advances is intended by the Lenders to be equal at all times to
such Lender's Pro Rata Share of the outstanding Advances. Such agreement
notwithstanding, the Agent and the Lenders agree (which agreement shall not be
for the benefit of or enforceable by Borrowers) that in order to facilitate the
administration of this Agreement and the other Loan Documents, settlement among
them as to the Advances, the Agent Loans, and the Agent Advances shall take
place on a periodic basis in accordance with the following provisions:
(i) The Agent shall request settlement
("Settlement") with the Lenders on a weekly basis, or on a more frequent basis
if so determined by the Agent, (1) for itself, with respect to each Agent Loan
and Agent Advance, and (2) with respect to Collections received, as to each by
notifying the Lenders by telephone and promptly followed by telecopy, or other
similar form of transmission, of such requested Settlement, no later than 3:00
p.m. (Rosemont, Illinois time) on the Business Date immediately preceding the
date of such requested Settlement (the "Settlement Date"). Such notice of a
Settlement Date shall include a summary statement of the amount of outstanding
Advances, Fixed Period Loans, Agent Loans, and Agent Advances for the period
since the prior Settlement Date, the amount of repayments received in such
period, and the amounts allocated to each Lender of the principal, interest,
fees, and other charges for such period. Subject to the terms and conditions
contained herein (including Section 2.1(i)(ii)): (y) if a Lender's balance of
the Advances, Fixed Period Loans, Agent Loans, and Agent Advances exceeds such
Lender's Pro Rata Share of the Advances, Fixed Period Loans, Agent Loans, and
Agent Advances as of a Settlement Date, then Agent shall by no later than 3:00
p.m (Rosemont, Illinois time) on the Settlement Date transfer in same day funds
to the account of such Lender as Lender may designate, an amount such that
each such Lender shall, upon receipt of such amount, have as of the Settlement
Date, its Pro Rata Share of the Advances, Fixed Period Loans, Agent Loans, and
Agent Advances; and (z) if a Lender's balance of the Advances, Fixed Period
Loans, Agent Loans, and Agent Advances is less than such Lender's Pro Rata
Share of the Advances, Fixed Period Loans, Agent Loans, and Agent Advances as
of a Settlement Date, such Lender shall no later than 3:00 p.m. (Rosemont,
Illinois time) on the Settlement Date transfer in same day funds to such
account of the Agent as the Agent may designate, an amount such that each such
Lender shall, upon transfer of such amount, have as of the Settlement Date,
its Pro Rata Share of the Advances, Fixed Period Loans, Agent Loans, and Agent
Advances. Such amounts made available to the Agent under clause (z) of the
immediately preceding sentence shall be applied against the amounts of the
applicable Agent Loan or Agent Advance and, together with the portion of such
Agent Loan or Agent Advance representing Foothill's Pro Rata Share thereof,
shall constitute Advances of such Lenders. If any such amount is not made
available to the Agentby any Lender on the Settlement Date applicable thereto
to the extent required by the terms hereof, the Agent shall be entitled to
recover for its account such amount on demand from such Lender together with
interest thereon at the Defaulting Lenders Rate.
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<PAGE> 36
(ii) In determining whether a Lender's balance of the
Advances, Fixed Period Loans, Agent Loans, and Agent Advances is less than,
equal to, or greater than such Lender's Pro Rata Share of the Advances, Fixed
Period Loans, Agent Loans, and Agent Advances as of a Settlement Date, Agent
shall, as part of the relevant Settlement, apply to such balance the portion of
payments actually received by Agent with respect to principal, interest, fees
payable by Borrowers and allocable to the Lenders hereunder, and proceeds of
Collateral. To the extent that a net amount is owed to any such Lender after
such application, such net amount shall be distributed by Agent to that Lender
as part of such Settlement; provided, however, that the closing fee payable by
Borrowers under Section 2.11(a) shall be distributed to the Lenders within
three Business Days following the Closing Date without regard to the netting of
amounts owing to or owed by any Lender as part of a Settlement.
(iii) Between Settlement Dates, the Agent, to the extent
no Agent Advances or Agent Loans are outstanding, may pay over to Foothill any
payments received by the Agent, which in accordance with the terms of the
Agreement would be applied to the reduction of the Advances, for application to
Foothill's Pro Rata Share of the Advances. If, as of any Settlement Date,
Collections received since the then immediately preceding Settlement Date have
been applied to Foothill's Pro Rata Share of the Advances other than to Agent
Loans or Agent Advances, as provided for in the previous sentence, Foothill
shall pay to the Agent for the accounts of the Lenders, and Agent shall pay
to the Lenders, to be applied to the outstanding Advances of such Lenders, an
amount such that each Lender shall, upon receipt of such amount, have, as of
such Settlement Date, its Pro Rata Share of the Advances. During the period
between Settlement Dates, the Agent with respect to Agent Loans and Agent
Advances, and each Lender with respect to the Fixed Period Loans and the
Advances other than Agent Loans and Agent Advances, shall be entitled to
interest at the applicable rate or rates payable under this Agreement on the
daily amount of funds employed by the Agent or the Lenders, as applicable.
(j) Notation. The Agent shall record on its books the principal
amount of the Fixed Period Loans and the Advances owing to each Lender,
including the Agent Loans and Agent Advances owing to the Agent, and the
interests therein of each Lender, from time to time. In addition, each Lender
is authorized, at such Lender's option, to note the date and amount of each
payment or prepayment of principal of such Lender's Fixed Period Loans and
Advances in its books and records, including computer records, such books and
records constituting rebuttably presumptive evidence, absent manifest error, of
the accuracy of the information contained therein.
(k) Lenders' Failure to Perform. All Advances (other than Agent
Loans and Agent Advances) shall be made by the Lenders simultaneously and in
accordance with their Pro Rata Shares. It is understood that (i) no Lender
shall be responsible for any failure by any other Lender to perform its
obligation to make any Advances hereunder, nor shall any Commitment of any
Lender be increased or decreased as a result of any failure
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<PAGE> 37
by any other Lender to perform its obligation to make any Advances hereunder,
and (ii) no failure by any Lender to perform its obligation to make any
Advances hereunder shall excuse any other Lender from its obligation to make
any Advances hereunder.
(l) Overadvances. Agent may make voluntary Overadvances without
the written consent of the Required Lenders for amounts charged to the
applicable Loan Account for interest, fees or Lender Group Expenses pursuant to
Section 2.1(h)(i)(2)(C). If the conditions for borrowing under Section 3.2(d)
cannot be fulfilled, the Agent may, but is not obligated to, knowingly and
intentionally continue to make Advances (including Agent Loans) to Borrowers
such failure of condition notwithstanding, so long as, at any time, (i) either
(A) the outstanding Revolving Facility Usage would not exceed the Borrowing
Base by more than $2,000,000 or (B) (y) the outstanding Revolving Facility
Usage would not exceed the Borrowing Base by more than the amount proposed by
Agent and agreed to by the Required Lenders, and (z) such Advances are made
pursuant to a plan (proposed by Agent and agreed to by the Required Lenders)
for the elimination of the outstanding Revolving Facility Usage in excess of
the Borrowing Base, and (ii) the outstanding Revolving Facility Usage (except
for and excluding amounts charged to the applicable Loan Account for interest,
fees, or Lender Group Expenses) does not exceed the Maximum Revolving Amount.
The foregoing provisions are for the sole and exclusive benefit of the Agent
and the Lenders and are not intended to benefit Borrower in any way. The
Advances and Agent Loans, as applicable, that are made pursuant to this Section
2.1(l) shall be subject to the same terms and conditions as any other Agent
Advance or Agent Loan, as applicable, except that the rate of interest
applicable thereto shall be the rates set forth in Section 2.6(c)(i) without
regard to the presence or absence of a Default or Event of Default; provided,
that the Required Lenders may, at any time, revoke Agent's authorization
contained in this Section 2.1(l) to make Overadvances (except for and excluding
amounts charged to the applicable Loan Account for interest, fees, or Lender
Group Expenses), any such revocation to be in writing and to become effective
upon Agent's receipt thereof; provided further, however, that the making of
such Overadvances shall not constitute a waiver of such Event of Default
arising therefrom.
In the event Agent obtains actual knowledge that Revolving
Facility Usage exceeds the amount permitted by the preceding paragraph,
regardless of the amount of or reason for such excess, Agent shall notify
Lenders as soon as practicable (and prior to making any (or any further)
intentional Overadvances (except for and excluding amounts charged to the
applicable Loan Account for interest, fees, or Lender Group Expenses) unless
Agent determines that prior notice would result in imminent harm to the
Collateral or its value), and Lenders thereupon shall, together with Agent,
jointly determine the terms of arrangements that shall be implemented with
Borrowers intended to reduce, within a reasonable time, the outstanding
principal amount of the Advances to Borrowers to an amount permitted by the
preceding paragraph. In the event any Lender disagrees over the terms of
reduction and/or repayment of any Overadvance, the terms of reduction and/or
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<PAGE> 38
repayment thereof shall be implemented according to the determination of the
Required Lenders.
Each Lender shall be obligated to settle with Agent as provided
in Section 2.1(i) for the amount of such Lender's Pro Rata Share of any
unintentional Overadvances by Agent reported to such Lender, any intentional
Overadvances made as permitted under this Section 2.1(l), and any Overadvances
resulting from the charging to the applicable Loan Account of interest, fees,
or Lender Group Expenses.
(m) Effect of Bankruptcy. If a case is commenced by or against
any Borrower under the Bankruptcy Code, or other statute providing for debtor
relief, then, without the approval of Super-Majority Lenders, the Lender Group
shall not make additional loans or provide additional financial accommodations
under the Loan Documents to such Borrower as debtor or debtor-in-possession, or
to any trustee for such Borrower, nor consent to the use of cash collateral
(provided that the applicable Loan Account shall continue to be charged, to the
fullest extent permitted by law, for accruing interest, fees, and Lender Group
Expenses).
2.2 LETTERS OF CREDIT.
(a) Agreement to Cause Issuance; Amounts; Outside Expiration
Date. Subject to the terms and conditions of this Agreement, Agent agrees to
issue letters of credit for the account of Borrowers (each, an "L/C") or to
issue guarantees of payment (each such guaranty, an "L/C Guaranty") with
respect to letters of credit issued by an issuing bank for the account of
Borrowers. Agent shall have no obligation to issue a Letter of Credit if any of
the following would result:
(i) the sum of (y) one hundred percent (100%) minus the
applicable Inventory advance rate shown as a percentage, multiplied by the
aggregate amount of all undrawn and unreimbursed Inventory Letters of Credit
plus (z) one hundred percent (100%) of the aggregate amount of all other types
of undrawn and unreimbursed Letters of Credit, would exceed (x) the Borrowing
Base less (y) the amount of outstanding Advances (including any Agent Advances
and Agent Loans) less (z) the aggregate amount of Inventory Reserves and
reserves established under Section 2.1(b); or
(ii) the aggregate amount of all undrawn or unreimbursed
Letters of Credit (including Inventory Letters of Credit) would exceed the
lower of: (x) the Maximum Revolving Amount less the amount of outstanding
Advances (including any Agent Advances and Agent Loans) less the aggregate
amount of Inventory Reserves and reserves established under Section 2.1(b); or
(y) $15,000,000; or
(iii)the outstanding Obligations (other than under the Fixed
Period Loans) would exceed the Maximum Revolving Amount.
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Borrowers expressly understand and agree that Agent shall have no
obligation to arrange for the issuance by issuing banks of the letters of
credit that are to be the subject of L/C Guarantees. Borrowers and the Lender
Group acknowledge and agree that certain of the letters of credit that are to
be the subject of L/C Guarantees may be outstanding on the Closing Date. Each
Letter of Credit shall have an expiry date no later than sixty (60) days prior
to the date on which this Agreement is scheduled to terminate under Section 3.4
(without regard to any potential renewal term) and all such Letters of Credit
shall be in form and substance acceptable to Agent in its sole discretion. If
the Lender Group is obligated to advance funds under a Letter of Credit,
Borrowers immediately shall reimburse such amount to Agent and, in the absence
of such reimbursement, the amount so advanced immediately and automatically
shall be deemed to be an Advance hereunder and, thereafter, shall bear interest
at the rate then applicable to Advances under Section 2.6.
(b) Indemnification. Borrowers, jointly and severally, hereby
agree to indemnify, save, defend, and hold the Lender Group harmless from any
loss, cost, expense, or liability, including payments made by the Lender Group,
expenses, and reasonable attorneys fees incurred by the Lender Group arising
out of or in connection with any Letter of Credit. Borrowers agree to be bound
by the issuing bank's regulations and interpretations of any letters of credit
guarantied by the Lender Group and opened to or for Borrowers' account or by
Agent's interpretations of any Letter of Credit issued by Agent to or for
Borrowers' account, even though this interpretation may be different from
Borrowers' own, and Borrowers understand and agree that the Lender Group shall
not be liable for any error, negligence, or mistake, whether of omission or
commission, in following Borrowers' instructions or those contained in the
Letter of Credit or any modifications, amendments, or supplements thereto.
Borrowers understand that the L/C Guarantees may require the Lender Group to
indemnify the issuing bank for certain costs or liabilities arising out of
claims by Borrowers against such issuing bank. Borrowers, jointly and
severally, hereby agree to indemnify, save, defend, and hold the Lender Group
harmless with respect to any loss, cost, expense (including reasonable
attorneys fees), or liability incurred by the Lender Group under any L/C
Guaranty as a result of the Lender Group's indemnification of any such issuing
bank.
(c) Supporting Materials. Borrowers hereby authorize and direct
any bank that issues a letter of credit guaranteed by an L/C Guaranty to deliver
to Agent all instruments, documents, and other writings and property received
by the issuing bank pursuant to such letter of credit, and to accept and rely
upon Agent's instructions and agreements with respect to all matters arising in
connection with such letter of credit and the related application. Borrowers
may or may not be the "applicant" or "account party" with respect to such
letter of credit.
(d) Costs of Letters of Credit. Any and all charges,
commissions, fees, and costs incurred by Agent relating to the letters of
credit guaranteed by an L/C Guaranty shall be considered Lender Group Expenses
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for purposes of this Agreement and immediately shall be reimbursable by
Borrowers to Agent.
(e) Indemnification. Immediately upon the termination of this
Agreement, Borrowers agree to either (i) provide cash collateral to be held by
Agent in an amount equal to one hundred two percent (102%) of the maximum
amount of the Lender Group's obligations under Letters of Credit, or (ii) cause
to be delivered to Agent releases of all of the Lender Group's obligations
under outstanding Letters of Credit. At Agent's discretion, any proceeds of
Collateral received by Agent after the occurrence and during the continuation
of an Event of Default may be held as the cash collateral required by this
Section 2.2(e).
(f) Increased Costs. If by reason of (i) any change in any
applicable law, treaty, rule, or regulation or any change in the interpretation
or application by any governmental authority of any such applicable law,
treaty, rule, or regulation, or (ii) compliance by the issuing bank or the
Lender Group with any direction, request, or requirement (irrespective of
whether having the force of law) of any governmental authority or monetary
authority including, without limitation, Regulation D of the Board of Governors
of the Federal Reserve System as from time to time in effect (and any successor
thereto):
(i) any reserve, deposit, or similar requirement is or shall
be imposed or modified in respect of any Letters of Credit issued hereunder, or
(ii) there shall be imposed on the issuing bank or the
Lender Group any other condition regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or
indirectly, the cost to the issuing bank or the Lender Group of issuing,
making, guaranteeing, or maintaining any letter of credit, or Letter of Credit,
as applicable, or to reduce the amount receivable in respect thereof by such
issuing bank or the Lender Group, then, and in any such case, Agent may, at any
time within a reasonable period after the additional cost is incurred or the
amount received is reduced, notify Borrowers, and Borrowers shall pay on demand
such amounts as the issuing bank or Lender Group may specify to be necessary to
compensate the issuing bank or Lender Group for such additional cost or reduced
receipt, together with interest on such amount from the date of such demand
until payment in full thereof at the rate set forth in Section 2.6(a) or
(c)(i), as applicable. The determination by the issuing bank or Lender Group, as
the case may be, of any amount due pursuant to this Section 2.2(f), as set
forth in a certificate setting forth the calculation thereof in reasonable
detail, shall, in the absence of manifest or demonstrable error, be final and
conclusive and binding on all of the parties hereto.
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(g) Participations.
(i) Purchase of Participations. Immediately
upon issuance of any Letter of Credit in accordance with this Section
2.2, each Lender shall be deemed to have irrevocably and unconditionally
purchased and received without recourse or warranty, an undivided interest and
participation in the credit support or enhancement provided through the Agent
to such issuer in connection with the issuance of such Letter of Credit, equal
to such Lender's Pro Rata Share of the face amount of such Letter of Credit
(including, without limitation, all obligations of Borrowers with respect
thereto, and any security therefor or guaranty pertaining thereto).
(ii) Documentation. Upon the request of any
Lender, the Agent shall furnish to such Lender copies of any Letter of Credit,
reimbursement agreements executed in connection therewith, application for any
Letter of Credit and credit support or enhancement provided through the Agent
in connection with the issuance of any Letter of Credit, and such other
documentation as may reasonably by requested by such Lender.
(iii) Obligations Irrevocable. The obligations
of each Lender to make payments to the Agent with respect to any Letter of
Credit or with respect to any credit support or enhancement provided through
the Agent with respect to a Letter of Credit, and the obligations of Borrowers
to make payments to the Agent, for the account of the Lenders, shall be
irrevocable, not subject to any qualification or exception whatsoever,
including, without limitation, any of the following circumstances:
(A) any lack of validity or enforceability
of this Agreement or any of the other Loan Documents;
(B) the existence of any claim, setoff,
defense, or other right which any Borrower may have at any time against a
beneficiary named in a Letter of Credit or any transferee of any Letter of
Credit (or any Person for whom any such transferee may be acting), any Lender,
the Agent, the issuer of such Letter of Credit, or any other Person, whether
in connection with this Agreement, any Letter of Credit, the transactions
contemplated herein or any unrelated transactions (including any underlying
transactions between such Borrower or any other Person and the beneficiary
named in any Letter of Credit);
(C) any draft, certificate, or any other
document presented under the Letter of Credit proving to be forged, fraudulent,
invalid, or insufficient in any respect or any statement therein being untrue
or inaccurate in any respect;
(D) the surrender or impairment of any
security for the performance or observance of any of the terms of any of the
Loan Documents; or
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(E) the occurrence of any Default or
Event of Default.
2.3 FIXED PERIOD LOANS.
(a) Several Fixed Period Loans. Subject to the terms and
conditions of this Agreement, each Lender severally agrees to make a fixed
period loan (each a "Tranche A Fixed Period Loan" and collectively the "Tranche
A Fixed Period Loans") to Borrowers on the Closing Date, in an amount equal to
each such Lender's Pro Rata Share of $15,000,000. Subject to the terms and
conditions of this Agreement, each Lender severally agrees to make a fixed
period loan (each a "Tranche B Fixed Period Loan" and collectively the "Tranche
B Fixed Period Loans") to Borrowers on the Closing Date, in an amount equal to
each such Lender's Pro Rata Share of $10,000,000. Each Lender shall make the
amount of such Lender's Fixed Period Loans available to Agent in same day
funds, not later than 11:00 a.m. (Rosemont, Illinois time), on the Closing
Date. After Agent's receipt of the proceeds of such Fixed Period Loans, upon
satisfaction of the applicable conditions precedent set forth in Section 3.1
and 3.2, Agent shall make the proceeds of such Fixed Period Loans available to
Borrowers on the Closing Date by transferring same day funds equal to the
proceeds of such Fixed Period Loans received by Agent to the Designated Deposit
Account. All amounts outstanding under the Fixed Period Loans shall constitute
Obligations.
(b) Amortization. The Fixed Period Loans of each Lender
shall be repaid to the Agent for the account of the Lenders in equal monthly
installments of principal in an amount equal to each Lender's Pro Rata Share of
$200,000. Each such installment shall be due and payable on the first day of
each month commencing on August 1, 1997 and continuing on the first Business
Day of each succeeding month. On the termination of this Agreement, whether by
its terms, by prepayment, by acceleration, or otherwise, the outstanding
principal balance, and all accrued and unpaid interest under the Fixed Period
Loans shall be due and payable in full. All installments of principal on the
Fixed Period Loans shall first be applied to the balance outstanding on the
Tranche B Fixed Period Loans and then to the balance outstanding on the Tranche
A Fixed Period Loans upon payment in full of the Tranche B Fixed Period Loans.
(c) Prepayments of Fixed Period Loans. The unpaid principal
balance of the Fixed Period Loans must be prepaid by the amount of any proceeds
of a sale of obsolete Equipment permitted by Section 7.4 hereof and may be
prepaid in whole or in part without penalty or premium at any time during the
term of this Agreement upon thirty (30) days prior written notice by Borrowers
to Agent. All partial prepayments of principal on the Fixed Period Loans will
be applied to installments due on each Tranche B Fixed Period Loan and then to
each Tranche A Fixed Period Loan, in the inverse order of their maturity.
2.4 PAYMENTS.
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(a) Payments by Borrowers.
(i) All payments to be made by Borrowers shall
be made without set-off, recoupment, deduction, or counterclaim, except as
otherwise required by law. Except as otherwise expressly provided herein, all
payments by Borrowers shall be made to Agent for the account of the Lenders or
Agent, as the case may be, at Agent's address set forth in Section 12, and
shall be made in immediately available funds, no later than 1:00 p.m.
(Rosemont, Illinois time) on the date specified herein. Any payment received
by Agent later than 1:00 p.m. (Rosemont, Illinois time), at the option of
Agent, shall be deemed to have been received on the following Business Day and
any applicable interest or fee shall continue to accrue until such following
Business Day.
