SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20450
SWING-N-SLIDE CORP.
(Exact name of registrant as specified in its charter)
Delaware 36-3808989
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1212 Barberry Drive 53545
Janesville, WI (Zip code)
(Address of principal executive offices)
Registrant's telephone number including area code (608) 755-4777
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
N/A None
Securities registered pursuant to Section 12(g) of the Act:
Common stock,
par value $.01 per share
Title of class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates as of
March 16, 1998 was $10,566,324 (excludes shares held by directors and
officers of registrant). This is based on the closing price of the common
stock on the AMEX - American Stock Exchange.
At March 24, 1998, there were 7,908,964 shares of common stock
outstanding.
Part III incorporates information by reference from the Proxy Statement
for the annual meeting of stockholders to be held on June 4, 1998.
<PAGE>
Special Note Regarding Forward-Looking Statements
Certain matters discussed herein are "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company
"believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are forward-looking statements. Such forward-looking statements
are subject to certain risks and uncertainties which are described in
close proximity to such statements and which could cause actual results to
differ materially from those currently anticipated. Readers are urged to
consider these factors carefully in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-
looking statements. The forward-looking statements made herein are only
made as of the date of this report and the Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
PART I
Item 1 - Business
General
Swing-N-Slide Corp. is a leading designer, manufacturer and marketer of
commercial and consumer playground equipment. It was incorporated in
Delaware on January 10, 1992, and on January 31 of that year its wholly
owned subsidiary Newco, Inc., a Wisconsin corporation ("Newco"),
incorporated on November 27, 1991, acquired substantially all of the
assets and business of a predecessor company. Swing-N-Slide Corp. and
Newco, Inc. are sometimes referred to herein as the "Company" or "Swing-N-
Slide."
On March 13, 1997, Newco acquired all of the issued and outstanding shares
of GameTime, Inc., an Alabama corporation ("GameTime/R/"). Immediately
following the acquisition on March 13, 1997, GameTime/R/ merged into
Newco.
The Company's commercial playground systems are primarily sold under the
brand name GameTime/R/. GameTime/R/ is one of the leading manufacturers
and marketers of modular and custom commercial outdoor playground
equipment in the world. GameTime/R/ markets its playground systems and
components to municipalities, schools, park districts and other playground
equipment users through a network of independent representatives. The
Company's consumer playground systems are primarily sold under the brand
name Swing-N-Slide/R/. The Swing-N-Slide/R/ product line is marketed
through hardware and home center customers. The Swing-N-Slide/R/ do-it-
yourself wooden playground equipment is the market leader in the U.S. and
is sold worldwide through more than 6,000 home center, building supply and
hardware stores.
Products and Markets
Commercial Playground Systems
In 1994, the Company introduced a new line of wooden commercial playground
systems sold under the Tuff Kids/TM/ brand name. This is a complete
playground system targeted at small to medium-size applications such as
day care centers, churches, campgrounds and schools. Installation options
for Tuff Kids/TM/ commercial playgrounds range from do-it-yourself to full
installation by a contractor. The Tuff Kids/TM/ line is sold through the
same distribution channels as Swing-N-Slide/R/'s consumer playground
systems. There are five basic models of the Tuff Kids/TM/ commercial
units. By using a modular approach, future expandability becomes
simplified.
As mentioned previously, on March 13, 1997, Newco acquired the stock and
business of GameTime, Inc., a leading manufacturer of commercial
playground equipment.
GameTime/R/ manufactures over 4,000 products in a wide variety of colors.
GameTime/R/'s largest product offering is plastic and metal playground
systems, which are custom manufactured using several hundred pre-designed
components. GameTime/R/ also manufactures preschool playground equipment
such as mini-playgrounds and sandboxes, sport and fitness products, such
as basketball and soccer equipment, park products, such as picnic tables
and picnic benches and site complements, such as benches, litter
receptacles and bicycle racks. GameTime/R/ also offers replacement parts
and accessories for all its playground systems.
GameTime/R/'s products contain many unique proprietary components.
Examples of these include MegaLoc/R/, a clamp which maximizes strength
while minimizing installation error; Bigfoot/TM/, a large three-in-one
slide; Megarock/TM/, a freeform multiple use climber; and
PlayGraphics/TM/, graphics which are molded into GameTime/R/'s products.