(ii) Whenever any payment is due on a day other
than a Business Day, such payment shall be made no later than the following
Business Day, and such extension of time shall in such case be included in the
computation of interest or fees, as
the case may be.
(iii) Unless Agent receives notice from Borrowers
prior to the date on which any payment is due to the Lenders that Borrowers will
not make such payment in full as and when required, Agent may assume that
Borrowers have made such payment in full to Agent on such date in immediately
available funds and Agent may (but shall not be so required), in reliance upon
such assumption, distribute to each Lender on such due date an amount equal to
the amount then due such Lender. If and to the extent Borrowers have not made
such payment in full to Agent, each Lender shall repay to Agent on demand such
amount distributed to such Lender, together with interest thereon at the
Reference Rate for each day from the date such amount is distributed to such
Lender until the date repaid.
(b) Apportionment and Application of Payments. Except as
otherwise provided with respect to Defaulting Lenders, aggregate principal and
interest payments shall be apportioned ratably among the Lenders (according to
the unpaid principal balance of the Advances to which such payments relate held
by each Lender) and payments of the fees (other than fees designated for
Agent's separate account) shall, as applicable, be apportioned ratably among
the Lenders. All payments shall be remitted to Agent and all such payments not
relating to principal or interest on the Fixed Period Loans or of specific
Advances, or not constituting payment of specific fees and all proceeds of
Collateral received by Agent, shall be applied, first, to pay any fees (other
than fees set forth in Section 2.11(e) hereof) or expense reimbursements then
due to Agent from Borrowers; second, to pay any fees or expense reimbursements
then due to Agent under Section 2.11(e) hereof and to the Lenders from
Borrowers to be allocated on a pro-rata basis with respect to the amount then
due to the Agent under Section 2.11(e) hereof and to the Lenders; third, to pay
interest due in respect of all Advances, including Agent Loans and Agent
Advances; fourth, to pay or prepay principal of Agent Loans and Agent Advances;
fifth, ratably to pay principal of the Advances (other than Agent
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Loans and Agent Advances) and unreimbursed obligations in respect of Letters of
Credit; and sixth, ratably to pay any other Obligations due to Agent or any
Lender by Borrowers. Agent shall promptly distribute to each Lender, pursuant
to the applicable wire transfer instructions received from each Lender in
writing, such funds as it may be entitled to receive, subject to a Settlement
delay as provided for in Section 2.1(i).
(c) Promise to Pay. Borrowers, jointly and severally,
hereby promise to pay in United States dollars in full to Agent, for the
benefit of the Lender Group, the Obligations, including, without limitation,
the principal amount of all Advances, together with accrued interest, fees and
other amounts due thereon, all in accordance with the terms of this Agreement.
2.5 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrowers to the Lender Group pursuant to
Sections 2.1 and 2.2 is greater than either the Dollar or percentage
limitations set forth in Sections 2.1 or 2.2 (an "Overadvance"), Borrowers
immediately shall pay to Agent, in cash, the amount of such excess to be used
by Agent to reduce the Obligations pursuant to the terms of Section 2.4(b).
2.6 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS, AND
CALCULATIONS.
(a) Interest Rate. Except as provided in Section 2.6(c),
below, (i) all Obligations (except for undrawn Letters of Credit and the Fixed
Period Loans) shall bear interest at a per annum rate of one percentage point
(1%) above the Reference Rate, (ii) the Tranche A Fixed Period Loans shall bear
interest at a per annum rate of one percentage point (1%) above the Reference
Rate, and (iii) the Tranche B Fixed Period Loans shall bear interest at a per
annum rate of one and one-half percentage points (1.5%) above the Reference
Rate; provided however, the rate set forth in subsection (i) above shall be
reduced to one half of one percentage point (0.50%) above the Reference Rate
upon the date Borrowers achieve the Pricing Benchmarks and during the
succeeding twelve (12) month period; provided further, however, that during the
period in which the advance rate against raw materials Inventory exceeds ten
percent (10%), the interest rate set forth in subsection (i) above shall be
increased by four percent (4%) per annum over the otherwise charged rate with
respect to an amount equal to the lower of the average raw materials
availability and total Advances outstanding, during the applicable period for
which interest is accruing.
(b) Letter of Credit Fee. Borrower shall pay Agent a fee
(in addition to the charges, commissions, fees, and costs set forth in Section
2.2(d)) equal to two percent (2%) per annum times the aggregate undrawn amount
of all outstanding Letters of Credit. A portion of such fee equal to one and
three quarters percent (1.75%) per annum times the aggregate undrawn amount of
all outstanding Letters of Credit shall be for the benefit of the Lenders with
the remaining portion being paid for the sole benefit of the Agent.
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(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for undrawn
Letters of Credit) shall bear interest at a per annum rate equal to four
percentage points (4%) above the otherwise charged rate, (ii) the Letter of
Credit fee provided in Section 2.6(b) shall be increased by four percentage
points (4%) per annum above the otherwise charged rate times the amount of the
aggregate undrawn amount of all outstanding Letters of Credit for the benefit
of the Lenders.
(d) Minimum Interest. In no event shall the rate of
interest chargeable hereunder for any day be less than seven percent (7%) per
annum. To the extent that interest accrued hereunder at the rate set forth
herein would be less than the foregoing minimum daily rate, the interest rate
chargeable hereunder for such day automatically shall be deemed increased to
the minimum rate.
(e) Payments. Interest and Letter of Credit fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
during the term hereof. Borrowers hereby authorize Agent, at its option,
without prior notice to Borrowers, to charge such interest and Letter of Credit
fees, all Lender Group Expenses (as and when incurred), the charges,
commissions, fees, and costs provided for in Section 2.2(d) (as and when
accrued or incurred), the fees and charges provided for in Section 2.11 (as and
when accrued or incurred), and all installments or other payments due under the
Fixed Period Loans, or any Loan Document to the applicable Loan Account, which
amounts thereafter shall accrue interest at the rate then applicable to
Advances hereunder. Any interest not paid when due shall be compounded and
shall thereafter accrue interest at the rate then applicable to Advances
hereunder.
(f) Computation. The Reference Rate as of the date of this
Agreement is eight and one half of one percent (8.5%) per annum. In the event
the Reference Rate is changed from time to time hereafter, the applicable rate
of interest hereunder automatically and immediately shall be
increased or decreased by an amount equal to such change in the Reference Rate.
All interest and fees chargeable under the Loan Documents shall be computed on
the basis of a three hundred sixty (360) day year for the actual number of days
elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrowers and the Lender Group, in executing
and delivering this Agreement, intend legally to agree upon the rate or rates
of interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or
rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto as of the date of this
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Agreement, Borrowers are and shall be liable only for the payment of such
maximum as allowed by law, and payment received from Borrowers in excess of
such legal maximum, whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.
2.7 COLLECTION OF ACCOUNTS. Borrowers shall and shall cause
the Canadian Subsidiary to at all times maintain lockboxes (the "Lockboxes")
and, immediately after the Closing Date, shall instruct all Account Debtors
with respect to the Accounts, General Intangibles, and Negotiable Collateral of
Borrowers and the Canadian Subsidiary to remit all Collections in respect
thereof to such Lockboxes. Borrowers and the Canadian Subsidiary, as
applicable, Agent, and the Lockbox Banks shall enter into the Lockbox
Agreements, which among other things shall provide for the opening of a Lockbox
Account for the deposit of Collections at a Lockbox Bank. Borrowers agree that
all Collections and other amounts received by Borrowers and the Canadian
Subsidiary from any Account Debtor or any other source immediately upon receipt
shall be deposited into a Lockbox Account. No Lockbox Agreement or arrangement
contemplated thereby shall be modified by Borrowers or the Canadian Subsidiary
without the prior written consent of Agent. Upon the terms and subject to the
conditions set forth in the Lockbox Agreements and except as provided below
with respect to Collections of the Canadian Subsidiary which are deposited into
the Lockbox Account at Bank of Montreal or such other bank acceptable to Agent,
all amounts received in each Lockbox Account shall be wired each Business Day
into an account (the "Agent's Account") maintained by Agent at a depositary
selected by Agent. With respect to the Collections of the Canadian Subsidiary
which are deposited into the Lockbox Account at Bank of Montreal or such other
bank acceptable to Agent, upon the terms and subject to the conditions set
forth in the applicable Lockbox Agreement, RDM Holdings, Inc. and International
Sports and Fitness, Inc., the indirect and direct parents of the Canadian
Subsidiary, shall cause all amounts received in such Lockbox Account or
otherwise received by the Canadian Subsidiary to be distributed on the date of
receipt to such indirect and direct parents in the form of loans or dividends
by causing such amounts to be wired into the Agent's Account on each Business
Day on which (a) a Default or Event of Default exists hereunder or under any
other Loan Document or (b) the amount available to be borrowed hereunder is
less than or equal to $5,000,000.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any Collections by Agent (whether from transfers to Agent by the
Lockbox Banks pursuant to the Lockbox Agreements or otherwise) immediately
shall be applied provisionally to reduce the Obligations outstanding under
Section 2.1, but shall not be considered a final payment on account unless such
Collection item is a wire transfer of immediately available federal funds and
is made to the Agent's Account or unless and until such Collection item is
honored when presented for payment. From and after the Closing Date, Agent
shall be entitled to charge Borrowers for one (1) Business Day of `clearance'
or `float' solely for the benefit of Agent and not to be shared with the
Lenders at the rate set forth in Section 2.6(a) or Section 2.6(c)(i), as
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applicable, on all Collections of the Borrowers and the Canadian Subsidiary
that are received by Agent (regardless of whether forwarded by the Lockbox
Banks to Agent, whether provisionally applied to reduce the Obligations under
Section 2.1, or otherwise). This across-the-board one (1) Business Day
clearance or float charge on all Collections is acknowledged by the parties to
constitute an integral aspect of the pricing of the financing of Borrowers, and
shall apply irrespective of the characterization of whether receipts are owned
by Borrowers, the Canadian Subsidiary or Agent, and whether or not there are
any outstanding Advances, the effect of such clearance or float charge being
the equivalent of charging one (1) Business Day of interest on such
Collections. Should any Collection item not be honored when presented for
payment, then Borrowers shall be deemed not to have made such payment, and
interest shall be recalculated accordingly. Anything to the contrary contained
herein notwithstanding, any Collection item shall be deemed received by Agent
only if it is received into the Agent's Account on a Business Day on or before
1:00 p.m. (Rosemont, Illinois time). If any Collection item is received into
the Agent's Account on a non-Business Day or after 1:00 p.m. (Rosemont,
Illinois time) on a Business Day, it shall be deemed to have been received by
Agent as of the opening of business on the immediately following Business Day.
2.9 DESIGNATED ACCOUNT. Agent and the Lender Group are
authorized to make the Advances and the Letters of Credit under this Agreement
based upon telephonic or other instructions received from anyone purporting to
be an Authorized Person, or without instructions if pursuant to Section 2.6(e).
Borrowers agree to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrowers and made by the Lender Group hereunder. Unless
otherwise agreed by Agent and Borrowers, any Advance requested by Borrowers and
made by the Lender Group hereunder shall be made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF
OBLIGATIONS. Agent shall maintain an account on its books in the name of
Borrowers (the "Loan Account") on which Borrowers will be charged with all
Advances made by the Lender Group to Borrowers or for Borrowers' account,
including, accrued interest, Lender Group Expenses, and any other payment
Obligations of Borrowers. In accordance with Section 2.8, the Loan Account will
be credited with all payments received by Agent from Borrowers or for
Borrowers' account, including all amounts received in the Agent's Account from
any Lockbox Bank. Agent shall render statements regarding the Loan Account to
Borrowers, including principal, interest, fees, and including an itemization of
all charges and expenses constituting the Lender Group Expenses owing, and such
statements shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrowers and the Lender Group unless,
within thirty (30) days after receipt thereof by Borrowers, Borrowers shall
deliver to Agent written objection thereto describing the error or errors
contained in any such statements.
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2.11 FEES. Borrowers shall pay to Agent for the ratable
benefit of the Lender Group (except where otherwise indicated) the following
fees:
(a) Closing Fee. On the Closing Date, a closing
fee of $750,000;
(b) Unused Line Fee. On the first day of each
month during the term of this Agreement, an unused line fee in an amount equal
to one quarter of one percent (0.25%) per annum times the Average Unused Portion
of the Maximum Revolving Amount.
(c) Annual Facility Fee. On each anniversary of
the Closing Date, an annual facility fee in an amount equal to one half of one
percent (0.50%) of the Maximum Amount;
(d) Financial Examination, Documentation, and
Appraisal Fees. For each of the respective sole accounts of Agent and, to the
extent a Lender accompanies Agent under Section 4.6, such Lender: (i) fee of
$650 per day per examiner, plus out-of-pocket expenses for each financial
analysis and examination (i.e., audits) of Borrowers performed by personnel
employed by Agent and any such Lender; provided, however, so long as no Default
or Event of Default exists, audits shall be conducted once each quarter and the
examiner fee shall be limited to five (5) examiners per audit; (ii) an appraisal
fee of $1,500 per day per appraiser, plus out-of-pocket expenses for each
appraisal of the Collateral performed by personnel employed by Agent and any
such Lender; provided, however, so long as no Default or Event of Default exists
no piece of Collateral shall be appraised more than twice per year; (iii) the
actual charges paid or incurred by Agent if it elects to employ the services of
one or more third Persons to perform such financial analyses and examinations
(i.e., audits) of Borrowers or to appraise the Collateral; and (iv) on each
anniversary of the Closing Date, a fee of $1,000 per year for Agent's loan
documentation review;
(e) Agent's Origination Fee and Agency and
Syndication Fee. (i) on the Closing Date, an origination fee for the sole
benefit of Agent, and (ii) on the first day of each quarter during the term of
this Agreement, and thereafter so long as any Obligations are outstanding, an
agency and syndication fee for the sole benefit of Agent, all as more fully
described in that certain fee letter of even date between Borrowers and Agent;
and
(f) Miscellaneous. The fees set forth above shall
be fully earned when due, non-refundable when paid and, if applicable, computed
on the basis of a 360 day year for the actual number of days elapsed.
SECTION 2.12 JOINT AND SEVERAL LIABILITY. (a) Each Borrower expressly
represents and acknowledges that any financial accommodations by Agent and
Lenders, or any of them, to any other Borrower hereunder and under
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the other Loan Documents are and will be of direct interest, benefit and
advantage to all Borrowers. Each Borrower acknowledges that any notice given by
Agent or any Lender to any Borrower shall be effective with respect to all
Borrowers. Each Borrower shall be entitled to subrogation and contribution
rights from and against any other Borrower to the extent such Borrower is
required to pay to Lenders any amount in excess of the Advances and Fixed
Period Loans hereunder directly to such Borrower or as otherwise available
under applicable law; provided, however, that such subrogation and contribution
rights are and shall be subject to the terms and conditions of Section 2.12(b)
hereof. The provisions of this Section 2.12(a) shall in no way limit the
obligations and liabilities of any Borrower to Agent and Lenders and each
Borrower shall remain liable to Agent and Lenders for the full amount of the
Obligations.
(b) No Borrower will exercise any rights which it may
acquire by way of subrogation hereunder or under any other Loan Document or at
law by any payment made hereunder or otherwise, nor shall any Borrower seek or
be entitled to seek any contribution or reimbursement from any other Borrower
in respect of payments made by such Borrower hereunder or under any other Loan
Document, until all amounts owing to Agent and Lenders on account of the
Obligations are paid in full and the Commitment is terminated. If any amounts
shall be paid to any Borrower on account of such subrogation or contribution
rights at any time when all of the Obligations shall not have been paid in
full, such amount shall be held by such Borrower in trust for Agent and
Lenders, segregated from other funds of such Borrower, and shall, forthwith
upon receipt by such Borrower, be turned over to Agent in the exact form
received by such Borrower (duly endorsed by such Borrower to Agent, if
required), to be applied against the Obligations, whether matured or unmatured,
as provided for herein.
SECTION 2.13 TAX INDEMNITY. (a) All payments by the Borrowers under
this Agreement or under any other Loan Document shall be made free and clear of
and without deduction or withholding for any and all taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto,
excluding taxes paid or payable by any Lender or required to be withheld from a
payment to any Lender as a result of a Lender having a present or former
connection to the jurisdiction imposing such tax (other than such connection
arising solely from a Lender having executed and delivered or performed its
obligations or received a payment under, this Agreement or any other Loan
Document) (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and other liabilities being referred to herein as "Taxes"), unless
such Taxes are required by law or the administration thereof to be withheld or
deducted. If a Borrower shall be required by law or the administration thereof
to deduct or withhold any Taxes from or in respect of any sum payable under
this Agreement or any other Loan Document: (i) the sum payable shall be
increased (and, for greater certainty, in the case of interest, the amount of
interest shall be increased) as may be necessary so that after making all
required deductions or withholdings (including deductions or withholdings
applicable to additional amounts paid
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under this Section 2.14) the Lender Group receives an amount equal to the sum
it would have received if no deduction or withholding had been made; (ii) the
Borrower shall make such deductions or withholdings; and (iii) the Borrower
shall pay the full amount deducted or withheld to the relevant taxation or
other authority in accordance with applicable law.
(b) The Borrowers shall pay any present or future stamp or
documentary taxes or any other excise, foreign exchange, foreign investment,
property or any other type of taxes, charges, fees or costs or similar levies
or any financial institutions duty and debits tax which arise from any payment
made under this Agreement or any other Loan Document or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or
any other Loan Document (all such taxes, fees or charges, costs, and levies
being herein referred to as "Other Taxes").
(c) The Borrowers shall jointly and severally indemnify the
Lender Group for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.14) paid by the Lender Group and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes are correctly or legally
asserted so that, after the receipt of any indemnity payment under this Section
2.14, each member of the Lender Group shall be in the same position as it would
have been had it not been required to pay any Taxes or Other Taxes. The
Borrowers shall also jointly and severally indemnify each member of the Lender
Group on a after-tax basis for any additional taxes on net income that each
member of the Lender Group may be obliged to pay as the result of the receipt
of additional amounts under this Section 2.14 (computed on the basis that the
only receipts and deductions of each member of the Lender Group are in respect
of the Obligations). Payment under this indemnification shall be made within
thirty (30) days from the date any member of the Lender Group makes written
demand therefor. A certificate as to the amounts owing by the Borrowers under
this Section 2.14 submitted to the Borrowers by any member of the Lender Group
shall be conclusive evidence, absent manifest error, of the amount due from the
Borrowers to that member of the Lender Group. For greater certainty, the
parties acknowledge that nothing contained in this Section 2.14 shall be
interpreted as requiring any Borrower to pay to any taxation authority any
Taxes or Other Taxes owed by it to such taxation authority and which are
contested in good faith and by proper proceedings and against which adequate
reserves are maintained, provided that any such contest of Taxes or Other Taxes
shall have no effect on any rights of the Lender Group under this Section 2.14,
including without limitation, the right to receive indemnification payments
within thirty (30) days of written demand therefor.
(d) The Borrowers shall furnish to the Agent the original or a
certified copy of a receipt evidencing payment of Taxes or Other Taxes,
promptly after receipt by a Borrower of any such receipt.
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(e) If any Lender is, in its sole opinion, entitled to
claim a refund or able to apply for or otherwise take advantage of any tax
credit, tax deduction or similar benefit by reason of any withholding or
deduction made by the Borrowers in respect of a payment made by them hereunder
which payment shall have been increased pursuant to Section 2.13(a), then such
Lender will use reasonable efforts to obtain such refund, credit, deduction or
benefit and upon receipt thereof will pay to the Borrowers such amount (if any)
not exceeding the increased amount paid by the Borrowers as equals the net
after-tax value to such Lender of such part of such refund, credit, deduction
or benefit as it considers is allocable to such withholding or deduction having
regard to all its dealings giving rise to similar credits, deductions or
benefits in relation to the same tax period and to the cost of obtaining the
same. There is no obligation for any Lender to claim any refund or to apply for
or take advantage of any tax credit, tax deduction or similar benefit as
contemplated by this paragraph. Nothing herein shall (i) interfere with the
right of any Lender to arrange its tax affairs in whatever manner it deems
appropriate; and (ii) no Lender shall be obligated to disclose to any Borrower
any information regarding its tax affairs or tax computations. Further no
Lender shall be under any obligation to claim relief from its corporate profits
or similar tax liability in respect of any such deduction or withholding in
priority to any other relief, claims, credits or deductions available to it.
(f) Without prejudice to the survival of any other
agreement or obligation of the Borrowers hereunder, the obligations of the
Borrowers under this Section 2.14 shall survive the payment in full of the
Obligations.
SECTION 2.14 PAYMENTS IN UNITED STATES DOLLARS. All amounts
payable under any of the Loan Documents shall be paid in United States dollars
unless the Agent agrees in writing to accept payment thereof in Canadian
dollars.
SECTION 2.15 CAPITAL ADEQUACY. If after the date hereof,
any Lender or any Affiliate of such Lender shall have reasonably determined
that the adoption of any applicable law, governmental rule, regulation or order
regarding the capital adequacy of banks or bank holding companies, or any
change therein, or any change in the interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by any Lender or
any Affiliate of such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such governmental
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on such Lender's or any Affiliate's of such Lender
capital as a consequence of the Lender's Commitment or obligations hereunder to
a level below that which it could have achieved but for such adoption, change
or compliance (taking into consideration such Lender's or any Affiliate's of
such Lender policies with respect to capital adequacy immediately before such
adoption, change or compliance and assuming that such Lender's or any
Affiliate's of such Lender, capital was fully utilized prior
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to such adoption, change or compliance), then, upon demand by such Lender, the
Borrowers shall immediately pay to the Lender such additional amounts as shall
be sufficient to compensate such Lender for any such reduction actually
suffered. A certificate of such Lender setting forth the amount to be paid to
such Lender by the Borrowers as a result of any event referred to in this
paragraph shall, absent manifest error, be conclusive.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE, LETTER
OF CREDIT AND THE FIXED PERIOD LOANS. The obligation of the Lender Group to make
the initial Advance, to issue the initial Letter of Credit or to make the Fixed
Period Loans, is subject to the fulfillment, to the satisfaction of Agent and
its counsel, of each of the following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before
June 27, 1997;
(b) Agent shall have received searches
reflecting the filing of its financing statements and fixture filings;
(c) Agent shall have received each of the
following documents, duly executed, and each such document shall be in full
force and effect:
a. the Lockbox Agreements;
b. the Disbursement Letter;
c. the Pay-Off Letter, together with UCC
termination statements and other
documentation evidencing the termination by
Existing Lender of its Liens in and to the
properties and assets of Borrowers;
d. the Stock Pledge Agreement;
e. the Borrower Stock Pledge Agreement;
f. the Parent Stock Pledge Agreement;
g. the Subsidiary Guaranty;
h. the Parent Guaranty
i. the Trademark Security Agreement;
j. the Borrower Trademark Security
Agreement;
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k. the Parent Trademark Security
Agreement
l. the Mortgages;
m. the Security Agreement;
n. the Parent Security Agreement;
o. the Metromedia Subordination
Agreement;
p. the Canadian Guaranty;
q. the Deposit Account Agreement;
r. the Canadian Security Agreement; and
s. the Subordination Agreement.
(d) Agent shall have received a certificate from the
Secretary of each Loan Party attesting to the resolutions of such Loan Party's
Board of Directors authorizing its execution, delivery, and performance of the
Loan Documents to which such Loan Party is a party and authorizing specific
officers of such Loan Party to execute the same;
(e) Agent shall have received copies of each Loan Party's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of such Loan Party;
(f) Agent shall have received a certificate of status with
respect to each Loan Party, dated within ten (10) days of the Closing Date,
such certificate to be issued by the appropriate officer of the jurisdiction of
organization of such Loan Party, which certificate shall indicate that such
Loan Party is in good standing in such jurisdiction;
(g) Agent shall have received certificates of status with
respect to each Loan Party, each dated within fifteen (15) days of the Closing
Date, such certificates to be issued by the appropriate officer of the
jurisdictions in which its failure to be duly qualified or licensed would
constitute a Material Adverse Change, which certificates shall indicate that
such Loan Party is in good standing in such jurisdictions;
(h) Agent shall have received a certificate of insurance,
together with the endorsements thereto, as are required by Section 6.10, the
form and substance of which shall be satisfactory to Agent and its counsel;
(i) Agent shall have received duly executed certificates of
title with respect to that portion of the Collateral that is subject to
certificates of title;
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(j) Agent shall have received such Collateral Access
Agreements from lessors, warehousemen, bailees, and other third persons as
Agent may require;
(k) Agent shall have received an opinion of Loan Parties'
counsel in form and substance satisfactory to Agent in its sole discretion;
(l) Agent shall have received (i) appraisals and phase 1
environmental reports of the Real Property Collateral and appraisals of the
Equipment, in each case satisfactory to Agent, and (ii) mortgagee title
insurance policies (or marked commitments to issue the same) for the Real
Property Collateral issued by a title insurance company satisfactory to Agent
(each a "Mortgage Policy" and, collectively, the "Mortgage Policies") in
amounts satisfactory to Agent assuring Agent that the Mortgages on such Real
Property Collateral are valid and enforceable first priority mortgage Liens on
such Real Property Collateral free and clear of all defects and encumbrances
except Permitted Liens, and the Mortgage Policies shall otherwise be in form
and substance reasonably satisfactory to Agent;
(m) Agent shall have received evidence satisfactory to it
that, after making the initial Advance and the funding of the Fixed Period
Loans hereunder, and the issuance of any Letter of Credit on the Closing Date,
Borrowers shall have an aggregate amount equal to or greater than $15,000,000
available to be borrowed hereunder on the Closing Date;
(n) Agent shall have received satisfactory evidence that
Jim Marden's employment agreement with RDM shall have been extended for a new
term ending on or after the Maturity Date;
(o) Agent shall have received satisfactory evidence that
the $7,000,000 letter of credit issued by Norwest Bank Minnesota, National
Association for the account of certain of the Borrowers in favor of the
Existing Lender shall have been cancelled and of no further force and effect
and the cash collateral securing such letter of credit shall have been released
to the Borrowers;
(p) Agent shall have received the Credit Enhancement;
(q) Agent shall have completed a satisfactory field audit;
(r) Agent shall have completed a satisfactory review of all
licenses of Borrowers and obtained all consents required by Agent upon such
review:
(s) Agent shall have received satisfactory reference checks
on key management;
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(t) Agent shall have received and approved a business plan
of Borrowers giving effect to the transactions contemplated hereby, including
without limitation, the borrowings hereunder;
(u) Agent shall have received satisfactory evidence that
all tax returns required to be filed by Loan Parties have been timely filed and
all taxes upon Loan Parties or their properties, assets, income, and franchises
(including real property taxes and payroll taxes) have been paid prior to
delinquency, except such taxes that are the subject of a Permitted Protest; and
(v) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to Agent
and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, ALL LETTERS OF
CREDIT AND THE FIXED PERIOD LOANS. The following shall be conditions precedent
to all Advances, all Letters of Credit and the Fixed Period Loans.
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred and
be continuing on the date of such extension of credit, nor shall either result
from the making thereof; and
(c) no injunction, writ, restraining order, or other order
of any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority
against any Borrower, the Lender Group or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to
initial closing hereunder, Borrowers shall perform or cause to be performed the
following (the failure by Borrowers to so perform or cause to be performed
constituting an Event of Default):
(a) within thirty (30) days of the Closing Date, deliver to
Agent the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and substance
of which shall be satisfactory to Agent and its counsel; and
(b) within sixty (60) days of the Closing Date, deliver to
Agent a Lockbox Agreement among Bank of Montreal, the Canadian Subsidiary and
Agent, in form and substance satisfactory to Agent.
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3.4 TERM. This Agreement shall become effective upon the
execution and delivery hereof by Borrowers and the Lender Group and shall
continue in full force and effect for a term ending on the date (the "Maturity
Date") that is four (4) years from the Closing Date, unless sooner terminated
pursuant to the terms hereof. The foregoing notwithstanding, Agent (on behalf
of the Lender Group) shall have the right to terminate the Lender Group's
obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of
this Agreement, all Obligations (including the obligation to provide cash
collateral for contingent reimbursement obligations of Borrowers with respect
to any outstanding Letters of Credit) immediately shall become due and payable
without notice or demand. No termination of this Agreement, however, shall
relieve or discharge Borrowers of Borrowers' duties, Obligations, or covenants
hereunder, and the Lender Group's continuing security interests in the
Collateral shall remain in effect until all Obligations have been fully and
finally discharged and the Lender Group's obligation to provide additional
credit hereunder is terminated. If Borrowers have sent a notice of termination
pursuant to the provisions of Section 3.6, but fails to pay the Obligations in
full on the date set forth in said notice, then Agent (on behalf of the Lender
Group) may, but shall not be required to, renew this Agreement for an
additional term of one (1) year.
3.6 EARLY TERMINATION BY BORROWERS. Notwithstanding the
provisions of Section 3.4 that provide for termination of this Agreement on the
Maturity Date, Borrowers have the option, at any time upon ninety (90) days
prior written notice to Agent, to terminate this Agreement by paying to Agent
(for the ratable benefit of the Lender Group), in cash, the Obligations
(including cash collateral in an amount equal to 102% of the undrawn amount of
the Letters of Credit), in full, together with a premium (the "Early
Termination Premium") for the benefit of the Lenders equal to (a) $3,500,000,
if the Agreement is terminated on or before the first anniversary of the
Closing Date, (b) $2,625,000 if the Agreement is terminated after the first
anniversary of the Closing Date and on or before the second anniversary of the
Closing Date, (c) $1,750,000, if the Agreement is terminated after the second
anniversary of the Closing Date and on or before the third anniversary of the
Closing Date, and (d) $825,000 if the Agreement is terminated after the third
anniversary of the Closing Date and before the Maturity Date.
3.7 TERMINATION UPON EVENT OF DEFAULT. If the Lender Group
terminates this Agreement upon the occurrence of an Event of Default, in view
of the impracticability and extreme difficulty of ascertaining actual damages
and by mutual agreement of the parties as to a reasonable calculation of the
Lender Group's lost profits as a result thereof, Borrowers shall pay to Agent
(for the ratable benefit of the Lender Group) upon the effective date of such
termination, a premium in an amount equal to the Early Termination Premium. The
Early Termination Premium shall be presumed to be the amount of damages
sustained by the Lender Group as the result of the early termination and
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Borrowers agree that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Each Borrower hereby grants
to Agent for the benefit of the Lender Group a continuing security interest in
all currently existing and hereafter acquired or arising Personal Property
Collateral in order to secure prompt repayment of any and all Obligations and
in order to secure prompt performance by Borrowers of each of their covenants
and duties under the Loan Documents. The security interests of Agent for the
benefit of the Lender Group in the Personal Property Collateral shall attach to
all Personal Property Collateral without further act on the part of the Lender
Group or Borrowers. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except as provided in Section 7.4 and
except for the sale of Inventory to buyers in the ordinary course of business,
Borrowers have no authority, express or implied, to dispose of any item or
portion of the Personal Property Collateral or the Real Property Collateral;
provided, however, so long as no Default or Event of Default exists, the
Borrowers may use the funds in the Disbursement Account in the ordinary course
of business for the purposes permitted by Section 7.17.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral, the
applicable Borrower, immediately upon the request of Agent, shall endorse and
deliver physical possession of such Negotiable Collateral to Agent.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND
NEGOTIABLE COLLATERAL. At any time upon a Default or Event of Default or when
the Agent deems itself insecure, Agent or Agent's designee may (a) notify
customers or Account Debtors of Borrowers that the Borrowers' Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Agent for the
benefit of the Lender Group or that Agent for the benefit of the Lender Group
has a security interest therein, and (b) collect the Borrowers' Accounts,
General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to the Loan Account. Each Borrower agrees that it
will hold in trust for the Lender Group, as the Lender Group's trustee, any
Collections that it receives and immediately will deliver said Collections to
Agent in their original form as received by such Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any
time upon the request of Agent, Borrowers shall execute and deliver to Agent
all financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Agent reasonably
may request, in form satisfactory to Agent, to perfect and continue perfected
the Liens of the Lender Group in the Collateral, and in order to fully
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consummate all of the transactions contemplated hereby and under the other the
Loan Documents.
4.5 POWER OF ATTORNEY. Each Borrower hereby irrevocably
makes, constitutes, and appoints Agent (and any of Agent's officers, employees,
or agents designated by Agent) as such Borrower's true and lawful attorney,
with power to (a) if such Borrower refuses to, or fails timely to execute and
deliver any of the documents described in Section 4.4, sign the name of such
Borrower on any of the documents described in Section 4.4, (b) at any time that
an Event of Default has occurred and is continuing or the Lender Group deems
itself insecure, sign such Borrower's name on any invoice or bill of lading
relating to any Account of such Borrower, drafts against Account Debtors,
schedules and assignments of Accounts of such Borrower, verifications of
Accounts, and notices to Account Debtors, (c) send requests for verification of
Accounts of such Borrower, (d) endorse such Borrower's name on any Collection
item that may come into the Lender Group's possession, (e) at any time that an
Event of Default has occurred and is continuing or the Lender Group deems
itself insecure, notify the post office authorities to change the address for
delivery of such Borrower's mail to an address designated by Agent, to receive
and open all mail addressed to such Borrower, and to retain all mail relating
to the Collateral and forward all other mail to such Borrower, (f) at any time
that an Event of Default has occurred and is continuing or the Lender Group
deems itself insecure, make, settle, and adjust all claims under such Borrower's
policies of insurance and make all determinations and decisions with respect
to such policies of insurance, and (g) at any time that an Event of Default has
occurred and is continuing or Agent deems itself insecure, settle and adjust
disputes and claims respecting the Accounts of such Borrower directly with
Account Debtors, for amounts and upon terms that Agent determines to be
reasonable, and Agent may cause to be executed and delivered any documents and
releases that Agent determines to be necessary. The appointment of Agent as
such Borrower's attorney, and each and every one of Agent's rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations
have been fully and finally repaid and performed and the Lender Group's
obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Agent (through any of its officers,
employees, or agents) and together with any Lender that so elects shall have
the right, from time to time hereafter to inspect each Borrower's Books and to
check, test, and appraise the Collateral in order to verify Borrowers'
financial condition or the amount, quality, value, condition of, or any other
matter relating to, the Collateral.
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5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this
Agreement, Borrowers make the following representations and warranties which
shall be true, correct, and complete in all respects as of the date hereof, and
shall be true, correct, and complete in all respects as of the Closing Date,
and at and as of the date of the making of each Advance, Letter of Credit or
Fixed Period Loans made thereafter, as though made on and as of the date of
such Advance, Letter of Credit or Fixed Period Loans (except to the extent that
such representations and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution and delivery of this
Agreement:
5.1 NO ENCUMBRANCES. Borrowers have good and
indefeasible title to the Collateral, free and clear of Liens except for
Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of Borrowers'
and the Canadian Subsidiary's business, unconditionally owed to Borrowers and
the Canadian Subsidiary without defenses, disputes, offsets, counterclaims, or
rights of return or cancellation. The property giving rise to such Eligible
Accounts has been delivered to the Account Debtor, or to the Account Debtor's
agent for immediate shipment to and unconditional acceptance by the Account
Debtor. Borrowers have not received notice of actual or imminent bankruptcy,
insolvency, or material impairment of the financial condition of any Account
Debtor regarding any Eligible Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is of
good and merchantable quality, free from defects.
5.4 EQUIPMENT. Except as previously disclosed to the
Lender Group in writing, all of the Equipment is used or held for use in
Borrowers' business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory of
the Borrowers and the Canadian Subsidiary and Equipment are not stored with a
bailee, warehouseman, or similar party (without Agent's prior written consent)
and are located only at the locations identified on Schedule 6.12 or otherwise
permitted by Section 6.12.
5.6 INVENTORY RECORDS. Borrowers and the Canadian
Subsidiary keep correct and accurate records itemizing and describing the kind,
type, quality, and quantity of the Borrowers' and the Canadian Subsidiary's
Inventory, and Borrowers' and the Canadian Subsidiary's cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of each Borrower and the Canadian Subsidiary is located at the
address indicated on Schedule 5.7 of this Agreement. RDM Holding, Inc.'s
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FEIN is 39-1156946, Sports Group Inc.'s FEIN is 37-1364205,, International
Sports and Fitness, Inc.'s FEIN is 37-1288083, Diversified Products
Corporation's FEIN is 58-2054222, Willow Hosiery Company, Inc.'s FEIN is
13-5524459, Hutch Sports USA Inc.'s FEIN is 31-0828464 and Diversified Trucking
Corp.'s FEIN is 63-0503336.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each Loan Party is duly organized and
existing and in good standing under the laws of the jurisdiction of its
incorporation and qualified and licensed to do business in, and in good standing
in, any state where the failure to be so licensed or qualified reasonably
could be expected to have a Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and
accurate list of each Loan Party's direct and indirect Subsidiaries, showing:
(i) the jurisdiction of their incorporation; (ii) the number of shares of each
class of common and preferred stock authorized for each of such Subsidiaries;
and (iii) the number and the percentage of the outstanding shares of each such
class owned directly or indirectly by such Loan Party. All of the outstanding
capital stock of each such Subsidiary has been validly issued and is fully paid
and non-assessable. Roadmaster Ltd. (UK) and AA Funding Corp. have no material
assets and are inactive.
(c) Except as set forth on Schedule 5.8, no
capital stock (or any securities, instruments, warrants, options, purchase
rights, conversion or exchange rights, calls, commitments or claims of any
character convertible into or exercisable for capital stock) of any direct or
indirect Subsidiary of any Loan Party is subject to the issuance of any security
instrument, warrant, option, purchase right, conversion or exchange right,
call, commitment or claim of any right, title, or interest therein or thereto.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by
each Loan Party of the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by
each Loan Party of the Loan Documents to which it is a party do not and will
not (i) violate any provision of federal, state, provincial or local law or
regulation (including Regulations G, T, U, and X of the Federal Reserve Board)
applicable to such Loan Party, the Governing Documents of such Loan Party, or
any order, judgment, or decree of any court or other Governmental Authority
binding on such Loan Party, (ii) conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any
material contractual obligation or material lease of such Loan Party, (iii)
result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of such Loan Party, other than
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Permitted Liens, or (iv) require any approval of stockholders or any approval
or consent of any Person under any material contractual obligation of such Loan
Party.
(c) Other than the filing of appropriate
financing statements, fixture filings, and mortgages, the execution, delivery,
and performance by each Loan Party of the Loan Documents to which such Loan
Party is a party do not and will not require any registration with, consent, or
approval of, or notice to, or other action with or by, any federal, state,
foreign, or other Governmental Authority or other Person.
(d) The Loan Documents to which each Loan Party
is a party, and all other documents contemplated hereby and thereby, when
executed and delivered by such Loan Party will be the legally valid and binding
obligations of such Loan Party, enforceable against such Loan Party in
accordance with their respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws relating to or limiting creditors' rights generally.
(e) Except as provided in Schedule 5.9, the
Liens granted by each Loan Party to Agent (for the benefit of the Lender Group)
in and to its properties and assets pursuant to the Loan Documents are validly
created, perfected, and first priority Liens, subject only to Permitted Liens.
5.10 LITIGATION. There are no actions or proceedings pending
by or against any Loan Party before any court or administrative agency and no
Loan Party has knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving any Loan Party, except for: (a) ongoing collection
matters in which a Loan Party is the plaintiff; (b) matters disclosed on
Schedule 5.10; and (c) matters arising after the date hereof that, if decided
adversely to a Loan Party, would not result in a Material Adverse Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to Loan Parties that have been delivered by Loan Parties to the Lender
Group have been prepared in accordance with GAAP (except, in the case of
unaudited financial statements, for the lack of footnotes and being subject to
year-end audit adjustments) and fairly present each Loan Party's financial
condition as of the date thereof and each Loan Party's results of operations
for the period then ended. There has not been a Material Adverse Change with
respect to any Loan Party since the date of the latest financial statements
submitted to the Lender Group on or before the Closing Date.
5.12 SOLVENCY. Each Loan Party is Solvent. No transfer of
property is being made by Loan Parties and no obligation is being incurred by
Loan Parties in connection with the transactions contemplated by this Agreement
or the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Loan Parties.
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5.13 EMPLOYEE BENEFITS. None of Loan Parties, any of their
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any
Benefit Plan, other than those listed on Schedule 5.13. Loan Parties, each of
their Subsidiaries and each ERISA Affiliate have satisfied the minimum funding
standards of ERISA and the IRC with respect to each Benefit Plan to which it is
obligated to contribute. No ERISA Event has occurred nor has any other event
occurred that may result in an ERISA Event that reasonably could be expected to
result in a Material Adverse Change. None of Loan Parties or their
Subsidiaries, any ERISA Affiliate, or any fiduciary of any Plan is subject to
any direct or indirect liability with respect to any Plan resulting from a
violation of any applicable law, treaty, rule, regulation, or agreement. None
of Loan Parties or their Subsidiaries or any ERISA Affiliate is required to
provide security to any Plan under Section 401(a)(29) of the IRC.
5.14 ENVIRONMENTAL CONDITION. Except as provided in the phase
1 environmental reports previously provided to Agent and in Schedule 5.14
hereof and except in compliance with all applicable laws, none of Loan Parties'
properties or assets has ever been used by Loan Parties or, to the best of
Borrowers' knowledge, by previous owners or operators in the disposal of, or to
produce, store, handle, treat, release, or transport, any Hazardous Materials.
None of Loan Parties' properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
Hazardous Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. No Lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by Loan Parties. No Loan Party has received a
summons, citation, notice, or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by such Loan Party resulting in the releasing or disposing of Hazardous
Materials into the environment.
5.15 LICENSES. The Borrowers and the Canadian Subsidiary
possess adequate licenses and other rights that are necessary for Borrowers and
the Canadian Subsidiary to continue to conduct their business as heretofore
conducted by them and all such licenses are listed on Schedule 5.15.
5.16 OTHER REPRESENTATIONS AND WARRANTIES. The best of
each Borrower's knowledge, the representations and warranties of the Loan
Parties set forth in the other Loan Documents are true and correct.
6. AFFIRMATIVE COVENANTS.
Borrowers covenant and agree that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrowers shall, and shall cause the Canadian Subsidiary to, do
all of the following:
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6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system
of accounting that enables Loan Parties to produce financial statements in
accordance with GAAP, and maintain records pertaining to the Collateral that
contain information as from time to time may be requested by Agent. Loan
Parties also shall keep a modern inventory reporting system that shows all
additions, sales, claims, returns, and allowances with respect to the Inventory
of the Borrowers and the Canadian Subsidiary.