The metal commercial playground equipment consists of playground systems
built from plastic and metal components, as well as ancillary playground
equipment such as swings and whirls. Plastic components are rotationally
molded using primarily low-density polyethylene and are used in slides,
tubes and roof components. Metal components include steel and aluminum
uprights, steel tubing, decks and hardware.
Nearly all of GameTime/R/'s sales are conducted through a network of
independent sales representatives. These sales representatives have access
to proprietary CAD software, which allows the customer to design in color
and price a 3-dimensional playground system on-site.
Consumer Playground Systems
The Swing-N-Slide/R/ product line consists of a broad line of do-it-
yourself wooden playground kits, plastic slides and accessories for home
playground use. These kits contain well-illustrated instructions to
simplify construction by do-it-yourself consumers. The kits are
specifically designed to be assembled by the consumer, and most of the
kits can be combined with each other and with Swing-N-Slide/R/'s high-
density polyethylene slides. The Company estimates that its playground
kits generally can be assembled by two adults in approximately two to
twelve hours depending on the size and complexity of the unit.
The wooden playground kits manufactured and sold by Swing-N-Slide/R/
include an assembly plan, brackets, hardware and various accessories in an
attractive box that illustrates and lists the lumber, nails and tools
required to complete the kit. The Company currently sells twelve basic
designs of playground kits.
Swing-N-Slide/R/ also designs and manufactures high-density polyethylene
slides for use on its wooden playground kits. In addition, the slides are
readily adaptable for use on pre-cut, do-it-yourself and custom playground
units produced by other manufacturers. The Company currently manufactures
and sells six different high density polyethylene slides.
Swing-N-Slide/R/ sells a broad line of accessories, which complement its
wooden playground kits. Examples of accessories include swing seats, metal
and wood swing hangers, climbing ropes, ladders, nets, merry-go-rounds and
replacement tarps. Swing-N-Slide/R/'s wooden playground kits include
between one and four open spots that the consumer can customize with
various accessories. Therefore, a significant portion of Swing-N-
Slide/R/'s accessories are sold in connection with the purchase of a
playground kit or as upgrades or replacement parts for Swing-N-Slide/R/'s
growing base of installed units. The Company also believes that a portion
of its accessories are sold as replacement parts for wooden and metal gym
sets produced by other manufacturers.
In 1996 the Company began selling a line of four ready-to-assemble wood
backyard playground kits. These kits include all required cut, drilled and
sanded lumber, hardware, certain accessories and an easy to follow
assembly plan. High-density polyethylene slides are included in three of
the four kits.
Fabrication and Other Products
The Company manufactures several metal components that are an integral
part of both its consumer and commercial playground systems. In addition,
the Company designs and manufactures custom fabricated metal and plastic
parts that are unrelated to playground equipment for a small group of
original equipment manufacturer (O.E.M.) customers. The Company's sales to
O.E.M. customers enable it to cost-effectively maintain a core of full-
time, highly skilled workers during the seasonal slower sales periods of
the Company's primary business.
In 1996, the Company also began manufacturing and selling the Shape
Plastics/TM/ brand of window well covers, composters and utility tubs. The
Shape Plastics/TM/ product line is sold through home center stores and
building supply retailers.
Customers
GameTime/R/'s commercial playgrounds systems are sold through a network of
independent sales representatives directly to city and county governments,
nursery, elementary and middle schools, and building contractors.
Because the Company's consumer playground systems products are mainly
designed for the do-it-yourself consumer, and because its kits require
lumber, almost all of the Company's consumer playground systems sales are
made to home center and building supply retailers such as 84 Lumber, Home
Depot, Lowes, and Payless Cashways, and hardware stores which carry lumber
such as Ace Hardware and HWI. The total number of retail outlets which
carry the Company's Swing-N-Slide/R/ product line is approximately 6,000.
Manufacture and Assembly
The Company's commercial playground systems, with the exception of the
Tuff Kids/TM/ product line, are manufactured at two facilities totaling
241,000 square feet located in Fort Payne, Alabama. These facilities are
located on a 78-acre parcel of land owned by the Company.
In addition, the Company leases a 3.5 acre parcel of land in Crystal
Springs, Georgia on which a wood-processing facility is located.
All of the Company's consumer playground systems and the Tuff Kids/TM/
commercial product line are manufactured, assembled and packaged at two
locations totaling 162,000 square feet located in Janesville, Wisconsin.