6.2 COLLATERAL AND OTHER REPORTING. Provide Agent with the
following documents at the following times in form satisfactory to Agent: (a)
on each Business Day, a sales journal, collection journal, and credit register
since the last such schedule and a calculation of the Borrowing Base as of such
date, (b) on a monthly basis and, in any event, by no later than the 10th day
of each month during the term of this Agreement, (i) a detailed calculation of
the Borrowing Base giving account to all reserves disclosed to Borrowers by the
Agent, and (ii) a detailed aging, by total, of the Borrowers' and the Canadian
Subsidiary's Accounts, together with a reconciliation to the detailed
calculation of the Borrowing Base previously provided to Agent, (c) on a
monthly basis and, in any event, by no later than the tenth (10th) day of each
month during the term of this Agreement, a summary aging, by vendor, of
Borrowers' accounts payable and any book overdraft, (d) on a weekly basis,
Inventory reports specifying Borrowers' and the Canadian Subsidiary's Cost of
their Inventory by category, with additional detail showing additions to and
deletions from their Inventory, (e) on each Business Day, notice of all
returns, disputes, or claims, (f) upon request, copies of invoices in
connection with the Borrowers' and the Canadian Subsidiary's Accounts, customer
statements, credit memos, remittance advices and reports, deposit slips,
shipping and delivery documents in connection with the Borrowers' and the
Canadian Subsidiary's Accounts and for Inventory and Equipment acquired by
Borrowers and the Canadian Subsidiary, purchase orders and invoices, (g) on a
quarterly basis, a detailed list of Borrowers' and the Canadian Subsidiary's
customers, (h) on a monthly basis, a calculation of the Dilution for the prior
month; and (i) upon receipt by any Borrower or the Canadian Subsidiary, a copy
of any notice of termination or expiration of any license agreement of any
Borrower or the Canadian Subsidiary and a copy of any new or renewed license
agreement of any Borrower or the Canadian Subsidiary, (j) upon the occurrence
thereof, notice of any Default or Event of Default hereunder or under any other
Loan Document, (k) upon the threat or filing thereof, notice of any material
litigation, (l) upon the occurrence thereof, notice of any Material Adverse
Change, (m) such other reports as to the Collateral or the financial condition
of Borrowers and the Canadian Subsidiary as Agent may request from time to
time. Original sales invoices evidencing daily sales shall be mailed (or
electronically transmitted, as the case may be) by Borrowers to each Account
Debtor and, at Agent's direction, the invoices shall indicate on their face
that the Account has been assigned to Agent (for the benefit of the Lender
Group) and that all payments are to be made directly to the Lockboxes.
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6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Agent and each Lender: (a) as soon as available, but in any event within thirty
(30) days after the end of each month during each of Loan Parties' fiscal
years, a company prepared balance sheet, income statement, and statement of
cash flow covering Loan Parties' operations during such period; and (b) as soon
as available, but in any event within one hundred twenty (120) days after the
end of each of Loan Parties' fiscal years, consolidated financial statements of
Loan Parties for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Agent and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP, together with a certificate of such accountants addressed to Agent
stating that such accountants do not have knowledge of the existence of any
Default or Event of Default with respect to financial or accounting matters of
the Borrowers. Such audited financial statements shall include a balance sheet,
profit and loss statement, and statement of cash flow and, if prepared, such
accountants' letter to management. Borrowers agree to deliver financial
statements of Loan Parties prepared on an unaudited consolidating basis so as
to present such Loan Parties and each such related entity separately, and on a
consolidated basis.
Together with the above, Borrowers also shall
deliver to Agent and each Lender any Loan Party's Form 10-Q Quarterly Reports,
Form 10-K Annual Reports, and Form 8-K Current Reports, and any other filings
made by Loan Parties with the Securities and Exchange Commission, if any, as
soon as the same are filed, or any other information that is provided by Loan
Parties to their shareholders, as soon as the same is provided to any such
parties, and any other report reasonably requested by Agent relating to the
financial condition of Loan Parties.
Each month, together with the financial statements
provided pursuant to Section 6.3(a), Borrowers shall deliver to Agent and each
Lender a certificate signed by their respective chief financial officers to the
effect that: (i) all financial statements delivered or caused to be delivered
to Agent hereunder have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present the financial
condition of Loan Parties, (ii) the representations and warranties of Borrowers
contained in this Agreement and the other Loan Documents are true and correct
in all material respects on and as of the date of such certificate, as though
made on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date), (iii) for each month that also is
the date on which a financial covenant in Section 7.20 is to be tested, a
Compliance Certificate demonstrating in reasonable detail compliance at the end
of such period with the applicable financial covenants contained in Section
7.20, and (iv) on the date of delivery of such certificate to Agent there does
not exist any condition or event that constitutes a Default or Event of Default
(or, in the case of clauses (i), (ii), or (iii), to the extent of any
non-compliance, describing such non-compliance as to which he or she may have
knowledge and
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what action Borrowers have taken, are taking, or propose to take with respect
thereto).
Loan Parties shall have issued written instructions
to their independent certified public accountants authorizing them to
communicate with Agent and each Lender and to release to Agent and each Lender
whatever financial information concerning Loan Parties that Agent may
reasonably request. Borrowers hereby irrevocably authorize and direct all
auditors, accountants, or other third parties to deliver to Agent and each
Lender, at Borrowers' expense, copies of Loan Parties' financial statements,
papers related thereto, and other accounting records of any nature in their
possession, and to disclose to Agent and each Lender any information they may
have regarding Loan Parties' business affairs and financial conditions.
6.4 TAX RETURNS. Deliver to Agent copies of each of
Borrowers' and the Canadian Subsidiary's future federal income tax returns, and
any amendments thereto, within thirty (30) days of the filing thereof with the
Internal Revenue Service or Revenue Canada, as the case may be.
6.5 GUARANTOR REPORTS. Cause any other guarantor of any
of the Obligations to deliver copies of all future federal income tax returns as
soon as the same are available and in any event no later than thirty (30) days
after the same are required to be filed by law.
6.6 RETURNS. Cause returns and allowances, if any, as between
Borrowers and the Canadian Subsidiary and their Account Debtors to be on the
same basis and in accordance with the usual customary practices of Borrowers
and the Canadian Subsidiary, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory to a Borrower or
the Canadian Subsidiary, such Borrower promptly shall, or the parents of the
Canadian Subsidiary shall cause the Canadian Subsidiary to, determine the
reason for such return and, if a Borrower or the Canadian Subsidiary accepts
such return, issue, or cause the Canadian Subsidiary to issue, a credit
memorandum (with a copy to be sent to Agent) in the appropriate amount to such
Account Debtor. If, at a time when an Event of Default has occurred and is
continuing, any Account Debtor returns any Inventory to a Borrower or the
Canadian Subsidiary, such Borrower promptly shall, or the parents of the
Canadian Subsidiary shall cause the Canadian Subsidiary to, determine the
reason for such return and, if Agent consents (which consent shall not be
unreasonably withheld), issue, or cause the Canadian Subsidiary to issue, a
credit memorandum (with a copy to be sent to Agent) in the appropriate amount
to such Account Debtor.
6.7 TITLE TO EQUIPMENT. Upon Agent's request, Borrowers
immediately shall deliver to Agent, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to any items
of Equipment.
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6.8 MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrowers shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.9 TAXES. Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Loan Parties or any of their property to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest. Borrowers shall make due and timely payment or deposit of
all such federal, state, and local taxes, assessments, or contributions
required of it by law, and will execute and deliver to Agent, on demand,
appropriate certificates attesting to the payment thereof or deposit with
respect thereto. Borrowers will make timely payment or deposit of all tax
payments and withholding taxes required of them by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish Agent with proof
satisfactory to Agent indicating that Borrowers have made such payments or
deposits.
6.10 INSURANCE.
(a) At their expense, keep the Personal
Property Collateral insured against loss or damage by fire, theft, explosion,
sprinklers, and all other insurable hazards and risks, and in such amounts, as
are ordinarily insured against by other owners in similar businesses. Borrowers
also shall maintain business interruption, public liability, product liability,
and property damage insurance relating to Borrowers' ownership and use of the
Personal Property Collateral, as well as insurance against larceny,
embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i)
insurance of the type necessary to insure the Improvements and chattels (as
described in the Mortgages), for the full replacement cost thereof, against any
loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke damage,
vehicle damage, earthquakes, elevator collision, and other risks from time to
time included under "extended coverage" policies, in such amounts as Agent may
require, but in any event in amounts sufficient to prevent Borrowers from
becoming co-insurers under such policies, (ii) combined single limit bodily
injury and property damages insurance against any loss, liability, or damages
on, about, or relating to each parcel of Real Property Collateral, in such
amount as Agent may require in its discretion; (iii) business rental insurance
covering annual receipts for a 12 month period for each parcel of Real Property
Collateral; and (iv) insurance for such other risks as Agent may
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require. Replacement costs, at Agent's option, may be redetermined by an
insurance appraiser, satisfactory to Agent, not more frequently than once every
12 months at Borrowers' cost.
(c) All such policies of insurance shall be in
such form, with such companies, and in such amounts as may be reasonably
satisfactory to Agent. All insurance required herein shall be written by
companies which are authorized to do insurance business in the State of
California or any other State where the insured assets are located. All hazard
insurance and such other insurance as Agent shall specify, shall contain a
California Form 438BFU (NS) mortgagee endorsement, or an equivalent endorsement
satisfactory to Agent, showing Agent (for the ratable benefit of the Lenders)
as sole loss payee thereof and shall contain a waiver of warranties. Every
policy of insurance referred to in this Section 6.10 shall contain an agreement
by the insurer that it will not cancel such policy except after thirty (30)
days prior written notice to Agent (for the ratable benefit of the Lenders) and
that any loss payable thereunder shall be payable notwithstanding any act or
negligence of Borrowers or the Lender Group which might, absent such agreement,
result in a forfeiture of all or a part of such insurance payment and
notwithstanding (i) occupancy or use of the Real Property Collateral for
purposes more hazardous than permitted by the terms of such policy, (ii) any
foreclosure or other action or proceeding taken by the Lender Group pursuant to
the Mortgages upon the happening of an Event of Default, or (iii) any change in
title or ownership of the Real Property Collateral. Borrowers shall deliver to
Agent certified copies of such policies of insurance and evidence of the
payment of all premiums therefor.
(d) Original policies or certificates thereof
satisfactory to Agent evidencing such insurance shall be delivered to Agent at
least thirty (30) days prior to the expiration of the existing or preceding
policies. Borrowers shall give Agent prompt notice of any loss covered by such
insurance, and Agent, shall have the right to adjust any loss. Agent shall have
the exclusive right to adjust all losses payable under any such insurance
policies without any liability to Borrowers whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy including the insurance policies mentioned above, shall be paid over to
Agent (for the ratable benefit of Lenders) to be applied at the option of Agent
either to the prepayment of the Obligations without premium, in such order or
manner as Agent may elect, or shall be disbursed to Borrowers under stage
payment terms satisfactory to Agent for application to the cost of repairs,
replacements, or restorations. All repairs, replacements, or restorations shall
be effected with reasonable promptness and shall be of a utility at least equal
to the utility of the items or property destroyed prior to such damage or
destruction. Upon the occurrence of an Event of Default, Agent shall have the
right to apply all prepaid premiums to the payment of the Obligations in such
order as set forth in Section 2.4(b) hereof.
(e) Borrowers shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required to
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be maintained under this Section 6.10, unless Agent is included thereon as
named insured with the loss payable to Agent (for the ratable benefit of
Lenders) under a standard California 438BFU (NS) Mortgagee endorsement, or its
local equivalent. Borrowers immediately shall notify Agent whenever such
separate insurance is taken out, specifying the insurer thereunder and full
particulars as to the policies evidencing the same, and originals of such
policies immediately shall be provided to Agent.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and
under the other Loan Documents by or on behalf of Borrowers without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep, and cause the
Canadian Subsidiary to keep, the Inventory of the Borrowers and the Canadian
Subsidiary and Equipment only at the locations identified on Schedule 6.12;
provided, however, that Borrowers may amend Schedule 6.12 so long as such
amendment occurs by written notice to Agent not less than thirty (30) days prior
to the date on which the Inventory or Equipment is moved to such new location,
so long as such new location is within the continental United States and Canada,
and so long as, at the time of such written notification, Borrowers provide any
financing statements or fixture filings necessary to perfect and continue
perfected (the Lien of Agent for the benefit of the Lender Group), security
interests in such assets and also provides to Agent a Collateral Access
Agreement.
6.13 COMPLIANCE WITH LAWS. Comply, and cause the Canadian
Subsidiary to comply, with the requirements of all applicable laws, rules,
regulations, and orders of any governmental authority, including the Fair Labor
Standards Act and the Americans With Disabilities Act, other than laws, rules,
regulations, and orders the non-compliance with which, individually or in the
aggregate, would not have and could not reasonably be expected to cause a
Material Adverse Change.
6.14 EMPLOYEE BENEFITS.
(a) Deliver to Agent: (i) Promptly, and in
any event within ten (10) Business Days after Borrowers or any of their
Subsidiaries know or have reason to know that an ERISA Event has occurred that
reasonably could be expected to result in a Material Adverse Change, a written
statement of the chief financial officer of Borrowers describing such ERISA
Event and any action that is being taking with respect thereto by Borrowers, any
such Subsidiary or ERISA Affiliate, and any action taken or threatened by the
IRS, Department of Labor, or PBGC. Borrowers or such Subsidiary, as applicable,
shall be deemed to know all facts known by the administrator of any Benefit Plan
of which it is the plan sponsor, (ii) promptly, and in any event within three
(3) Business Days after the filing thereof with the IRS, a copy of each funding
waiver request filed with respect to any Benefit Plan and all communications
received by Borrowers, any of their Subsidiaries or, to the knowledge of
Borrowers, any ERISA Affiliate with respect to such request, and (iii) promptly,
and in any event within three (3) Business Days after receipt by Borrowers, any
of their Subsidiaries or, to the
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knowledge of Borrowers, any ERISA Affiliate, of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to administer a Benefit
Plan, copies of each such notice.
(b) Cause to be delivered to Agent, upon Agent's
request, each of the following: (i) a copy of each Plan (or, where any such
plan is not in writing, complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all written interpretations thereof and written descriptions thereof
that have been distributed to employees or former employees of Loan Parties or
their Subsidiaries; (ii) the most recent determination letter issued by the IRS
with respect to each Benefit Plan; (iii) for the three most recent plan years,
annual reports on Form 5500 Series required to be filed with any governmental
agency for each Benefit Plan; (iv) all actuarial reports prepared for the last
three (3) plan years for each Benefit Plan; (v) a listing of all Multiemployer
Plans, with the aggregate amount of the most recent annual contributions
required to be made by Loan Parties or any ERISA Affiliate to each such plan
and copies of the collective bargaining agreements requiring such
contributions; (vi) any information that has been provided to Loan Parties or
any ERISA Affiliate regarding withdrawal liability under any Multiemployer
Plan; and (vii) the aggregate amount of the most recent annual payments made to
former employees of Loan Parties or their Subsidiaries under any Retiree Health
Plan.
6.15 LEASES. Pay when due all rents and other amounts payable
under any leases to which any Borrower is a party or by which any Borrower's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest. To the extent that any Borrower fails timely to make payment
of such rents and other amounts payable when due under its leases, Agent shall
be entitled, in its discretion, to reserve an amount equal to such unpaid
amounts against the Borrowing Base.
6.16 OTHER LOAN PARTIES. Cause each Loan Party to perform such
Loan Party's covenants under each Loan Document to which such Loan Party is a
party.
7. NEGATIVE COVENANTS.
Borrowers covenant and agree that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrowers will not, and will not permit the Canadian Subsidiary to,
do any of the following:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
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(a) Indebtedness evidenced by this Agreement and the Canadian
Guaranty, together with Indebtedness to issuers of letters of credit that are
the subject of L/C Guarantees;
(b) Indebtedness set forth in the latest financial statements
of Borrowers and the Canadian Subsidiary submitted to Agent on or prior to the
Closing Date;
(c) Indebtedness secured by Permitted Liens;
(d) Intercompany Indebtedness among any of the Borrowers and
the Canadian Subsidiary in accordance with Section 7.14 hereof; and
(e) Refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c), and (d) of this Section 7.1 (and continuance
or renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by Borrowers or
the Canadian Subsidiary, (ii) the net cash proceeds of such refinancings,
renewals, or extensions do not result in an increase in the aggregate principal
amount of the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or extensions do not result in a shortening
of the average weighted maturity of the Indebtedness so refinanced, renewed, or
extended and (iv) to the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be at least as
favorable to the Lender Group as those applicable to the refinanced
Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of their property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(e) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify their capital
stock, or liquidate, wind up, or dissolve themselves (or suffer any liquidation
or dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its property or assets, or create any new Subsidiary except upon the prior
written consent of Agent, execution by such new Subsidiary of a guaranty
agreement, security agreement and trademark security agreement, all in form and
substance satisfactory to Agent, and execution of a stock pledge agreement by
the applicable Borrower or the Canadian Subsidiary, as the case may be, creating
such Subsidiary, and such other documents as Agent may require in its sole
discretion, all in form and
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substance satisfactory to Agent; provided, however, the Borrowers may cause
Willow Hosiery Company, Inc. to merge into Hutch Sports USA Inc.
7.4 DISPOSAL OF ASSETS. Sell, lease, assign, transfer, or otherwise
dispose of any of Borrowers' or the Canadian Subsidiary's properties or assets
other than sales of Inventory to buyers in the ordinary course of Borrowers'
and the Canadian Subsidiary's business as currently conducted and obsolete
Equipment up to $50,000 per year; provided, however, any proceeds from the sale
of obsolete Equipment shall be paid to the Agent for the account of the Lenders
to be applied to the principal amount of the Fixed Period Loans.
7.5 CHANGE NAME. Change any Borrower's or the Canadian Subsidiary's
name, FEIN, corporate structure (within the meaning of Section 9-402(7) of the
Code), or identity, or add any new fictitious name.
7.6 GUARANTEE. Except for the Canadian Guaranty, guarantee or
otherwise become in any way liable with respect to the obligations of any third
Person except by endorsement of instruments or items of payment for deposit to
the account of Borrowers or which are transmitted or turned over to Agent.
7.7 NATURE OF BUSINESS. Make any change in the principal nature of
Borrowers' or the Canadian Subsidiary's business.
7.8 PAYMENTS, PREPAYMENTS AND AMENDMENTS.
(a) Make any principal or interest payment on Indebtedness to
RDM or any Subsidiary of RDM which is not (i) a Borrower hereunder or (ii) the
Canadian Subsidiary;
(b) Except in connection with a refinancing permitted by
Section 7.1(e), prepay, redeem, retire, defease, purchase, or otherwise acquire
any Indebtedness owing to any third Person, other than the Obligations in
accordance with this Agreement; and
(c) Directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b), (c), (d), or (e).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale.
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7.11 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or purchase,
acquire, redeem, or retire any of Borrowers' capital stock, of any class,
whether now or hereafter outstanding; provided, however, (i) so long as no
Default or Event of Default exists or would be caused thereby, Borrowers may
distribute to RDM an amount equal to the regularly scheduled interest payments
on the Subordinated Debentures as such interest payments are due, plus actual
operating expenses of RDM, which aggregate distribution shall not exceed
$6,000,000 per year and (ii) may make payments on behalf of RDM for
normal, ordinary course of business purposes that may ultimately be expensed to
RDM, but which aggregate payments shall not exceed $3,500,000 per year; provided
further, however, that the Borrowers may cause the Canadian Subsidiary to make
distributions to its parent, International Sports and Fitness, Inc.
7.12 ACCOUNTING METHODS. Modify or change its method of accounting or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrowers' and the Canadian
Subsidiary's accounting records without said accounting firm or service bureau
agreeing to provide Agent information regarding the Collateral or Borrowers'
financial condition. Borrowers waive the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Agent pursuant to or in accordance
with this Agreement, and agrees that Agent may contact directly any such
accounting firm or service bureau in order to obtain such information.
7.13 INVESTMENTS. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of the securities (whether debt or equity) of, or other interests
in, a Person, (b) except for loans to the Canadian Subsidiary, loans, advances,
capital contributions, or transfers of property to a Person, including without
limitation to Roadmaster Ltd. (UK) and AA Funding Corp. which shall remain
inactive Subsidiaries of RDM, or (c) the acquisition of all or substantially all
of the properties or assets of a Person.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrowers or the
Canadian Subsidiary except for transactions that are in the ordinary course of
Borrowers' and the Canadian Subsidiary's business, upon fair and reasonable
terms, that are fully disclosed to Agent, and that are no less favorable to
Borrowers or the Canadian Subsidiary than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15 SUSPENSION. Suspend or go out of a substantial portion of its
business.
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7.16 COMPENSATION. Except as provided in Schedule 7.16, increase the
annual fee or per-meeting fees paid to directors during any year by more than
fifteen percent (15%) over the prior year; pay or accrue total cash
compensation, during any year, to officers and senior management employees in an
aggregate amount in excess of one hundred fifteen percent (115%) of that paid or
accrued in the prior year.
7.17 USE OF PROCEEDS. Use the proceeds of the Advances and the Fixed
Period Loans for any purpose other than (a) on the Closing Date, (i) to
repay in full the outstanding principal, accrued interest, and accrued fees and
expenses owing to Existing Lender, and (ii) to pay transactional costs and
expenses incurred in connection with this Agreement, and (b) thereafter,
consistent with the terms and conditions hereof, for their lawful and permitted
corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate their chief executive offices to a new location
without providing thirty (30) days prior written notification thereof to Agent
and so long as, at the time of such written notification, Borrowers and the
Canadian Subsidiary provide any financing statements or fixture filings
necessary to perfect and continue perfected the Lien of Agent (for the benefit
of the Lender Group) and also provides to Agent a Collateral Access Agreement
with respect to such new location. The Inventory of the Borrowers and the
Canadian Subsidiary and Equipment shall not at any time now or hereafter be
stored with a bailee, warehouseman, or similar party without Agent's prior
written consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or indirectly:
(a) engage, or permit any other Loan Party or any Subsidiary
of any Loan Party to engage, in any prohibited transaction which is reasonably
likely to result in a civil penalty or excise tax described in Sections 406 of
ERISA or 4975 of the IRC for which a statutory or class exemption is not
available or a private exemption has not been previously obtained from the
Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any other Loan Party or any Subsidiary of
any Loan Party to fail, to pay timely required contributions or annual
installments due with respect to any waived funding deficiency to any Benefit
Plan;
(d) terminate, or permit any other Loan Party or any
Subsidiary of any Loan Party to terminate, any Benefit Plan where such event
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would result in any liability of any Borrower, any other Loan Party or any
Subsidiary of any Loan Party or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any other Loan Party or any Subsidiary of
any Loan Party to fail, to make any required contribution or payment to any
Multiemployer Plan;
(f) fail, or permit any other Loan Party or any Subsidiary of
any Loan Party to fail, to pay any required installment or any other payment
required under Section 412 of the IRC on or before the due date for such
installment or other payment;
(g) amend, or permit any other Loan Party or any Subsidiary of
any Loan Party to amend, a Plan resulting in an increase in current liability
for the plan year such that either of any Borrower, any other Loan Party or any
Subsidiary of any Loan Party or any ERISA Affiliate is required to provide
security to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any other Loan Party or any Subsidiary
of any Loan Party to withdraw, from any Multiemployer Plan where such withdrawal
is reasonably likely to result in any liability of any such entity under Title
IV of ERISA;
which, individually or in the aggregate, results in or reasonably would
be expected to result in a claim against or liability of Loan Parties, any of
their Subsidiaries or any ERISA Affiliate in excess of $50,000.
7.20 FINANCIAL COVENANTS. Fail to maintain:
(a) Current Ratio. A ratio of Consolidated Current Assets
divided by the sum of (i) Consolidated Current Liabilities plus (ii) issued and
outstanding Letters of Credit of at least the ratio set forth in the table below
as of the date opposite such ratio, measured on a fiscal quarter-end basis;
<TABLE>
<CAPTION>
As of: Minimum Ratio
- ------ -------------
<S> <C>
June 30, 1997 0.792:1.0
September 30, 1997 0.778:1.0
December 31, 1997 0.946:1.0
March 31, 1998 0.926:1.0
June 30, 1998 0.889:1.0
September 30, 1998 0.861:1.0
December 31, 1998 0.952:1.0
March 31, 1999 0.937:1.0
June 30, 1999 0.908:1.0
September 30, 1999 0.892:1.0
December 31, 1999 0.960:1.0
</TABLE>
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<PAGE> 75
<TABLE>
<S> <C>
March 31, 2000 0.997:1.0
</TABLE>
(b) Total Liabilities to Tangible Net Worth Ratio. A ratio of
Borrowers' (i) total liabilities plus issued and outstanding Letters of Credit
divided by (ii) Tangible Net Worth of the ratio set forth in the table below as
of the date opposite such ratio or less, measured on a fiscal quarter-end basis;
<TABLE>
<CAPTION>
As of: Maximum Ratio
- ------ -------------
<S> <C>
June 30, 1997 53.446:1.0
September 30, 1997 60.626:1.0
December 31, 1997 16.806:1.0
March 31, 1998 24.762:1.0
June 30, 1998 50.363:1.0
September 30, 1998 37.380:1.0
December 31, 1998 16.374:1.0
March 31, 1999 21.057:1.0
June 30, 1999 30.931:1.0
September 30, 1999 24.279:1.0
December 31, 1999 13.694:1.0
March 31, 2000 and 11.784:1.0
thereafter
</TABLE>
(c) Tangible Net Worth. Tangible Net Worth of at least the
amount set forth in the table below as of the date opposite such amount,
measured on a fiscal quarter-end basis; and
<TABLE>
<CAPTION>
As of: Minimum Amount
- ------ --------------
<S> <C>
June 30, 1997 $4,409,000
September 30, 1997 4,291,000
December 31, 1997 15,609,000
March 31, 1998 9,624,000
June 30, 1998 4,513,000
September 30, 1998 6,848,000
December 31, 1998 15,415,000
March 31, 1999 11,023,000
June 30, 1999 7,290,000
September 30, 1999 10,474,000
December 31, 1999 19,763,000
March 31, 2000 and 19,678,000
thereafter
</TABLE>
7.21 CAPITAL EXPENDITURES. Make capital expenditures in any
fiscal year in excess of $5,000,000.
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7.22 MANAGEMENT. Cease to employ the president, chief
executive officer, chief operating officer or the chief financial officer in
office as of the Closing Date or such other individuals acceptable to Foothill
in its reasonable discretion.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If Borrowers fail to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due the Lender
Group, reimbursement of Lender Group Expenses, or other amounts constituting
Obligations);
8.2 (a) If Borrowers fail or neglect to perform, keep, or
observe any term, provision, condition, covenant, or agreement contained in
Sections 6.2 (Collateral Reporting), 6.3 (Financial Statements, Reports,
Certificates), 6.4 (Tax Returns), 6.7 (Title to Equipment), 6.12 (Location of
Inventory and Equipment), 6.13 (Compliance with Laws), 6.14 (Employee Benefits),
or 6.15 (Leases) of this Agreement and such failure continues for a period of
five (5) Business Days; (b) if Borrowers fail or neglect to perform, keep, or
observe any term, provision, condition, covenant, or agreement contained in
Sections 6.1 (Accounting System) or 6.8 (Maintenance of Equipment) of this
Agreement and such failure continues for a period of fifteen (15) Business Days;
or (c) If Borrowers or any other Loan Party fail or neglect to perform, keep, or
observe any other term, provision, condition, covenant, or agreement contained
in this Agreement, or in any of the other Loan Documents (giving effect to any
grace periods, cure periods, or required notices, if any, expressly provided for
in such Loan Documents); in each case, other than any such term, provision,
condition, covenant, or agreement that is the subject of another provision of
this Section 8, (in which event such other provision of this Section 8 shall
govern); provided that, during any period of time that any such failure or
neglect of Borrowers or such other Loan Party referred to in this paragraph
exists, even if such failure or neglect is not yet an Event of Default by virtue
of the existence of a grace or cure period or the pre-condition of the giving of
a notice, Lenders shall not be required during such period to make Advances to
Borrowers or issue Letters of Credit for the account of Borrowers.
8.3 If there is a Material Adverse Change;
8.4 If any material portion of any Loan Party's properties or
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any third Person;
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<PAGE> 77
8.5 If any Loan Party shall admit its insolvency or make a
proposal or a general assignment for the benefit of creditors, or any Loan Party
commences an Insolvency Proceeding or any other proceeding seeking appointment
of a receiver, receiver and manager, trustee, custodian or other similar
official for it or any substantial part of its property and assets or any Loan
Party shall take any corporate action to authorize any of the actions set forth
in this Section 8.5.
8.6 If any Insolvency Proceeding or any proceeding seeking
appointment of a receiver, receiver and manager, trustee, custodian or similar
official for a Loan Party or for any substantial part of its property and assets
is commenced against any Loan Party and any of the following events occur: (a)
such Loan Party consents to or acquiesces in the institution of the Insolvency
Proceeding against it; (b) the petition commencing the Insolvency Proceeding is
not timely controverted; (c) the petition commencing the Insolvency Proceeding
is not or is no longer being contested in good faith by appropriate proceedings
or is not dismissed within sixty (60) calendar days of the date of the filing
thereof; provided, however, that, during the pendency of such period, the Lender
Group shall be relieved of its obligation to extend credit hereunder; (d) an
interim trustee is appointed to take possession of all or a substantial portion
of the properties or assets of, or to operate all or any substantial portion of
the business of, such Loan Party; or (e) an order for relief shall have been
issued or entered therein;
8.7 If any Loan Party is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.8 If a notice of Lien, levy, or assessment is filed of
record with respect to any of Loan Parties' properties or assets by the United
States Government or the Government of Canada, or any department, agency, or
instrumentality thereof, or by any state, provincial, county, municipal, or
governmental agency, or if any taxes or debts owing at any time hereafter to any
one or more of such entities becomes a Lien, whether choate or otherwise, upon
any of Loan Parties' properties or assets and the same is not paid on the
payment date thereof;
8.9 If a judgment or other claim becomes a Lien or encumbrance
upon any material portion of Loan Parties' properties or assets;
8.10 If there is a default in any material agreement to which
any Loan Party is a party with one or more third Persons and such default (a)
occurs at the final maturity of the obligations thereunder, or (b) results in a
right by such third Person(s), irrespective of whether exercised, to accelerate
the maturity of such Loan Party's obligations thereunder;
8.11 If any Borrower makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to
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the payment of the Obligations, except to the extent such payment is permitted
by the terms of the subordination provisions applicable to such Indebtedness;
8.12 If any misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to the
Lender Group by any Loan Party or any officer, employee, agent, or director of
any Loan Party, or if any such warranty or representation is withdrawn; or
8.13 If the obligation of any guarantor under its guaranty or
other third Person under any Loan Document is limited or terminated by
operation of law or by the guarantor or other third Person thereunder, or any
such guarantor or other third Person becomes the subject of an Insolvency
Proceeding.
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Agent may (at the direction of the Required
Lenders or at the Agent's discretion if the Lenders cannot reach the Required
Lenders vote to either direct the Agent to exercise or to refrain from
exercising the Lender Group's rights and remedies hereunder), pursuant to
Sections 17.4 and 17.5, without notice of its election and without demand, do
any one or more of the following, all of which are authorized by Borrowers:
(a) Declare all Obligations, whether evidenced by
this Agreement or by any of the other Loan Documents, immediately due and
payable; provided, however, notwithstanding anything herein to the contrary,
upon an Event of Default described in Section 8.5 or Section 8.6, all
Obligations shall immediately be due and payable;
(b) Cease advancing money or extending credit to or
for the benefit of Borrowers under this Agreement, under any of the Loan
Documents, or under any other agreement between any Borrower and the Lender
Group;
(c) Terminate this Agreement and any of the other
Loan Documents as to any future liability or obligation of the Lender Group, but
without affecting the Lender Group's rights and security interests in the
Personal Property Collateral or the Real Property Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly
with Account Debtors for amounts and upon terms which Agent considers advisable,
and in such cases, Agent will credit Borrowers' Loan Account with only the net
amounts received by Agent in payment of such disputed Accounts after deducting
all Lender Group Expenses incurred or expended in connection therewith;
(e) Cause Borrowers to hold all returned Inventory in
trust for the Lender Group, segregate all returned Inventory from all other
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property of Borrowers or in Borrowers' possession and conspicuously label said
returned Inventory as the property of the Lender Group;
(f) Without notice to or demand upon Borrowers or any
guarantor, make such payments and do such acts as Agent considers necessary or
reasonable to protect its security interests in the Collateral. Borrowers agree
to assemble the Personal Property Collateral or any part of it if Agent so
requires, and to make the Personal Property Collateral available to Agent as
Agent may designate. Borrowers authorize Agent to enter the premises where the
Personal Property Collateral is located, to take and maintain possession of the
Personal Property Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or Lien that in Agent's determination
appears to conflict with the Liens of Agent (for the benefit of the Lender
Group) in the Collateral and to pay all expenses incurred in connection
therewith. With respect to any of Borrowers' owned or leased premises, Borrowers
hereby grant Agent a license to enter into possession of such premises and to
occupy the same, without charge, for up to one hundred twenty (120) days in
order to exercise any of the Lender Group's rights or remedies provided herein,
at law, in equity, or otherwise;
(g) Without notice to Borrowers (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9-505 of the Code),
set off and apply to the Obligations any and all (i) balances and deposits of
Borrowers held by the Lender Group (including any amounts received in the
Lockbox Accounts), or (ii) indebtedness at any time owing to or for the credit
or the account of Borrowers held by the Lender Group;
(h) Hold, as cash collateral, any and all balances
and deposits of Borrowers held by the Lender Group, and any amounts received in
the Lockbox Accounts, to secure the full and final repayment of all of the
Obligations;
(i) Seek the appointment of a receiver or keeper to
take possession of the Collateral and to enforce any of Agent's remedies with
respect to such appointment without prior notice or hearing;
(j) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Personal Property Collateral. Agent is hereby granted a license
or other right to use, without charge, Borrowers' labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Personal Property Collateral, in completing production of,
advertising for sale, and selling any Personal Property Collateral and
Borrowers' rights under all licenses and all franchise agreements shall inure to
the Lender Group's benefit;
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(k) Sell the Personal Property Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places
(including Borrowers' premises) as Agent determines is commercially reasonable.
It is not necessary that the Personal Property Collateral be present at any
such sale;
(l) Agent shall give notice of the disposition of the
Personal Property Collateral as follows:
(A) Agent shall give Borrowers and each holder
of a security interest in the Personal Property Collateral who has filed with
Agent a written request for notice, a notice in writing of the time and place of
public sale, or, if the sale is a private sale or some other disposition other
than a public sale is to be made of the Personal Property Collateral, then the
time on or after which the private sale or other disposition is to be made;
(B) The notice shall be personally delivered or
mailed, postage prepaid, to Borrowers as provided in Section 12, at least ten
(10) days before the date fixed for the sale, or at least ten (10) days before
the date on or after which the private sale or other disposition is to be made;
no notice needs to be given prior to the disposition of any portion of the
Personal Property Collateral that is perishable or threatens to decline speedily
in value or that is of a type customarily sold on a recognized market. Notice to
Persons other than Borrowers claiming an interest in the Personal Property
Collateral shall be sent to such addresses as they have furnished to Agent;
(C) If the sale is to be a public sale, Agent
also shall give notice of the time and place by publishing a notice as required
by applicable law;
(m) Agent may credit bid and purchase at any
public sale; and
(n) Any deficiency that exists after disposition
of the Personal Property Collateral as provided above will be paid immediately
by Borrowers. Any excess will be returned, without interest and subject to the
rights of third Persons, by Agent to Borrowers.
9.2 REMEDIES CUMULATIVE. The Lender Group's rights and
remedies under this Agreement, the Loan Documents, and all other agreements
shall be cumulative. The Lender Group shall have all other rights and remedies
not inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the Lender Group of any Event of Default shall be deemed a
continuing waiver. No delay by the Lender Group shall constitute a waiver,
election, or acquiescence by it.
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10. TAXES AND EXPENSES.
If Borrowers fail to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or assets,
rents or other amounts payable under such leases) due to third Persons, or fail
to make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Agent
determines that such failure by Borrowers could result in a Material Adverse
Change, in its discretion and without prior notice to Borrowers, Agent may do
any or all of the following: (a) make payment of the same or any part thereof;
(b) set up such reserves in Borrowers' Loan Account as Agent deems necessary to
protect the Lender Group from the exposure created by such failure; or (c)
obtain and maintain insurance policies of the type described in Section 6.10,
and take any action with respect to such policies as Agent deems prudent. Any
such amounts paid by Agent shall constitute Lender Group Expenses. Any such
payments made by Agent shall not constitute an agreement by the Lender Group to
make similar payments in the future or a waiver by the Lender Group of any Event
of Default under this Agreement. Agent need not inquire as to, or contest the
validity of, any such expense, tax, or Lien and the receipt of the usual
official notice for the payment thereof shall be conclusive evidence that the
same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrowers waive demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by the Lender Group on which Borrowers may in any way be liable.
11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. So long as
the Lender Group complies with its obligations, if any, under Section 9-207 of
the Code, the Lender Group shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person. All risk of loss,
damage, or destruction of the Collateral shall be borne by Borrowers.
11.3 INDEMNIFICATION. Borrowers, jointly and severally, shall
pay, indemnify, defend, and hold each Agent-Related Person, each Lender, each
Participant, and each of their respective officers, directors, employees,
counsel, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless
(to the fullest extent permitted by law) from and against any and all claims,
demands, suits, actions, investigations, proceedings, and damages, and all
reasonable attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against,
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imposed upon, or incurred by any of them in connection with or as a result of
or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrowers shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, or telefacsimile to Borrowers or
to Agent, as the case may be, at its address set forth below:
IF TO BORROWERS: RDM SPORTS GROUP, INC.
267 Highway 74 North
Suite No. 5
Peachtree City, Georgia 30269
Attn: Charles Sanders
Fax No. (770) 632-0016
RDM SPORTS GROUP, INC
267 Highway 74 North, Suite No. 5
Peachtree City, Georgia 30269
Attn: James Marden
Fax No. (770) 632-0016
WITH COPIES TO: SMITH, GAMBRELL & RUSSELL, LLP
Suite 1300, Promenade II
1230 Peachtree Street, N.E
Atlanta, Georgia 30309
Attn: David J. Harris, Esq
Fax No. (404) 815-3509
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<PAGE> 83
IF TO AGENT OR THE FOOTHILL CAPITAL CORPORATION
LENDER GROUP IN CASE 11111 Santa Monica Boulevard
OF AGENT: Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. (310) 478-9788
WITH COPIES TO: PAUL, HASTINGS, JANOFSKY & WALKER LLP
600 Peachtree Street, N.E.
Suite 2400
Atlanta, Georgia 30308
Attn: Jesse H. Austin, III, Esq.
Fax No. (404) 815-2424
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Agent in connection with Sections 9-504 or 9-505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) days after the deposit thereof in the mail. Borrowers acknowledge and agree
that notices sent by Agent in connection with Sections 9-504 or 9-505 of the
Code shall be deemed sent when deposited in the mail or personally delivered,
or, where permitted by law, transmitted telefacsimile or other similar method
set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE
RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY
IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF FULTON, STATE OF
GEORGIA OR, AT THE SOLE OPTION OF THE LENDER GROUP, IN ANY OTHER COURT IN WHICH
THE LENDER GROUP SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS
SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH BORROWER AND
EACH MEMBER OF THE LENDER GROUP WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. EACH BORROWER AND EACH MEMBER OF THE LENDER
GROUP HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
BORROWER AND EACH MEMBER OF THE LENDER GROUP REPRESENTS THAT IT HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
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WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO SUCH BORROWER AT ITS
ADDRESS SET FORTH IN SECTION 12 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED SIX (6) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS, OR, AT AGENT'S OPTION, BY SERVICE UPON JAMES MARDEN, RDM SPORTS GROUP,
INC., 267 HIGHWAY 74 NORTH, SUITE NO. 5, PEACHTREE CITY, GEORGIA 30269, WHICH
SUCH BORROWER IRREVOCABLY APPOINTS AS ITS AGENT FOR THE PURPOSE OF ACCEPTING
SERVICE OF PROCESS WITHIN THE STATE OF GEORGIA, OR SUCH SUBSTITUTE AGENT FOR
SUCH PURPOSE OF WHICH SUCH BORROWER SHALL NOTIFY AGENT IN WRITING. IN ADDITION,
AGENT AGREES TO PROMPTLY FORWARD BY REGISTERED MAIL ANY PROCESS SO SERVED UPON
SAID AGENT TO SUCH BORROWER AT ITS ADDRESS SET FORTH BELOW. EACH BORROWER HEREBY
CONSENTS TO SERVICE OF PROCESS AS AFORESAID.
14. DESTRUCTION OF BORROWERS' DOCUMENTS.
Except for Negotiable Collateral, all documents, schedules,
invoices, agings, or other papers delivered to Agent may be destroyed or
otherwise disposed of by Agent four (4) months after they are delivered to or
received by Agent, unless Borrowers request in writing, the return of said
documents, schedules, or other papers and makes arrangements, at Borrowers'
expense, for their return.
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
15.1 ASSIGNMENTS AND PARTICIPATIONS.
(a) Any Lender may, with the written consent of
Agent, assign and delegate to one or more Eligible Transferees (each an
"Assignee") all, or any ratable part, of the Obligations, the Commitments, and
the other rights and obligations of such Lender hereunder and under the other
Loan Documents, in a minimum amount of $7,500,000; provided, however, that so
long as Foothill Capital Corporation is the Agent hereunder, it shall retain a
minimum Commitment hereunder of $20,000,000; provided further, however, that
Borrowers and Agent may continue to deal solely and directly with such Lender
in connection with the interest so assigned to an Assignee until (i) written
notice of such assignment, together with payment instructions, addresses, and
related information with respect to the Assignee, shall have been given to
Borrowers and Agent by such Lender and the Assignee; (ii) such Lender and its
Assignee shall have delivered to Borrowers and Agent a fully executed
Assignment and Acceptance ("Assignment and Acceptance") in the form of Exhibit
A-1; and (iii) the Assignee has paid to Agent for Agent's sole and separate
account a processing fee in the amount of $2,500. Anything contained herein to
the contrary notwithstanding, the consent of Agent shall not be required (and
payment of any fees shall not be required) if such assignment is in connection
with any merger, consolidation, sale, transfer, or other
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disposition of all or any substantial portion of the business or loan portfolio
of such Lender.
(b) From and after the date that Agent notifies the
assignor Lender that it has received a fully executed Assignment and Acceptance
and payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of a Lender under the Loan Documents, and (ii) the
assignor Lender shall, to the extent that rights and obligations hereunder and
under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement and the other Loan Documents, such Lender
shall cease to be a party hereto and thereto), and such assignment shall effect
a novation between Borrowers and the Assignee.
(c) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm
to and agree with each other and the other parties hereto as follows: (1) other
than as provided in such Assignment and Acceptance, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties, or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency, or value of this Agreement or any other Loan Document furnished
pursuant hereto; (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrowers or any guarantor or the performance or observance by Borrowers or any
guarantor of any of its obligations under this Agreement or any other Loan
Document furnished pursuant hereto; (3) such Assignee confirms that it has
received a copy of this Agreement, together with such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (4) such Assignee will,
independently and without reliance upon Agent, such assigning Lender, or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (5) such Assignee appoints and
authorizes Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and (6) such
Assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.