These facilities were designed specifically to assemble, package and
warehouse the Swing-N-Slide/R/ product line. These facilities and the
Company's production processes are designed to promote maximum production
flexibility. The plant has multiple production lines, which enable the
Company to produce varying quantities of products or change production
runs depending on customer demand. The Company anticipates that these
facilities will have sufficient capacity for at least the next twenty-four
months.
The Company typically enters into annual purchase agreements with
suppliers of its primary raw materials such as steel, paint, aluminum and
polyethylene. Management believes that alternate sources of supply are
readily available for substantially all raw materials and components. The
Company believes that it currently has an adequate supply of raw materials
and components. Imports represent an insignificant portion of the
Company's raw materials.
Competition
The market for commercial playground systems is highly competitive.
GameTime/R/ is one of four major manufacturers of commercial playground
systems. Its three largest competitors are Miracle Recreation Equipment
Company, Landscape Structures, Inc., and Little Tikes Commercial
PlaySystems, Inc., a unit of Rubbermaid, Inc. GameTime/R/ competes on the
basis of new product design and innovation, price, safety and unique
product characteristics.
The market for consumer playground systems is also highly competitive and
the Company faces competition from manufacturers of metal swing sets and
pre-cut and custom built wood kits. Hedstrom Corporation is a major
manufacturer and marketer of metal gym sets, plastic and metal slides and
accessories. Hedstrom Corporation also manufactures and sells a competing
line of do-it-yourself wooden playground kits. Several other manufacturers
also manufacture and market kit products which are similar to the
Company's consumer kits. The Company competes on the basis of design, a
complete merchandising program, quality, timeliness of delivery, service,
price, packaging and brand name recognition. The Company believes that its
design capabilities, complete merchandising programs, marketing activities
and reputation for on-time delivery enable it to compete effectively. Each
year customer programs are negotiated for the upcoming selling season.
Seasonality and Backlog
The Company's sales pattern is seasonal and is concentrated in the period
from April 1 through September 30. For the year ended December 31, 1997,
approximately 67 percent of the Company's net sales occurred between April
1 and September 30. Previous to the acquisition of GameTime/R/, the
Company's sales were concentrated in the period from January 1 through
June 30. For fiscal years 1995 and 1996 approximately 74 percent and 69
percent, respectively, of the Company's net sales occurred between January
1 through June 30. The amount of backlog existent at any one time is not a
significant factor and normally does not exceed 10 percent of annual
sales.
Typically, indebtedness under the Company's revolving credit facility
increases during the first quarter, primarily as a result of increased
working capital needs to meet the seasonal increase in production. The
Company offers a first order-dating program to its larger consumer
playground systems customers, which results in March and April being the
peak months for borrowing.
Trade Names and Trademarks
The Company uses numerous trademarks and trade names in its business.
While the Company believes that the products and services underlying such
trade names and trademarks are of importance to the Company and that such
trademarks and trade names as a whole are of material importance to the
Company's business in which they are used, none, besides GameTime/R/ and
Swing-N-Slide/R/, individually is material to the Company's business.
Regulation
The Company's products are designed and tested to meet the safety
guidelines of the American Society for Testing and Materials (ASTM) for
commercial playground systems and home playground systems. The Company
utilizes third-party testing agencies as well as conducting in-house
testing to ensure that they comply with the ASTM guidelines. Commercial
playground systems are also certified by the International Play Equipment
Manufacturers Association (IPEMA) of which the Company is an active
participant. IPEMA is a member driven international trade organization
which represents and promotes an open market for manufacturers of
playground equipment.
The Company is subject to the environmental laws and regulations of the
United States and the States of Wisconsin and Alabama, as well as local
ordinances. The Company has established procedures for maintaining
environmental law compliance, including procedures for the disposal of
limited quantities of hazardous waste, with United States Environmental
Protection Agency ("EPA") licensed haulers and recyclers. The Company also
incurs on-going costs in monitoring compliance with environmental laws and
in connection with disposal of non-hazardous waste materials. Costs for
environmental compliance and waste disposal have not traditionally been
material to the Company. However, environmental laws and regulations
imposed through the EPA and state environmental agencies nationwide are
becoming more stringent and could result in higher costs for the Company
and its competitors in the future.
In general, the Company has not experienced difficulty complying with
governmental regulations, and compliance has not had a material effect on
the Company's business.