(d) Immediately upon each Assignee's making its
processing fee payment under the Assignment and Acceptance, this Agreement shall
be deemed to be amended to the extent, but only to the extent, necessary
to reflect the addition of the Assignee and the resulting adjustment of the
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Commitments of the Assignor and Assignee arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitment of the assigning Lender
pro tanto.
(e) Any Lender may at any time, with the written
consent of Agent, which consent shall not be unreasonably withheld, sell to one
or more Persons (a "Participant") participating interests in the Obligations,
the Commitment, and the other rights and interests of that Lender (the
"Originating Lender") hereunder and under the other Loan Documents; provided,
however, that (i) the Originating Lender's obligations under this Agreement
shall remain unchanged, (ii) the Originating Lender shall remain solely
responsible for the performance of such obligations, (iii) Borrowers and Agent
shall continue to deal solely and directly with the Originating Lender in
connection with the Originating Lender's rights and obligations under this
Agreement and the other Loan Documents, (iv) no Originating Lender shall
transfer or grant any participating interest under which the Participant has the
sole and exclusive right to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment to, or consent or waiver with respect to, this Agreement or of
any other Loan Document would (A) extend the final maturity date of the
Obligations hereunder in which such participant is participating; (B) reduce the
interest rate applicable to the Obligations hereunder in which such Participant
is participating; (C) release all or a material portion of the Collateral
(except to the extent expressly provided herein or in any of the Loan Documents)
supporting the Obligations hereunder in which such Participant is participating;
(D) postpone the payment of, or reduce the amount of, the interest or fees
hereunder in which such Participant is participating; or (E) change the amount
or due dates of scheduled principal repayments or prepayments or premiums in
respect of the Obligations hereunder in which such Participant is participating;
and (v) all amounts payable by Borrowers hereunder shall be determined as if
such Originating Lender had not sold such participation; except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement; provided, however, that no Participant may exercise
any such right of setoff without the notice to and consent of Agent. The rights
of any Participant shall only be derivative through the Originating Lender with
whom such Participant participates and no Participant shall have any direct
rights as to the other Lenders, Agent, Borrowers, the Collections, the
Collateral, or otherwise in respect of the Advances, the Letters of Credit or
the Fixed Period Loans. No Participant shall have the right to participate
directly in the making of decisions by the Lenders among themselves. The
provisions of this Section 15.1(e) are solely for the benefit of the Lender
Group, and Borrowers shall have no rights as a third party beneficiary of any of
such provisions.
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(f) In connection with any such assignment or
participation or proposed assignment or participation, a Lender may disclose to
a third party all documents and information which it now or hereafter may have
relating to Borrowers or Borrowers' business.
(g) Notwithstanding any other provision in this
Agreement, any Lender may at any time create a security interest in, or pledge,
all or any portion of its rights under and interest in this Agreement in favor
of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
15.2 SUCCESSORS. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrowers may not assign this Agreement or any rights or
duties hereunder without the Lenders' prior written consent and any prohibited
assignment shall be absolutely void. No consent to assignment by the Lenders
shall release Borrowers from their Obligations. A Lender may assign this
Agreement and its rights and duties hereunder pursuant to Section 15.1 and,
except as expressly required pursuant to Section 15.1, no consent or approval by
Borrowers is required in connection with any such assignment.
16. AMENDMENTS; WAIVERS.
16.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by Borrowers therefrom, shall be effective unless the
same shall be in writing and signed by the Required Lenders (or by Agent at the
written request of the Required Lenders) (or with respect to Section 2.1(m)
hereof, the Super-Majority Lenders (or by Agent at the written request of the
Super-Majority Lenders)) and Borrowers and then any such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no such waiver, amendment, or consent
shall, unless in writing and signed by all the Lenders and Borrowers and
acknowledged by Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this
Agreement or any other Loan Document for any payment of principal, interest,
fees, or other amounts due to the Lenders (or any of them) hereunder or under
any other Loan Document;
(c) reduce the principal of, or the rate of interest
specified herein on, any Advance or Fixed Period Loan, or any fees or other
amounts payable hereunder or under any other Loan Document;
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(d) change the percentage of the Commitments or of
the aggregate unpaid principal amount of the Advances and Fixed Period Loans
which is required for the Lenders or any of them to take any action hereunder;
(e) increase the advance rate with respect to
Advances, (except with respect to any change in the eligibility requirements of
Accounts and Inventory in such a way as to effectively increase the advance rate
with respect to Advances which change shall require the consent of the Required
Lenders and except for the restoration of an advance rate after the prior
reduction thereof), or change Section 2.1(b);
(f) amend this Section or any provision of the
Agreement providing for consent or other action by all Lenders;
(g) release Collateral other than as permitted by
Section 17.11;
(h) change the definition of "Required Lenders" or
"Super-Majority Lenders";
(i) release Borrowers from any Obligation for the
payment of money; or
(j) amend any of the provisions of Article 17.
and, provided further, that no amendment, waiver or consent shall,
unless in writing and signed by Agent, affect the rights or duties of Agent
under this Agreement or any other Loan Document; and, provided further, that the
limitation contained in clause (e) above shall not be deemed to limit the
ability of Agent to make Advances or Agent Loans, as applicable, in accordance
with the provisions of Sections 2.1(g), (h), or (l). The foregoing
notwithstanding, any amendment, modification, waiver, consent, termination, or
release of or with respect to any provision of this Agreement or any other Loan
Document that relates only to the relationship of the Lender Group among
themselves, and that does not affect the rights or obligations of Borrowers,
shall not require consent by or the agreement of Borrowers.
16.2 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Agent or
any Lender to exercise any right, remedy, or option under this Agreement, any
other Loan Document, or any present or future supplement hereto or thereto, or
in any other agreement between or among Borrowers and Agent and/or any Lender,
or delay by Agent or any Lender in exercising the same, will operate as a
waiver thereof. No waiver by Agent or any Lender will be effective unless it is
in writing, and then only to the extent specifically stated. No waiver by Agent
or the Lenders on any occasion shall affect or diminish Agent's and each
Lender's rights thereafter to require strict performance by Borrowers of any
provision of this Agreement. Agent's and each Lender's rights under this
Agreement and the other Loan Documents will be cumulative and not exclusive of
any other right or remedy which Agent or any Lender may have.
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17. AGENT; THE LENDER GROUP.
17.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender
hereby designates and appoints Foothill as its Agent under this Agreement and
the other Loan Documents and each Lender hereby irrevocably authorizes Agent to
take such action on its behalf under the provisions of this Agreement and each
other Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto. Agent
agrees to act as such on the express conditions contained in this Article 17.
The provisions of this Article 17 are solely for the benefit of Agent and the
Lenders, and Borrowers shall not have any rights as third party beneficiaries
of any of the provisions contained herein; provided, however, that the
provisions of Sections 17.10, 17.11, and 17.16(d) also shall be for the benefit
of Borrowers. Any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document notwithstanding, Agent shall not have
any duties or responsibilities, except those expressly set forth herein, nor
shall Agent have or be deemed to have any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations, or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Agent. Except as expressly otherwise
provided in this Agreement, Agent shall have and may use its sole discretion
with respect to exercising or refraining from exercising any discretionary
rights or taking or refraining from taking any actions which Agent is expressly
entitled to take or assert under or pursuant to this Agreement and the other
Loan Documents, including making the determinations contemplated by Section
2.1(b). Except as otherwise specifically provided in this Agreement and without
limiting the generality of any of the foregoing, or of any other provision of
the Loan Documents that provides rights or powers to Agent, Lenders agree that
Agent shall have the right to exercise the following powers as long as this
Agreement remains in effect: (a) maintain, in accordance with its customary
business practices, ledgers and records reflecting the status of the Advances
and the Fixed Period Loans, the Collateral, the Collections, and related
matters; (b) execute and/or file any and all financing or similar statements or
notices, amendments, renewals, supplements, documents, instruments, proofs of
claim for Lenders, notices and other written agreements with respect to the
Loan Documents; (c) make Advances for itself or on behalf of Lenders as
provided in the Loan Documents; (d) exclusively receive, apply, and distribute
the Collections as provided in the Loan Documents; (e) open and maintain such
bank accounts and lock boxes as Agent deems necessary and appropriate in
accordance with the Loan Documents for the foregoing purposes with respect to
the Collateral and the Collections; (f) perform, exercise, and enforce any and
all other rights and remedies of the Lender Group with respect to Borrowers,
the Advances, the Fixed Period Loans, the Collateral, the Collections, or
otherwise related to any of same as provided in the Loan Documents; and (g)
incur and pay such Lender Group Expenses as Agent may deem necessary or
appropriate for the performance and fulfillment of its functions and powers
pursuant to the Loan Documents.
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17.2 DELEGATION OF DUTIES. Except as otherwise provided in
this Section, Agent may execute any of its duties under this Agreement or any
other Loan Document by or through agents, employees, or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. Agent shall not be responsible for the negligence or misconduct of any
agent or attorney-in-fact that it selects as long as such selection was made in
compliance with this Section and without gross negligence or willful misconduct.
The foregoing notwithstanding, Agent shall not make any material delegation of
duties to subagents or non-employee delegees without the prior written consent
of Required Lenders (it being understood that routine delegation of such
administrative matters as filing financing statements, or conducting appraisals
or audits, is not viewed as a material delegation that requires prior Required
Lender approval).
17.3 LIABILITY OF AGENT-RELATED PERSONS. None of the
Agent-Related Persons shall (i) be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement or any other
Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or, (ii) be responsible in any manner to any
of the Lenders for any recital, statement, representation or warranty made by
Borrowers, or any Subsidiary or Affiliate of Borrowers, or any officer or
director thereof, contained in this Agreement or in any other Loan Document, or
in any certificate, report, statement, or other document referred to or provided
for in, or received by Agent under or in connection with, this Agreement or any
other Loan Document, or the validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document, or for any failure
of Borrowers or any other party to any Loan Document to perform their
obligations hereunder or thereunder. No Agent-Related Person shall be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books, or
records of Borrowers, or any of Borrowers' Subsidiaries or Affiliates.
17.4 RELIANCE BY AGENT. Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex, or
telephone message, statement or other document or conversation believed by it to
be genuine and correct and to have been signed, sent, or made by the proper
Person or Persons, and upon advice and statements of legal counsel (including
counsel to Borrowers or counsel to any Lender), independent accountants, and
other experts selected by Agent. Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Required
Lenders or all Lenders, as applicable, and until such instructions are received,
Agent shall act, or refrain from acting, as it deems advisable so long as it is
not grossly negligent or guilty of wilful misconduct. If Agent so requests, it
shall first be indemnified to its reasonable satisfaction by Lenders against any
and all liability and expense which may be incurred by it
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by reason of taking or continuing to take any such action. Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of
the Required Lenders or all Lenders, as applicable, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders.
17.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest,
fees, and expenses required to be paid to Agent for the account of Agent or the
Lenders, except with respect to actual knowledge of the existence of an
Overadvance, and except with respect to Defaults and Events of Default of which
Agent has actual knowledge, unless Agent shall have received written notice from
a Lender or Borrowers referring to this Agreement, describing such Default or
Event of Default, and stating that such notice is a "notice of default." Agent
promptly will notify the Lenders of its receipt of any such notice or of any
Event of Default of which Agent has, or is deemed to have, actual knowledge. If
any Lender obtains actual knowledge of any Event of Default, such Lender
promptly shall notify the other Lenders and Agent of such Event of Default. Each
Lender shall be solely responsible for giving any notices to its Participants,
if any. Subject to Section 17.4, Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Required Lenders;
provided, however, that:
(a) At all times, Agent may propose and, with the
consent of Required Lenders (which shall not be unreasonably withheld and which
shall be deemed to have been given by a Lender unless such Lender has notified
Agent to the contrary in writing within three (3) Business Days of notification
of such proposed actions by Agent) exercise, any remedies on behalf of the
Lender Group; and
(b) At all times, once Required Lenders or all
Lenders, as the case may be, have approved the exercise of a particular remedy
or pursuit of a course of action, Agent may, but shall not be obligated to, make
all administrative decisions in connection therewith or take all other actions
reasonably incidental thereto (for example, if the Required Lenders approve the
foreclosure of certain Collateral, Agent shall not be required to seek consent
for the administrative aspects of conducting such sale or handling of such
Collateral).
17.6 CREDIT DECISION. Each Lender acknowledges that none of
the Agent-Related Persons has made any representation or warranty to it, and
that no act by Agent hereinafter taken, including any review of the affairs of
Borrowers and their Subsidiaries or Affiliates, shall be deemed to constitute
any representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and
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investigation into the business, prospects, operations, property, financial and
other condition, and creditworthiness of Borrowers and any other Person (other
than the Lender Group) party to a Loan Document, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to Borrowers.
Each Lender also represents that it will, independently and without reliance
upon any Agent-Related Person and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals, and decisions in taking or not taking action under this Agreement
and the other Loan Documents, and to make such investigations as it deems
necessary to inform itself as to the business, prospects, operations, property,
financial and other condition, and creditworthiness of Borrowers, and any other
Person (other than the Lender Group) party to a Loan Document. Except for
notices, reports, and other documents expressly herein required to be furnished
to the Lenders by Agent, Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition, or
creditworthiness of Borrowers, and any other Person party to a Loan Document
that may come into the possession of any of the Agent-Related Persons.
17.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and
pay Lender Group Expenses to the extent Agent deems reasonably necessary or
appropriate for the performance and fulfillment of its functions, powers, and
obligations pursuant to the Loan Documents, including without limiting the
generality of the foregoing, but subject to any requirements of the Loan
Documents that it obtain any applicable consents or engage in any required
consultation, court costs, reasonable attorneys fees and expenses, costs of
collection by outside collection agencies and auctioneer fees and costs of
security guards or insurance premiums paid to maintain the Collateral, whether
or not Borrowers are obligated to reimburse Agent or Lenders for such expenses
pursuant to the Loan Agreement or otherwise. Agent is authorized and directed
to deduct and retain sufficient amounts from Collections to reimburse Agent for
such out-of-pocket costs and expenses prior to the distribution of any amounts
to Lenders. In the event Agent is not reimbursed for such costs and expenses
from Collections, each Lender hereby agrees that it is and shall be obligated
to pay to or reimburse Agent for the amount of such Lender's Pro Rata Share
thereof. Whether or not the transactions contemplated hereby are consummated,
the Lenders shall indemnify upon demand the Agent-Related Persons (to the
extent not reimbursed by or on behalf of Borrowers and without limiting the
obligation of Borrowers to do so), according to their Pro Rata Shares, from and
against any and all Indemnified Liabilities; provided, however, that no Lender
shall be liable for the payment to the Agent-Related Persons of any portion of
such Indemnified Liabilities resulting solely from such Person's gross
negligence, bad faith, or willful misconduct. Without limitation of the
foregoing, each Lender shall reimburse Agent upon demand for its ratable share
of any costs or out-of-pocket expenses (including reasonable attorney fees and
expenses) incurred by Agent in connection with the preparation, execution,
delivery, administration, modification, amendment, or
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enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that Agent is not reimbursed for such expenses by or on behalf of
Borrowers. The undertaking in this Section 17.7 shall survive the payment of all
Obligations hereunder and the resignation or replacement of Agent.
17.8 AGENT IN INDIVIDUAL CAPACITY. Foothill and its Affiliates
may make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in, and generally engage in any kind of banking,
trust, financial advisory, underwriting, or other business with Borrowers and
their Subsidiaries and Affiliates and any other Person party to any Loan
Documents as though Foothill were not Agent hereunder without notice to or
consent of the Lenders. The Lenders acknowledge that, pursuant to such
activities, Foothill and its Affiliates may receive information regarding
Borrowers or their Affiliates and any other Person party to any Loan Documents
that is subject to confidentiality obligations in favor of Borrowers or such
other Person and that prohibit the disclosure of such information to the
Lenders, and the Lenders acknowledge that, in such circumstances (and in the
absence of a waiver of such confidentiality obligations, which waiver Agent will
use its reasonable best efforts to obtain), Agent shall be under no obligation
to provide such information to them. With respect to the Agent Loans and Agent
Advances, Foothill shall have the same rights and powers under this Agreement as
any other Lender and may exercise the same as though it were not Agent, and the
terms "Lender" and "Lenders" include Foothill in its individual capacity.
17.9 SUCCESSOR AGENT. Agent may resign as Agent following
notice of such resignation ("Notice") to the Lenders and Borrowers, and
effective upon the appointment of and acceptance of such appointment by, a
successor Agent. If Agent resigns under this Agreement, the Required Lenders
shall appoint any Lender or Eligible Transferee as successor Agent for the
Lenders. If no successor Agent is appointed within thirty (30) days of such
retiring Agent's Notice, Agent may appoint a successor Agent, after consulting
with the Lenders and Borrowers. In any such event, upon the acceptance of its
appointment as successor Agent hereunder, such successor Agent shall succeed to
all the rights, powers and duties of the retiring Agent and the term "Agent"
shall mean such successor Agent and the retiring Agent's appointment, powers,
and duties as Agent shall be terminated. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 17 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
17.10 WITHHOLDING TAX.
(a) If any Lender is a "foreign corporation, partnership
or trust" within the meaning of the IRC and such Lender claims exemption from,
or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the
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IRC, such Lender agrees with and in favor of Agent and Borrowers, to deliver to
Agent and Borrowers:
(i) if such Lender claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty, properly completed IRS
Forms 1001 and W-8 before the payment of any interest in the first calendar year
and before the payment of any interest in each third succeeding calendar year
during which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Lender, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Lender and in each succeeding
taxable year of such Lender during which interest may be paid under this
Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the
IRC or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees to promptly notify Agent and Borrowers of any change
in circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of Borrowers, such Lender agrees to notify Agent and Borrowers
of the percentage amount in which it is no longer the beneficial owner of
Obligations of Borrowers to such Lender. To the extent of such percentage
amount, Agent and Borrowers will treat such Lender's IRS Form 1001 as no longer
valid.
(c) If any Lender claiming exemption from United States withholding
tax by filing IRS Form 4224 with Agent sells, assigns, grants a participation
in, or otherwise transfers all or part of the Obligations of Borrowers to such
Lender, such Lender agrees to undertake sole responsibility for complying with
the withholding tax requirements imposed by Sections 1441 and 1442 of the IRC.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, Agent may withhold from any interest payment to such Lender an
amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to Agent, then Agent may withhold from any
interest payment to such Lender not providing such
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<PAGE> 95
forms or other documentation an amount equivalent to the applicable withholding
tax.
(e) If the IRS or any other Governmental Authority of
the United States or other jurisdiction asserts a claim that Agent or Borrowers
did not properly withhold tax from amounts paid to or for the account of any
Lender (because the appropriate form was not delivered, was not properly
executed, or because such Lender failed to notify Agent and Borrowers of a
change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Lender shall
indemnify Agent and Borrowers fully for all amounts paid, directly or
indirectly, by Agent or Borrowers as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to Agent or Borrowers under this Section, together with all costs and
expenses (including attorneys fees and expenses). The obligation of the Lenders
under this subsection shall survive the payment of all Obligations and the
resignation of Agent.
17.11 COLLATERAL MATTERS.
(a) The Lenders hereby irrevocably authorize Agent, to
release any Lien on any Collateral (i) upon the termination of the Commitments
and payment and satisfaction in full by Borrowers of all Obligations; and upon
such termination and payment Agent shall deliver to Borrowers, at Borrowers'
sole cost and expense, all UCC termination statements and any other documents
necessary to terminate the Loan Documents and release the Liens with respect to
the Collateral; (ii) constituting property being sold or disposed of if a
release is required or desirable in connection therewith and if Borrowers
certifies to Agent that the sale or disposition is permitted under Section 7.4
of this Agreement or the other Loan Documents (and Agent may rely conclusively
on any such certificate, without further inquiry); (iii) constituting property
in which Borrowers owned no interest at the time the Lien was granted or at any
time thereafter; or (iv) constituting property leased to Borrowers under a
lease that has expired or been terminated in a transaction permitted under this
Agreement. Except as provided above, Agent will not release any Lien on any
Collateral without the prior written authorization of the Lenders. Upon request
by Agent or Borrowers at any time, the Lenders will confirm in writing Agent's
authority to release any such Liens on particular types or items of Collateral
pursuant to this Section 17.11; provided, however, that (i) Agent shall not be
required to execute any document necessary to evidence such release on terms
that, in Agent's opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Lien
without recourse, representation, or warranty, and (ii) such release shall not
in any manner discharge, affect or impair the Obligations or any Liens (other
than those expressly being released), upon (or obligations of Borrowers in
respect of) all interests retained by Borrowers, including, the proceeds of any
sale, all of which shall continue to constitute part of the Collateral.
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<PAGE> 96
(b) Agent shall have no obligation whatsoever to any of
the Lenders to assure that the Collateral exists or is owned by Borrowers, is
cared for, protected, or insured or has been encumbered, or that the Liens of
the Agent (for the benefit of the Lender Group) have been properly or
sufficiently or lawfully created, perfected, protected, or enforced or are
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure, or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
Agent pursuant to any of the Loan Documents, it being understood and agreed that
in respect of the Collateral, or any act, omission or event related thereto,
subject to the terms and conditions contained herein, Agent may act in any
manner it may deem appropriate, in its sole discretion given Agent's own
interest in the Collateral in its capacity as one of the Lenders and that Agent
shall have no other duty or liability whatsoever to any Lender as to any of the
foregoing, except as otherwise provided herein.
17.12 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF
PAYMENTS.
(a) Each of the Lenders agrees that it shall not,
without the express consent of Agent, and that it shall, to the extent it is
lawfully entitled to do so, upon the request of Agent, set off against the
Obligations any amounts owing by such Lender to Borrowers or any accounts of
Borrowers now or hereafter maintained with such Lender. Each of the Lenders
further agrees that it shall not, unless specifically requested to do so by
Agent, take or cause to be taken any action, including the commencement of any
legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce
any security interest in, any of the Collateral the purpose of which is, or
could be, to give such Lender any preference or priority against the other
Lenders with respect to the Collateral.
(b) Subject to Section 17.8, if, at any time or times
any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any
proceeds of Collateral or any payments with respect to the Obligations of
Borrowers to such Lender arising under, or relating to, this Agreement or the
other Loan Documents, except for any such proceeds or payments received by such
Lender from Agent pursuant to the terms of this Agreement, or (ii) payments
from Agent in excess of such Lender's Pro Rata Share of all such distributions
by Agent, such Lender shall promptly (1) turn the same over to Agent, in kind,
and with such endorsements as may be required to negotiate the same to Agent,
or in same day funds, as applicable, for the account of all of the Lenders and
for application to the Obligations in accordance with the applicable provisions
of this Agreement, or (2) purchase, without recourse or warranty, an undivided
interest and participation in the Obligations owed to the other Lenders so that
such excess payment received shall be applied ratably as among the Lenders in
accordance with their Pro Rata Shares; provided, however, that if all or part
of such excess payment received by the purchasing party is thereafter recovered
from it, those purchases of participations shall be rescinded in whole or in
part, as applicable, and the
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<PAGE> 97
applicable portion of the purchase price paid therefor shall be returned to such
purchasing party, but without interest except to the extent that such purchasing
party is required to pay interest in connection with the recovery of the excess
payment.
17.13 AGENCY FOR PERFECTION. Agent and each Lender hereby
appoints each other Lender as agent for the purpose of perfecting the Liens of
the Lender Group in assets which, in accordance with Article 9 of the UCC can be
perfected only by possession. Should any Lender obtain possession of any such
Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's
request therefor shall deliver such Collateral to Agent or in accordance with
Agent's instructions.
17.14 PAYMENTS BY AGENT TO THE LENDERS. All payments to be
made by Agent to the Lenders shall be made by bank wire transfer or internal
transfer of immediately available funds pursuant to the instructions set forth
on Schedule C-1, or pursuant to such other wire transfer instructions as each
party may designate for itself by written notice to Agent. Concurrently with
each such payment, Agent shall identify whether such payment (or any portion
thereof) represents principal, premium or interest on revolving advances or
otherwise.
17.15 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS.
Each member of the Lender Group authorizes and directs Agent to enter into this
Agreement and the other Loan Documents relating to the Collateral, for the
ratable benefit (subject to Sections 2.4(b) and 4.1) of the Lender Group. Each
member of the Lender Group agrees that any action taken by Agent, Required
Lenders, or all Lenders, as applicable, in accordance with the terms of this
Agreement or the other Loan Documents relating to the Collateral and the
exercise by Agent, Required Lenders, or all Lenders, as applicable, of their
respective powers set forth therein or herein, together with such other powers
that are reasonably incidental thereto, shall be binding upon all of the
Lenders.
17.16 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY;
DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. By signing this
Agreement, each Lender;
(a) is deemed to have requested that Agent furnish such
Lender, promptly after it becomes available, a copy of each field audit or
examination report (each a "Report" and collectively, "Reports") prepared by
Agent, and Agent shall so furnish each Lender with such Reports;
(b) expressly agrees and acknowledges that Agent (i)
does not make any representation or warranty as to the accuracy of any Report,
and (ii) shall not be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports
are not comprehensive audits or examinations, that Agent or other party
-90-
<PAGE> 98
performing any audit or examination will inspect only specific information
regarding Borrowers and will rely significantly upon Borrowers' books and
records, as well as on representations of Borrowers' personnel;
(d) agrees to keep all Reports and other material
information obtained by it pursuant to the requirements of this Agreement in
accordance with its reasonable customary procedures for handling confidential
information; it being understood and agreed by Borrowers that in any event such
Lender may make disclosures (i) reasonably required by any bona fide potential
or actual Assignee, transferee, or Participant in connection with any
contemplated or actual assignment or transfer by such Lender of an interest
herein or any participation interest in such Lender's rights hereunder, (ii) of
information that has become public by disclosures made by Persons other than
such Lender, its Affiliates, assignees, transferees, or participants, (iii) as
required or requested by any court, governmental or administrative agency (other
than any bank regulatory authority), pursuant to any subpoena or other legal
process, or by any law, statute, regulation, or court order or (iv) as required
or requested by any bank regulatory authority; provided, however, that, unless
prohibited by applicable law, statute, regulation, or court order, such Lender
shall notify Borrowers of any request by any court, governmental or
administrative agency, or pursuant to any subpoena or other legal process for
disclosure of any such non-public material information concurrent with, or where
practicable, prior to the disclosure thereof; and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold Agent
and any such other Lender preparing a Report harmless from any action the
indemnifying Lender may take or conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit accommodations
that the indemnifying Lender has made or may make to Borrowers, or the
indemnifying Lender's participation in, or the indemnifying Lender's purchase
of, a loan or loans of Borrowers, except for harm caused by the gross
negligence or willful misconduct of Agent or any such other Lender; and (ii) to
pay and protect, and indemnify, defend, and hold Agent and any such other Lender
preparing a Report harmless from and against, the claims, actions, proceedings,
damages, costs, expenses and other amounts (including, attorney costs) incurred
by Agent and any such other Lender preparing a Report as the direct or indirect
result of any third parties who might obtain all or part of any Report through
the indemnifying Lender.
In addition to the foregoing: (x) any Lender may from time to time
request of Agent in writing that Agent provide to such Lender a copy of any
report or document provided by Borrowers to Agent, and, upon receipt of such
request, Agent shall provide a copy of same to such Lender promptly upon
receipt thereof; (y) to the extent that Agent is entitled, under any provision
of the Loan Documents, to request additional reports or information from
Borrowers, any Lender may, from time to time, reasonably request Agent to
exercise such right as specified in such Lender's notice to Agent, whereupon
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<PAGE> 99
Agent promptly shall request of Borrowers the additional reports or information
specified by such Lender, and, upon receipt thereof, Agent promptly shall
provide a copy of same to such Lender; and (z) any time that Agent renders to
Borrowers a statement regarding the Loan Account, Agent shall send a copy of
such statement to each Lender.
17.17 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that
certain of the Loan Documents now or hereafter may have been or will be executed
only by or in favor of Agent in its capacity as such, and not by or in favor of
the Lenders, any and all obligations on the part of Agent (if any) to make any
Advances shall constitute the several (and not joint) obligations of the
respective Lenders on a ratable basis, according to their respective
Commitments, to make an amount of such Advances not to exceed, in principal
amount, at any one time outstanding, the amount of their respective Commitments.
Nothing contained herein shall confer upon any Lender any interest in, or
subject any Lender to any liability for, or in respect of, the business, assets,
profits, losses, or liabilities of any other Lender. Each Lender shall be solely
responsible for notifying its Participants of any matters relating to the Loan
Documents to the extent any such notice may be required, and no Lender shall
have any obligation, duty, or liability to any Participant of any other Lender.
Except as provided in Section 17.7, no member of the Lender Group shall have any
liability for the acts of any other member of the Lender Group. No Lender shall
be responsible to Borrowers or any other Person for any failure by any other
Lender to fulfill its obligations to make Advances, nor to advance for it or on
its behalf in connection with its Commitment, nor to take any other action on
its behalf hereunder or in connection with the financing contemplated herein.
18. GENERAL PROVISIONS.
18.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrowers and the Lender Group.
18.2 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
18.3 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against the
Lender Group or Borrowers, whether under any rule of construction or otherwise.
On the contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.
18.4 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
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<PAGE> 100
18.5 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
18.6 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrowers or any guarantor of the
Obligations or the transfer by any or all of such parties to the Lender Group of
any property of either or both of such parties should for any reason
subsequently be declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if the Lender Group is required to repay or restore,
in whole or in part, any such Voidable Transfer, or elects to do so upon the
reasonable advice of its counsel, then, as to any such Voidable Transfer, or the
amount thereof that the Lender Group is required or elects to repay or restore,
and as to all reasonable costs, expenses, and attorneys fees of the Lender Group
related thereto, the liability of Borrowers or such guarantor automatically
shall be revived, reinstated, and restored and shall exist as though such
Voidable Transfer had never been made.
18.7 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be contradicted or qualified
by any other agreement, oral or written, before the date hereof.
18.8 TIME IS OF THE ESSENCE. Time is of the essence of this
Agreement.
[remainder of page intentionally left blank]
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<PAGE> 101
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Atlanta, Georgia.
BORROWERS:
RDM HOLDINGS, INC.,
a Delaware corporation
By
--------------------------------------------
Title:
----------------------------------------
SPORTS GROUP, INC.,
an Alabama corporation
By
--------------------------------------------
Title:
----------------------------------------
INTERNATIONAL SPORTS AND FITNESS,INC., a
Delaware corporation
By
--------------------------------------------
Title:
----------------------------------------
DIVERSIFIED PRODUCTS CORPORATION, an Alabama
corporation
By
--------------------------------------------
Title:
----------------------------------------
WILLOW HOSIERY COMPANY, INC.,
a New York corporation
By
--------------------------------------------
Title:
----------------------------------------
LOAN AND SECURITY AGREEMENT
<PAGE> 102
HUTCH SPORTS USA INC.,
a Delaware corporation
By
--------------------------------------------
Title:
----------------------------------------
DIVERSIFIED TRUCKING CORP.,
an Alabama corporation
By
--------------------------------------------
Title:
----------------------------------------
AGENT:
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
--------------------------------------------
Title: Vice President
LENDERS:
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
---------------------------------------------
Title: Vice President
LOAN AND SECURITY AGREEMENT
<PAGE> 103
AT&T COMMERCIAL FINANCE
CORPORATION,
a Delaware corporation
By
---------------------------------------------
Title:
-----------------------------------------
Address for notices:
AT&T Capital Corporation
2 Gatehall Drive
Parsippany, New Jersey 07054
Attn: Mr. Frank Amodio
Fax: (201) 606-4776
BANKBOSTON, N.A.
By
---------------------------------------------
Title:
-----------------------------------------
Address for notices:
BankBoston, N.A.
115 Perimeter Center Place
Suite 500
Atlanta, Georgia 30346
Attn: Mr. John Hood
Fax: (770) 393-4166
THE CIT GROUP/CREDIT FINANCE, INC.,
a Delaware corporation
By
---------------------------------------------
Title:
-----------------------------------------
Address for notices:
The CIT Group/Credit Finance
300 South Grand Avenue, Third Floor
Los Angeles, California 90071
Attn: Mr. Terry Shoppe
Fax: (213) 613-2501
LOAN AND SECURITY AGREEMENT
<PAGE> 104
FREMONT FINANCIAL CORPORATION,
a California corporation
By
----------------------------------------------------
Title:
------------------------------------------------
Address for notices:
Fremont Financial Corporation
2020 Santa Monica Boulevard
Suite 600
Santa Monica, California 90404-2023
Attn: Ms. Cheri Ritman
Fax: (310) 315-5559
NATIONSCREDIT COMMERCIAL
CORPORATION, through its
Commercial Funding Division
a Delaware corporation
By
----------------------------------------------------
Title:
------------------------------------------------
NationsCredit Commercial Corporation
1177 Avenue of the Americas
New York, New York 10036
Attn: Mr. David Grende
Ms. Nancy Kagan
Fax: (212) 597-1666
LOAN AND SECURITY AGREEMENT
<PAGE> 105
The undersigned hereby acknowledges and agrees to the provisions of
Section 2.7 hereof as such Section relates to Collections of the Canadian
Subsidiary and Section 6.2 hereof as such Section relates to reporting
requirements related to the Canadian Subsidiary.
RDM SPORTS & LEISURE INC.,
an Ontario corporation
By
---------------------------------
Title:
-----------------------------
LOAN AND SECURITY AGREEMENT
<PAGE> 106
SCHEDULE C-1
COMMITMENTS ON CLOSING DATE
<TABLE>
<CAPTION>
=============================================================================
Fixed Period Loans
=============================================================================
Tranche A Tranche B
Fixed Fixed
Revolving Period Period
Lenders Commitment Loans Loans
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Foothill Capital Corporation $22,500,000 $ 4,500,000 $ 3,000,000
- -------------------------------------------------------------------------------
BankBoston, N.A $11,250,000 $ 2,250,000 $ 1,500,000
- -------------------------------------------------------------------------------
The CIT Group/Credit Finance, Inc. $11,250,000 $ 2,250,000 $ 1,500,000
- -------------------------------------------------------------------------------
AT&T Commercial Finance Corporation $ 7,500,000 $ 1,500,000 $ 1,000,000
- -------------------------------------------------------------------------------
Fremont Financial Corporation $11,250,000 $ 2,250,000 $ 1,500,000
- -------------------------------------------------------------------------------
NationsCredit Commercial Corporation $11,250,000 $ 2,250,000 $ 1,500,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total $75,000,000 $15,000,000 $10,000,000
===============================================================================
</TABLE>
LOAN AND SECURITY AGREEMENT
<PAGE> 1
EXHIBIT 10.78
WARRANT AGREEMENT
DATED JUNE 20, 1997
FROM
RDM SPORTS GROUP, INC.
TO
METROMEDIA COMPANY
<PAGE> 2
RDM SPORTS GROUP, INC.
AND
METROMEDIA COMPANY
------------------
WARRANT AGREEMENT
Dated as of June 20, 1997
- --------------------------------------------------------------------------------
<PAGE> 3
WARRANT AGREEMENT, dated as of June 20, 1997 between RDM SPORTS GROUP,
INC., a Delaware corporation (the "Company"), and METROMEDIA COMPANY, a Delaware
general partnership ("Metromedia").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue warrants to Metromedia
("Warrants") to purchase up to 3,000,000 shares (the "Shares") of Common Stock,
par value $.01 per share, of the Company (the "Common Stock") at the exercise
price of $.50 per share of Common Stock; and
WHEREAS, RDM Holdings, Inc., Sports Group, Inc., International Sports
and Fitness, Inc., Diversified Products Corporation, Willow Hosiery Company,
Inc., Hutch Sports, USA, Inc. and Diversified Trucking Corp., as borrowers
propose to enter into a $100,000,000 borrowing facility, dated as of the same
date of this Agreement, with Foothill Capital Corporation as Agent and with the
financial institutions named therein, as lenders, such agreement hereinafter
referred to as the "Loan Agreement"); and
WHEREAS, Metromedia has furnished or agreed to furnish a $15,000,000
"Credit Enhancement" as defined in such Loan Agreement; and
WHEREAS, such Credit Enhancement of the Loan Agreement by Metromedia
is, and will be, of direct interest, benefit and advantage to the Company; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Loan Agreement) by
the Company to Metromedia in partial consideration for Metromedia providing the
Credit Enhancement under the Loan Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by
Metromedia to the Company of an aggregate of three dollars ($3.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Grant. Metromedia is hereby granted the right to
purchase, at any time from ninety (90) days after June 20, 1997 (the "Closing
Date") until 5:30 p.m., Atlanta, Georgia time, on June 20, 2007 (the "Exercise
Period"), up to 3,000,000 shares (subject to adjustment as provided in Section 8
hereof, such shares, as adjusted, the "Shares") of Common Stock at an exercise
price equal to $.50 per share (subject to adjustment as provided in Section 8
hereof), all subject to the terms and conditions of this Agreement.
Section 2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement. The Warrant Certificates
shall further evidence the purchase rights granted hereby.
<PAGE> 4
Section 3. Exercise of Warrant; Method of Exercise.
The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder (as defined herein) thereof, in whole
or in part, at any time or from time to time during the Exercise Period. Upon
surrender of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Common Stock Exercise
Price (as hereinafter defined), payable by certified or official bank check in
New York Clearing House funds for the Shares purchased at the Company's
principal offices in Atlanta, Georgia (currently located at 267 Highway 74
North, Suite No. 5, Peachtree City, Georgia 30269), the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the Shares so purchased. In the case of the
purchase of less than all the Shares purchasable under any Warrant Certificate,
the Company shall cancel said Warrant Certificate upon the surrender thereof
and shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Shares purchasable thereunder. The Holder shall identify the
aggregate principal amount of Shares for which the Warrant is exercised on the
Form of Election to Purchase.
Section 4. Issuance of Certificates. Upon the exercise of
Warrants, the issuance of certificates for the Shares and/or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof (other than state or federal income taxes), and such
certificates shall (subject to the provisions of Sections 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder
thereof and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
and/or other securities, property or rights issuable upon the exercise of
Warrants shall be executed on behalf of the Company by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or any Vice President of the Company under its corporate
seal reproduced thereon and by the manual or facsimile signature of the then
present Treasurer or any Assistant Treasurer or Secretary or any Assistant
Secretary of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer. Certificates representing the Shares and/or other securities,
property or rights issuable upon exercise of Warrants shall be dated the date on
which the exercise is perfected as provided in Section 3 hereof (the "Exercise
Date") and any interest bearing securities so issued shall accrue interest from
the Exercise Date.
Section 5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof. Subject to compliance with all applicable federal and
state securities laws, Metromedia may transfer the Warrants and this Agreement
at any time.
<PAGE> 5
Section 6. Exercise Price.
Section 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant for Common Stock, shall be $.50. The adjusted exercise price for Common
Stock, shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof.
Section 6.2 Exercise Price. The term "Common Stock Exercise Price"
herein shall mean the initial exercise price for Common Stock hereunder or the
adjusted exercise price for Common Stock hereunder, depending upon the context.
Section 7. Transfer Restrictions and Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The
Warrants, the Shares and any of the other securities issuable upon exercise of
Warrants have not been registered under the Securities Act of 1933, as amended
(the "Act"). Upon exercise, in part or in whole, of Warrants, certificates
representing the Shares and any other securities issuable upon exercise of
Warrants shall bear the following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be offered or sold except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent applicable, Rule 144 under
the Act (or any similar rule under the Act relating to the disposition
of securities) or (iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to the issuer and counsel to the issuer, that
an exemption from registration under such Act is available.
Section 7.2 Registration Rights Agreement. The Company hereby
expressly acknowledges and agrees that, upon any transfer of the Warrants to
Metromedia International Group, Inc. ("MIG") that (i) the Shares will constitute
"registrable stock" under that certain Registration Rights Agreement dated as of
December 6, 1994 by and between Roadmaster Industries, Inc. (n/k/a RDM Sports
Group, Inc.), a Delaware corporation and The Actava Group, Inc., a Delaware
corporation to which agreement Metromedia is a party as the successor by merger
to The Actava Group, Inc. (the "MIG Registration Rights Agreement"), and (ii)
the Shares will be entitled to all the benefits thereunder and subject to all of
the obligations of Metromedia thereunder. Until a transfer of the Warrants to
MIG, the Company hereby grants Metromedia the same registration rights under
this Warrant Agreement as have been granted to MIG under the MIG Registration
Rights Agreement; provided, however that, to the extent any rights granted to
Metromedia would conflict with or be inconsistent with any rights of MIG under
the MIG Registration Rights Agreement, the rights of Metromedia under the
registration rights granted pursuant to this Section 7.2 shall be limited to the
fullest extent necessary to abate or avoid such conflict; and further provided
that, notwithstanding anything in the registration rights provisions
incorporated by reference herein to the contrary, Registrable Shares for the
purpose of such registration rights shall only include Shares issuable upon the
exercise of the Warrants granted hereunder. Upon any transfer of the Warrants to
MIG, the registration rights with respect to such Warrants and the Shares
issuable upon the exercise thereof shall be governed by the MIG Registration
Rights Agreement and
<PAGE> 6
the registration rights granted under this Section 7.2 shall cease to be of any
force and effect. A copy of such MIG Registration Rights Agreement is attached
hereto as Exhibit A.
Section 8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Computation of Adjusted Exercise Price. Except as
hereinafter provided, in case the Company shall at any time after the date
hereof issue or sell any shares of Common Stock (other than the issuances or
sales referred to in Section 8.7 hereof), including shares held in the Company's
treasury (but excluding shares issued upon the exercise of any options, rights
or warrants and shares issued upon the direct or indirect conversion or exchange
of securities or pursuant to employee benefit plans approved by a majority of
the Company's entire Board of Directors), for a consideration per share less
than the Market Price per share of Common Stock on the date immediately prior to
the issuance or sale of such shares, or without consideration, then forthwith
upon such issuance or sale, the Common Stock Exercise Price shall (until another
such issuance or sale or other event giving rise to an adjustment to the Common
Stock Exercise Price pursuant to this Section 8) be reduced to the price
(calculated to the nearest full cent) equal to the quotient derived by dividing
(i) an amount equal to the sum of (a) the total number of shares of Common Stock
outstanding immediately prior to such issuance or sale plus (b) the number of
shares of Common Stock which the aggregate consideration received by the Company
in connection with such issuance or sale would purchase at such Market Price, by
(ii) the total number of shares of Common Stock outstanding immediately after
such issuance or sale; provided, however, that in no event shall the Common
Stock Exercise Price be adjusted pursuant to this computation to an amount in
excess of the Common Stock Exercise Price in effect immediately prior to such
computation, except in the case of a combination of outstanding shares of Common
Stock as provided by Section 8.3 hereof.
For the purposes of this Section 8, the term Common Stock Exercise
Price shall mean the Common Stock Exercise Price per share of Common Stock set
forth in Section 6 hereof, as adjusted from time to time pursuant to the
provisions of this Section 8.