Employees
At December 31, 1997, the Company had 516 full-time employees consisting
of 26 sales and marketing employees, 119 in administration and 371 engaged
in manufacturing and assembling. During peak production months, such as
March, the Company hires approximately 120 additional temporary employees
for manufacture and assembly. None of the full-time or temporary
employees are represented by a union. The Company has never experienced a
work stoppage or slowdown.
Item 2 - Properties
The Company's commercial playground systems manufacturing facilities are
located in Fort Payne, Alabama. The facilities consist of a 216,000 square
foot building and a 25,000 square foot building on approximately 78 acres.
All land and facilities are owned by the Company.
The Company's manufacturing and distribution facilities for consumer
playground systems and its corporate offices are located in Janesville,
Wisconsin. The facilities consist of two buildings, one approximately
132,000 square feet and the other approximately 30,000 square feet, both
located on approximately twenty-six acres. All land and facilities are
owned by the Company. Substantially all the Company's owned real property
is mortgaged to its senior lenders.
The Company has a non-cancelable operating lease through 2002 for an
approximately 92,000 square foot building that acts as the distribution
center for the Swing-N-Slide/R/ product line. In addition, the Company
leases approximately 20,000 square feet of warehouse space pursuant to a
year-to-year lease (commencing March 1, 1997). These facilities are
located in Janesville, Wisconsin, and are expected to provide sufficient
storage space for an adequate supply of the Company's products to meet
demand. In addition, the Company leases a 3.5 acre parcel of land in
Crystal Springs, Georgia on which a wood-processing facility is located.
Item 3 - Legal Proceedings
Swing-N-Slide has been named as a defendant in a class action pending in
the Court of Chancery of the State of Delaware, New Castle County (the
"Court") entitled Robert Barbieri vs. Swing-N-Slide Corp., Thomas R. Baer,
Richard G. Mueller, Andrew W. Code, James D. Dodson, Peter M. Gotsch,
Terence S. Malone, Henry B. Pearsall and Brian P. Simmons, GreenGrass
Holdings and GreenGrass Management, LLC, Case No. 14239, filed April 14,
1995 (the "Civil Action"). The complaint alleges that Swing-N-Slide's
tender offer for 3.6 million outstanding shares of the Company's Common
Stock, which was completed in January 1995, was the result of a deceptive
and manipulative plan on the part of the individual defendants to enrich
themselves. The plaintiff (the "Plaintiff") also challenges on similar
grounds the purchase by GreenGrass of (1) approximately 3.5 million shares
of Common Stock pursuant to a tender offer completed in February 1996, and
(2) certain securities (the "GreenGrass Transactions"). As to the first
allegation, the plaintiffs were granted certification of the two classes
of stockholders consisting of all stockholders other than the defendants
at November 14, 1994 (the "Self Tender Offer Class") or at March 15, 1995
(the "Proxy Statement Class"). As to the second allegation, the plaintiffs
were granted certification of a class consisting of all stockholders other
than the defendants as of January 10, 1996 (the "GreenGrass Tender Offer
Class", and together with the Self Tender Offer Class and the Proxy
Statement Class, the "Classes"). On February 12, 1996, the parties entered
into a Stipulation and Order (the "Stipulation and Order"), which the
Court entered on February 13, 1996, under which the Plaintiff agreed not
to seek injunctive relief with respect to GreenGrass Transactions, and
Swing-N-Slide, GreenGrass and GreenGrass Management, LLC agreed to amend
certain terms of the GreenGrass Transactions.
On December 31, 1997, counsel for the Plaintiff and counsel for the
Company, GreenGrass Holdings and GreenGrass Management, LLC executed a
Memorandum of Understanding (the "MOU") and tentatively agreed to a
settlement of the Civil Action. The MOU contemplates preparation and
execution by the parties of formal settlement documents, including a
Stipulation of Settlement (the "Stipulation of Settlement"), pursuant to
which (1) all claims of the Classes against all the defendants (including
Swing-N-Slide) in the Civil Action will be settled, released and dismissed
with prejudice, subject to the approval of the Court; (2) Swing-N-Slide
will pay on behalf of all the defendants a total of $700,000 (the
"Settlement Proceeds"), which will not be disbursed until the final Court
approval of the settlement, up to $175,000 of which may be used to pay
reasonable attorneys' fees, expenses and costs of plaintiffs' counsel; and
(3) the Company will file with the Commission, no later than March 31,
1998, a registration statement for the offer and sale of the Debentures
pro rata to stockholders (other than GreenGrass) of record on July 27,
1996. The Company and its Directors & Officers insurance carrier have
reached an agreement pursuant to which the insurance carrier will pay
$575,000 of the $700,000 to be paid on behalf of the defendents. Although
the Company does not believe the results of the suit or the settlement
will have material adverse effect on the financial condition or results of
operations of the Company, there can be no assurance that other
stockholder suits will not arise and that the resolution of such other
suits, if any, will not have a material adverse effect on the financial
condition or results of operations of the Company.