As used herein, the "Market Price" of Common Stock at any date shall be
deemed to be the last reported sale price (expressed as a dollar value per
share) or, in case no such reported sale takes place on such day, the average of
the last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or, if not so listed or admitted,
by the National Association of Securities Dealers Automated Quotation System
("NASDAQ") National Market System ("NASDAQ/NMS") or, if not approved for
quotation on the NASDAQ/NMS, the average closing bid price as furnished by the
National Association of Securities Dealers, Inc. (the "NASD") through NASDAQ or
similar organization if NASDAQ is no longer reporting such information, or if
such security is not quoted on NASDAQ, as determined in good faith by resolution
of the Board of Directors of the Company, based on the best information
available to it.
For the purposes of any computation to be made in accordance with this
Section 8.1, the following provisions shall be applicable:
<PAGE> 7
(i) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if shares of Common Stock
shall be sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing similar
services or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company and shall include any amounts payable to security
holders or any affiliates thereof, including without limitation, pursuant to any
employment agreement, royalty, consulting agreement, covenant not to compete,
earned or contingent payment right or similar arrangement, agreement or
understanding, whether oral or written, all such amounts being valued for the
purposes hereof at the aggregate amount payable thereunder, whether such
payments are absolute or contingent, and irrespective of the period or
uncertainty of payment, the rate of interest, if any, or the contingent nature
thereof; provided, however, that if any Holders does not agree with such
valuation, a mutually acceptable independent appraiser shall make such
valuation, the cost of which shall be borne by the Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company (other
than shares of Common Stock) into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 8.1.
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable
(subject to readjustment upon the actual issuance thereof, upon the exercise of
options, rights and warrants and upon the conversion or exchange of convertible
or exchangeable securities.
Section 8.2 Options, Rights, Warrants and Convertible and
Exchangeable Securities. In case the Company shall at any time after the date
hereof issue options, rights or warrants to purchase or subscribe for, or
exercisable for, shares of Common Stock, or issue any securities convertible
into or exchangeable for shares of Common Stock, for a consideration per share
less than the Market Price for Common Stock immediately prior to the issuance of
such
<PAGE> 8
options, rights, warrants or convertible or exchangeable securities, or without
consideration, the Common Stock Exercise Price in effect immediately prior to
the issuance of such options, rights, warrants or convertible or exchangeable
securities, as the case may be, shall be reduced to a price determined by making
a computation in accordance with the provisions of Section 8.1 hereof, provided
that:
(a) The aggregate maximum number of shares of Common Stock,
as the case may be, issuable under such options, rights or warrants
shall be deemed to be issued and outstanding at the time such options,
rights or warrants were issued, and for a consideration equal to the
minimum purchase or subscription price per share provided for in such
options, rights or warrants at the time of issuance, plus the
consideration (determined in the same manner as consideration received
on the issue or sale of shares in accordance with the terms of the
Warrants), if any, received by the Company for such options, rights or
warrants.
(b) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of such convertible or
exchangeable securities shall be deemed to be issued and outstanding at
the time of issuance of such securities, and for a consideration equal
to the consideration (determined in the same manner as consideration
received on the issue or sale of shares of Common Stock in accordance
with the terms of the Warrants) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the
Company upon the conversion or exchange thereof.
(c) If any change shall occur in the purchase or
subscription price per share provided for in any of such options,
rights or warrants or in the conversion or exchange price per share of
such securities, such options, rights, warrants or conversion or
exchange rights, as the case may be, shall be deemed to have expired or
terminated on the date when such price change became effective in
respect of shares not theretofore issued pursuant to the exercise or
conversion or exchange thereof, and the Company shall be deemed to have
issued upon such date new options, rights, warrants or convertible or
exchangeable securities at the new purchase, subscription, conversion
or exchange price in respect of the number of shares issuable upon the
exercise of such options, rights or warrants or the conversion or
exchange of such convertible or exchangeable securities.
Section 8.3 Subdivision and Combination. In case the Company shall
at any time (i) declare a dividend on the Common Stock payable in shares of its
capital stock (including Common Stock), (ii) subdivide or combine the
outstanding shares of Common Stock, or (iii) issue any class of its capital
stock in a reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation then, subject to the adjustment procedures
provided for in Section 8.1, the Common Stock Exercise Price shall forthwith be
proportionately adjusted so that the Holder of any Warrant exercised after such
date shall be entitled to receive the aggregate number and kind of capital stock
which, if such Warrant had been exercised immediately prior to such date, such
holder
<PAGE> 9
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, division, subdivision, combination or reclassification.
Section 8.4 Adjustment in Number of Securities. Upon each
adjustment of the Common Stock Exercise Price pursuant to the provisions of this
Section 8, the number of shares of Common Stock issuable upon exercise at the
adjusted Common Stock Exercise Price of each Warrant shall be adjusted to the
nearest full amount by multiplying a number equal to the Common Stock Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Common Stock issuable upon exercise of Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Common Stock
Exercise Price.
Section 8.5 Definition of Common Stock. For the purpose of this
Agreement, the term "Common Stock" shall mean the class of stock designated as
Common Stock in the Certificate of Incorporation of the Company as of the date
hereof, or the class, classes and/or series of capital stock issued in exchange
therefor, upon conversion thereof or in lieu thereof in connection with any
change in par or stated value, recapitalization, reorganization or other
transaction (the "New Common Stock").
Section 8.6 Merger or Consolidation. In case of any consolidation
or merger of the Company with or into another corporation or other entity (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
outstanding Common Stock or other securities issuable upon exercise of Warrants)
or in case of any sale or conveyance to another person, corporation or other
entity of all or substantially of the assets and the property of the Company,
then, as a condition of such consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
execute and deliver to the Holder of each Warrant then outstanding a
supplemental warrant agreement providing that such Holder shall have the right
thereafter to receive, upon exercise of such Warrant (until the expiration of
such Warrant) the kind and amount of securities, rights and property receivable
upon such consolidation, merger, sale or conveyance by a holder of the number of
Warrant Securities issuable upon exercise of such Warrant immediately prior to
such consolidation, merger, sale or transfer. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in this Section 8. The above provision of this subsection
shall similarly apply to successive consolidations, mergers, conveyances and
sales.
Section 8.7 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Common Stock Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants, upon
exercise of the Warrants or the issuance of the shares of Common Stock
issuable upon the exercise of the Warrants; or
(b) If the amount of said adjustment shall be less than one
cent (1(cent)) per share, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the tine of and
<PAGE> 10
together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least one cent
(1(cent)) per share.
Section 8.8 Certificate of Adjustment. After each adjustment of the
Common Stock Exercise Price or the amount of Warrant Securities purchasable upon
exercise of Warrants pursuant to this Section 8, the Company will promptly
prepare a certificate signed by the Chairman or President, and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the
Company setting forth: (i) the Common Stock Exercise Price, as so adjusted; (ii)
the amount of Warrant Securities purchasable upon exercise of each Warrant after
such adjustment; and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with its records and
cause a brief summary thereof to be sent by ordinary first class mail to each
Holder at his last address as it shall appear on the registry books of the
Company. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity thereof, except as to any Holder to whom the
Company failed to mail such notice or except as to any Holder whose notice was
defective.
Section 8.9 Validity of Warrant Certificate. Irrespective of any
adjustments or changes in the Common Stock Exercise Price or the amount of
Warrant Securities purchasable upon exercise of Warrants, Warrant Certificates
theretofore and thereafter issued shall continue to express the Common Stock
Exercise Price per share and the amount of Warrant Securities purchasable
thereunder as of the date such Warrant Certificates were originally issued;
provided, the Holders shall be entitled to exercise Warrants represented by such
Warrant Certificates after giving effect to each such adjustment and change, and
such Warrant Certificate shall be deemed to incorporate each such adjustment and
change as if new Warrant Certificates reflecting each such adjustment and change
had been issued to the Holders.
Section 8.10 Dividends and Other Distributions. In the event that
the Company shall at any time prior to the exercise of all Warrants declare a
dividend (other than a dividend consisting solely of shares of Common Stock and
other than a regularly scheduled dividend with respect to any calendar year
declared within the following calendar year which does not exceed twenty percent
(20%) of net earnings (after taxes) for such calendar year) or otherwise
distribute to all its stockholders any assets (including shares of any
subsidiary), property, rights, evidences of indebtedness, securities (other than
shares of Common Stock) then, forthwith upon such declaration, the Common Stock
Exercise Price (until another such declaration or other event causing price
adjustments to the Common Stock Exercise Price pursuant to this Section 8)
whether issued by the Company or by another, or other thing of value, shall be
reduced to the price (calculated to the nearest full cent) equal to the quotient
derived by dividing (i) the difference between (a) the product of the number of
shares of Common Stock outstanding immediately prior to such declaration
multiplied by the Market Price for Common Stock immediately prior to such
declaration and (b) the aggregate fair market value amount of such dividend or
distribution so declared by (ii) the product of the number of shares of Common
Stock outstanding immediately prior to such declaration multiplied by the Market
Price for Common Stock immediately prior to such declaration. Such adjustments
shall be made on the record date for determination of stockholders entitled to
receive such dividend or distribution.
<PAGE> 11
Section 9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable, without expense, upon the surrender thereof
by the Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of such Warrant
Certificates, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor in lieu thereof.
Section 10. Elimination of Fractional Interests. The Company shall
not be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of Warrants to purchase Common Stock, nor shall it be
required to issue scrip or pay cash in lieu of such fractional interests, it
being the intent of the parties that all fractional interests shall be
eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock or other securities, properties or rights.
Section 11. Reservation and Listing of Securities. The Company
shall at all times reserve and keep available out of its authorized capital
stock, solely for the purpose of issuance of Common Stock issuable upon exercise
of Warrants, such number of shares of Common Stock or New Common Stock as shall
be issuable upon exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Common Stock Exercise Price, all
Shares of Common Stock and other securities issuable upon such exercise when
issued shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any security holder of the Company. As long
as Warrants shall be outstanding, the Company shall use its reasonable best
efforts to cause the Common Stock issuable upon the exercise of Warrants to be
listed (subject to official notice of issuance) on all securities exchanges on
which the Common Stock may then be listed and/or quoted on NASDAQ/NMS. The
Company represents and warrants that (i) the Warrants have been duly authorized,
validly issued and are fully paid and non-assessable and are not subject to any
pre-emptive rights, and (ii) as of the date hereof, the Company had 53,746,765
shares of Common Stock issued and outstanding, including 4,239,598 held in its
treasury.
Section 12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders of Warrants the
right to vote or to consent or to receive notice as a stockholder in respect of
any meetings of stockholders for the election of directors or any other matter
or as having any rights whatsoever as a stockholder of the Company. If, however,
at any time prior to the expiration of the Warrants and their exercise, any of
the following events shall occur:
(a) the Company shall take a record of the holders of
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out
<PAGE> 12
of current or retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company;
or
(b) the Company shall offer to all the holders of shares of
Common Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written
notice of such event to each Holder of Warrants at least fifteen (15) days prior
to the date fixed as a record date or the date of closing the transfer books for
the determination of the stockholders entitled to such dividend, distribution or
offer. Such notice shall specify such record date or the date of closing the
transfer books, as the case may be. Failure to give such notice or any defect
therein shall not affect the validity of any action taken in connection with
such dividend, distribution, offer, dissolution, liquidation, winding up or
sale.
Section 13. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to a Holder, to the address of such Holder as shown
on the books of the Company; or
(b) If to the Company, to the address set forth in Section
3 hereof or to such other address as the Company may designate by
notice to the Holders.
Section 14. Supplements and Amendments. The Company and Metromedia
may from time to time supplement or amend this Agreement without the approval of
any Holders (other than Metromedia) in order to cure any ambiguity, to correct
or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and
Metromedia may deem necessary or desirable and which the Company and Metromedia
deem shall not adversely affect the interests of the Holders.
Section 15. Successors. Subject to compliance with all applicable
federal and state securities laws, this Agreement and the Warrants may be
transferred and assigned by Metromedia without the Company's consent. All the
covenants and provisions of this Agreement shall be binding upon and inure to
the benefit of the Company, the Holders and their respective successors and
assigns hereunder.
<PAGE> 13
Section 16. Termination. This Agreement shall terminate at the
close of business on June 20, 2007.
Section 17. Governing Law: Submission to Jurisdiction. This
Agreement and each Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of Delaware and for all purposes shall
be construed in accordance with the laws of said State without giving effect to
the rules of said State governing the conflicts of laws.
The Company, Metromedia and the Holders hereby agree that any action,
proceeding or claim against it arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of Delaware
or of the United States of America for the District of Delaware, and irrevocably
submits to such jurisdiction, which jurisdiction shall be exclusive. The
Company, Metromedia and the Holders hereby irrevocably waive any objection to
such exclusive jurisdiction or inconvenient forum and also hereby irrevocably
waive any right or claim to trial by jury in connection with any such action,
proceeding or claim. Any such process or summons to be served upon any of the
Company, Metromedia and the Holders (at the option of the party bringing such
action, proceeding or claim) may be served by transmitting a copy thereof, by
registered or certified mail, return receipt requested, postage prepaid,
addressed to it at the address set forth in Section 13 hereof. Such mailing
shall be deemed personal service and shall be legal and binding upon the party
so served in any action, proceeding or claim. The Company, Metromedia and the
Holders agree that the prevailing party(ies) in any such action or proceeding
shall be entitled to recover from the other party(ies) all of its/their
reasonable legal costs and expenses relating to such action or proceeding and/or
incurred in connection with the preparation therefor.
Section 18. Entire Agreement; Modification. This Agreement
(including the Loan Agreement to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
Section 19. Severability. If any provision of this Agreement shall
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision of this Agreement.
Section 20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only, are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
Section 21. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person, corporation or other entity than the
Company and Metromedia and any other Holders of Warrants and/or Warrant
Securities any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole and exclusive benefit of the Company
and Metromedia and any other Holders of Warrants and/or Warrant Securities.
<PAGE> 14
Section 22. Counterparts. This Agreement may be executed in any
number of counterparts, each of such counterparts shall for all purposes be
deemed to be an original and such counterparts shall together constitute but one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
[SEAL] RDM SPORTS GROUP, INC.
By
------------------------
Name: Henry Fong
Title: President
Attest:
---------------------------------------
Name: Charles E. Sanders
Title: Vice President and Secretary
<PAGE> 15
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO
THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH
ACT RELATING TO THE DISPOSITION OF SECURITIES) OR (iii) AN OPINION OF COUNSEL,
IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., ATLANTA, GEORGIA TIME, JUNE 20, 2007
No. W-1 3,000,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Metromedia Company, a Delaware
general partnership ("Metromedia"), or registered assigns, is the registered
holder of 3,000,000 Warrants to purchase initially, at any time from ninety (90)
days after the date of this Warrant Certificate until 5:30 p.m. Atlanta, Georgia
time on June 20, 2007 (the "Expiration Date"), up to 3,000,000 fully-paid and
non-assessable shares of Common Stock, par value $.01 per share (the "Common
Stock") of RDM Sports Group, Inc., a Delaware corporation (the "Company") at the
initial exercise price, subject to adjustment in certain events (the "Common
Stock Exercise Price"), equal to $.50 per share upon surrender of this Warrant
Certificate and payment of the Common Stock Exercise Price at an office or
agency of the Company, but subject to the conditions set forth herein and in the
Warrant Agreement dated as of June 20, 1997 between the Company and Metromedia
(the "Warrant Agreement"). Each Warrant entitles the holder thereof initially to
purchase one (1) share of Common Stock. Payment of the Common Stock Exercise
Price shall be made by certified or official bank check in New York Clearing
House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., Atlanta, Georgia time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
<PAGE> 16
The Warrants evidenced by this Warrant Certificate are a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the word "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that, upon the occurrence of certain
events, the Common Stock Exercise Price and the type and/or number of the
Company's securities issuable upon exercise of Warrants may, subject to certain
conditions, be adjusted. In such event, the Company will, at the request of the
holder, issue a new Warrant Certificate evidencing the adjustment in the Common
Stock Exercise Price and the number and/or type of securities issuable upon the
exercise of the Warrants; provided, however, that the failure of the Company to
issue such new Warrant Certificates shall not in any way change, alter or
otherwise impair the rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any change except for any tax or other governmental change
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of June 20, 1997
RDM SPORTS GROUP, INC.
[SEAL] By:
---------------------------
Name:
Henry Fong
Title:
Chief Executive Officer
Attest:
----------------------------
Name: Charles E. Sanders
Title: Secretary
<PAGE> 18
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably
elects to exercise the right, represented by this Warrant Certificate, to
purchase _ _____ shares of Common Stock and herewith tenders in payment for such
securities a certified or official bank check payable in New York Clearing House
Funds to the order of RDM Sports Group, Inc. in the amount of $_____________,
all in accordance with the terms of Section 3.1 of that certain Warrant
Agreement dated as of June 20, 1997 between RDM Sports Group, Inc., and
Metromedia Company. The undersigned requests that a certificate for such
securities be registered in the name of ______________________________, whose
address is ______________________________ _________________ and that such
certificate be delivered to _____________ whose address is
Dated: Signature
---------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
------------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE> 19
FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________
hereby sells, assigns and transfers unto
-----------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint ____________________
Attorney to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: Signature:
---------------- --------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
------------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE> 1
EXHIBIT 11.1
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Primary:
Weighted average common shares outstanding during year 49,152 49,004 29,571
Common shares issuable if all warrants had been converted
at the date of issuance (1) 525 -- 2,307
-----------------------------------------
Average common shares outstanding for primary calculation 49,677 49,004 31,878
=========================================
Fully Diluted:
Weighted average common shares outstanding during year 49,152 49,004 29,571
Net common shares issuable on exercise of warrants (2) 525 -- 2,307
-----------------------------------------
Average common shares outstanding for fully diluted 49,677 49,004 31,878
calculation
=========================================
Earnings:
Income (loss) before extraordinary item $ 4,506 $(51,004) $ 5,000
Extraordinary loss, net of tax 3,731 -- --
-----------------------------------------
Net earnings (loss) $ 775 $(51,004) $ 5,000
=========================================
Earnings (loss) per common share, primary and fully diluted:
Income (loss) before extraordinary item $ 0.09 $ (1.04) $ 0.16
Extraordinary loss, net of tax (0.07) -- --
-----------------------------------------
Net earnings (loss) $ 0.02 $ (1.04) $ 0.16
=========================================
</TABLE>
Notes:
(1) Includes warrants, the exercise of which would result in dilution of
earnings per share. Such warrants have been considered as exercised and the
proceeds therefrom used to purchase common stock at the average market price
during the period.
(2) Additional shares resulting from the application of the same principles
described in Note (1) above except that the proceeds from assumed exercises were
used to purchase Common Stock at the ending market price if that price was
higher than the average market price during the period.
<PAGE> 1
EXHIBIT 18.1
RDM Sports Group, Inc.
Re: Form 10-K Report for the year ended December 31, 1996.
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
In the fourth quarter of 1996, the Company changed from the last-in, first-out
("LIFO") method of valuing inventory to the first-in, first-out ("FIFO") method.
The Company believes this change will result in a better matching of
revenues/expenses and measurement of operating results by properly recognizing
the effect of productivity improvements and relatively short product life cycles
in the Company's cost of sales as related to the Company's remaining businesses.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
Very truly yours,
Arthur Andersen LLP
<PAGE> 1
EXHIBIT 21.1
RDM SPORTS GROUP, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION
NAME OF INCORPORATION
- ---- ----------------
<S> <C>
RDM Holdings, Inc., formerly known as Roadmaster Corporation, Inc. Delaware
International Sports and Fitness, Inc. Delaware
RDM Sports & Leisure, Inc., formerly known as Roadmaster Leisure, Inc. Ontario, Canada
Roadmaster Limited United Kingdom
RDM Environmental Remediation Management, Inc.,
formerly known as Roadmaster Service Corp. Delaware
Hutch Sports USA, Inc. Delaware
TQ, Inc. Kentucky
NWR, Inc., formerly known as Nelson/Weather-Rite, Inc. Delaware
Willow Hosiery Co., Inc. New York
AWTC, Inc. formerly known as Actava World Trade Corporation Delaware
Diversified Products Corporation Alabama
Diversified Trucking Corp. Alabama
Sports Group, Inc. Alabama
Roadmaster North America Corporation Delaware
Flexible Flyer Toys, Inc. Delaware
AA Funding Co. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements File Nos. 33-45692, 33-61016,
33-87520, 33-87524, and 33-87526.
Chicago, Illinois
June 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 32,141
<SECURITIES> 0
<RECEIVABLES> 63,086
<ALLOWANCES> 3,251
<INVENTORY> 70,550
<CURRENT-ASSETS> 179,317
<PP&E> 56,823
<DEPRECIATION> 14,130
<TOTAL-ASSETS> 293,212
<CURRENT-LIABILITIES> 163,600
<BONDS> 55,339
0
0
<COMMON> 537
<OTHER-SE> 52,703
<TOTAL-LIABILITY-AND-EQUITY> 293,212
<SALES> 366,683
<TOTAL-REVENUES> 366,683
<CGS> 365,401
<TOTAL-COSTS> 65,405
<OTHER-EXPENSES> 7,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,652
<INCOME-PRETAX> 15,866
<INCOME-TAX> (11,360)
<INCOME-CONTINUING> 4,506
<DISCONTINUED> 0
<EXTRAORDINARY> 3,731
<CHANGES> 0
<NET-INCOME> 775
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
IMPAIRMENT LOSS OF 1,470 RESTRUCTURING EXPENSE OF 4,262, AND 116,324 GAIN ON
SALE OF SUBSIDIARIES INCLUDED IN CURRENT YEAR INCOME BEFORE TAXES AND OTHER
ITEMS.
</FN>
</TABLE>