Due to the nature of its business, the Company, at any particular time, is
subject to a number of product liability claims for personal injuries
allegedly relating to its products. The Company has to date been
successful in defending or settling such claims. Thus far, no such claims
have resulted in any material payments on account of defending or settling
such claims. The Company's products are designed to meet applicable ASTM
guidelines. However, sales of the Company's products have increased and
several of the Company's products are new and, therefore, the claims
experience of such products cannot be predicted. Because of the foregoing
factors, there can be no assurance that the Company will not be subject to
material liabilities on account of product liability claims in the future.
The Company currently maintains an occurrence based product liability
insurance policy with coverage of up to $2.0 million per occurrence and in
the aggregate with a deductible of $50,000 per occurrence. In addition,
the Company maintains excess occurrence based coverage for product
liability claims with a limit of $50.0 million per occurrence and in the
aggregate and a deductible of $10,000 per occurrence.
In addition to product liability proceedings, the Company has, from time
to time, become a party to other claims and lawsuits in the ordinary
course of its business. The Company believes that such claims and lawsuits
to which the Company is currently a party will not have a material adverse
effect on the financial condition or results of operations of the Company.
Item 4 - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the last quarter of the year ended December 31, 1997.
Part II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters
Common Stock Prices and Dividends
Swing-N-Slide's stock has been traded on the American Stock Exchange
(AMEX) since August 10, 1995, under the symbol "SWG". From July 6, 1995 to
August 9, 1995, the stock was traded on the over-the-counter market and
prior to July 6, 1995 the stock was traded on the Nasdaq Stock Market. Set
forth below for the calendar quarters indicated are the high and low bid
information and closing prices, as applicable.
1996 1997
High Low High Low
1st Quarter 5 9/16 3 1/2 5 1/2 3 1/8
2nd Quarter 4 1/8 3 7/16 4 3/8 3 9/16
3rd Quarter 3 1/2 2 1/2 4 15/16 3 3/4
4th Quarter 3 3/8 2 5/8 4 3/4 3 3/4
As of March 24, 1998, there were 77 record holders and approximately 1,000
beneficial owners of Swing-N-Slide's common stock.
There have been no dividends paid to stockholders since the inception of
Swing-N-Slide in January 1992. Under the terms of the current credit
agreement, Swing-N-Slide and Newco are generally prohibited from paying
dividends to stockholders.
Options to purchase 5,000 shares of common stock of the Company at an
exercise price of $3.63 per share were granted to each of four directors
on May 23, 1997. Section 4(2) of the Securities Act of 1933, as amended,
was relied upon for exemption from registration with respect to such
option grants.
For additional information relating to sales of unregistered securities,
see "Liquidity and Capital Resources" under Item 7 hereof. Section 4(2) of
the Securities Act of 1933, as amended, was relied upon for exemption from
registration with respect to such sales.
Item 6 - Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31
1993 1994 1995 1996 1997
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of income data:
Net sales . . . . . . . . . . . $51,074 $51,816 $45,077 $41,872 $89,494
Gross profits . . . . . . . . . 26,769 25,500 21,902 20,544 40,901
Operating income . . . . . . . 13,786 7,909 11,131 9,618 11,573
Income before income taxes and
extraordinary item . . . . 12,569 7,378 6,727 3,050 3,307
Extraordinary item . . . . . . - - - - (860)
Net income . . . . . . . . . . 7,962 4,591 4,127 1,570 1,177
Per common share:
Basic:
Income before extraordinary
item . . . . . . . . . . . $0.83 $0.48 $0.67 $0.26 $0.29
Extraordinary item . . . . . - - - - (0.12)
Net income . . . . . . . . . $0.83 $0.48 $0.67 $0.26 $0.17
Diluted:
Income before extraordinary
item . . . . . . . . . . . $0.83 $0.48 $0.67 $0.26 $0.28
Extraordinary item . . . . . - - - - (0.10)
Net income . . . . . . . . . $0.83 $0.48 $0.67 $0.26 $0.18
Balance sheet data (at period
end):
Working capital (deficit) . . . ($4,783) $2,178 ($81) ($1,525) ($2,242)
Total assets . . . . . . . . . 44,330 47,610 44,585 46,264 101,165
Total debt(1) . . . . . . . . . 9,909 7,588 41,738 41,498 72,531
Total stockholders' equity
(deficit) . . . . . . . . . . 30,834 35,425 (796) 789 11,694
----------
(1) Includes revolving loan and current and long-term portions of debt and capital leases.
</TABLE>
Item 7- Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is a comparison of the results of operations of the Company
for the year ended December 31, 1997, with the results of operations for
the year ended December 31, 1996, and of the results of operations for the
year ended December 31, 1996, with the results of operations for the year
ended December 31, 1995.
On March 13, 1997, the Company acquired GameTime, Inc./R/, a leading
manufacturer of modular and custom commercial outdoor playground equipment
for schools, parks, and municipalities. GameTime/R/ was merged into Newco,
Inc., the Company's wholly owned operating subsidiary, as an independent
business unit. The acquisition of Gametime/R/ was accounted for using the
purchase method. Therefore, the results of operations for GameTime/R/ are
included with those of the Company beginning with the date of the
acquisition.
Results of Operations:
Year ended December 31, 1997, compared to the year ended December 31,
1996.
Net Sales. Net sales increased by $47.6 million, or 113.7 percent, for
the year ended December 31, 1997, as compared to the year ended December
31, 1996. The reason for the increase in sales for 1997 is the growth in
sales of commercial playground systems driven by the GameTime/R/
acquisition on March 13, 1997. Sale of the Company's consumer products
decreased $5.5 million, or 13.1 percent, for the twelve months ended
December 31, 1997 as compared to the same period in 1996. This sales
decline is primarily due to poor weather in some of the strongest sales
areas during the critical spring selling season and a change in the timing
of year-end orders reflecting retailers increased focus on reducing their
inventory levels.
Gross Profit. Gross profit increased $20.4 million, or 99.1 percent, but
decreased as a percentage of net sales to 45.7 percent for the year ended
December 31, 1997 as compared to 49.1 percent for the same period a year
ago. The main reasons for the decrease in gross profit margin were a
greater percentage of sales of the Company's lower margin product
categories and the impact of lower sales volume on fixed overhead costs
for consumer playground systems.
Selling Expenses. Selling and marketing expenses increased $12.8 million,
or 256.9 percent, and increased as a percentage of net sales to 19.9
percent for the year ended December 31, 1997 as compared to 11.9 percent
for the year ended December 31, 1996. The dollar increase is mainly due to
the inclusion of GameTime/R/'s selling and marketing expenses. The
increase as a percentage of net sales is mainly due to the higher selling
costs as a percentage of net sales inherent in the commercial playground
area.
General and Administrative Expenses. General and administrative expenses
increased $4.9 million, or 104.2 percent, but decreased as a percentage of
net sales to 10.7 percent for the year ended December 31, 1997 as compared
to 11.2 percent for the same period in 1996. The dollar increase is
primarily due to the inclusion of GameTime/R/'s general and administrative
expenses since March 13, 1997.
Amortization of Intangible Assets. Amortization of financing fees,
goodwill, and other identifiable intangible assets was $1.9 million for
the year ended December 31, 1997 as compared to $1.2 million for the same
period a year ago. Additional amortization resulted from the goodwill,
identifiable intangible assets and financing fees associated with the
GameTime/R/ acquisition.
Other Expenses. Interest expense increased $3.6 million to $7.5 million
for the twelve months ended December 31, 1997. This increase in interest
expense is due to the additional debt that was incurred in connection with
the GameTime/R/ acquisition.
Other expense decreased to $0.8 million for the year ended December 31,
1997, from $2.6 million for the same period a year ago. Included in other
expenses in 1996 were the fees and expenses paid by the Company related to
the tender offer by GreenGrass Holdings in February 1996. In 1997, other
expense includes the costs related to the settlement of stockholder
lawsuits.
Extraordinary Item. For the year ended December 31, 1997, the Company
recorded an extraordinary loss of approximately $0.9 million (net of a tax
benefit of approximately $0.5 million) for the write-off of unamortized
deferred financing fees. These costs were written-off in connection with
the repayment in full of the indebtedness under the Company's previous
credit agreement.
Year ended December 31, 1996, compared to the year ended December 31,
1995.
Net Sales. Net sales decreased by $3.2 million, or 7.1 percent, for the
year ended December 31, 1996, as compared to the year ended December 31,
1995. Sales of the consumer core product line (playground kits, slides and
accessories) were down 12.7 percent for the year ended December 31, 1996,
compared to the same period a year ago. The sales decline was primarily
attributable to the continued trend of retailers carrying less inventory,
industry consolidation and competition in the market.
Gross Profit. Gross profit decreased $1.4 million, or 6.2 percent, but
increased as a percentage of net sales to 49.1 percent for the year ended
December 31, 1996, as compared to 48.6 percent for the year ended December
31, 1995. The primary reasons for the increase in gross profit margin were
lower high-density polyethylene costs and improved manufacturing
efficiencies which more than offset the negative impact of the allocation
of fixed overhead costs to lower sales volume.
Selling Expenses. Selling and marketing expenses decreased $0.3 million,
or 5.8 percent, but increased slightly as a percentage of net sales to
11.9 percent for the year ended December 31, 1996, as compared to 11.7
percent for the same period in the previous year. The dollar decrease was
mainly due to a decrease in commission expense ($0.2 million) and a
decrease in display building costs ($0.1 million).
General and Administrative Expenses. General and administrative expenses
increased $0.3 million, or 6.7 percent, and increased as a percentage of
net sales to 11.2 percent for the year ended December 31, 1996 as compared
to 9.8 percent for the year ended December 31, 1995. The primary reason
for the dollar increase was the payment of a management consulting
services fee ($0.3 million) to certain members of GreenGrass Capital LLC
in 1996 pursuant to an annual management agreement the Company entered
into in 1996.
Amortization of Intangible Assets. Amortization of financing fees,
goodwill and other identifiable intangible assets was $1.2 million for the
year ended December 31, 1996, as compared to $1.1 million for the same
period in 1995. Additional amortization resulted from the financing fees
associated with the February 1996 issuance of 10% Convertible Subordinated
Debentures due 2004.
Other Expenses. Interest expense decreased $0.4 million to $3.9 million
for the year ended December 31, 1996, as compared to 1995. This decrease
was primarily due to the pay down of $5.0 million of the Company's term
note in 1995 and the pay down of $6.5 million of the Company's term note
in the first two quarters of 1996 ($0.8 million). However, this decrease
was partially offset by the interest on the 10% Convertible Subordinated
Debentures due 2004 that were issued in 1996 ($0.4 million).
Other expenses increased from $92,000 for the year ended December 31, 1995
to $2.6 million for the year ended December 31, 1996. Included in other
expenses were the fees and expenses paid by the Company related to the
tender offer by GreenGrass Holdings in February 1996 ($2.6 million).
Income Taxes. Income taxes for the year ended December 31, 1996, were at
an effective rate of 48.5 percent. This differs from the effective rate of
38.7 percent in 1995 because certain costs related to the tender offer
completed in February 1996 were not deductible for tax purposes.
Liquidity and Capital Resources
On March 13, 1997, the Company's operating subsidiary, Newco, acquired all
of the issued and outstanding shares of capital stock of GameTime, Inc.
for $27.0 million and the assumption of GameTime indebtedness of
approximately $13.2 million. Immediately following the acquisition,
GameTime was merged with and into Newco. To provide financing for this
acquisition, to refinance certain indebtedness of the Company, Newco and
GameTime, and to provide funds for working capital purposes, the Company
and Newco entered into the senior credit facility described below.
On March 13, 1997, a group of banks provided Newco with a $69.5 million
senior credit facility. The facility consists of (a) a $20.0 million
revolving credit facility; (b) a $45.0 million Term Loan A facility; and
(c) a $4.5 million Term Loan B facility. The entire facility is guaranteed
by Swing-N-Slide Corp., and secured by first priority mortgages or
security interests in all of Newco's tangible and intangible assets, as
well as a pledge of 100 percent of the outstanding shares of Newco Common
Stock. In addition, Newco is subject to certain restrictive covenants,
which include, among other things, restrictions on the payment of
dividends or issuance of capital stock and a limitation on additional
indebtedness.
Borrowings under the revolving credit facility are limited to specified
percentages of inventories and accounts receivable, not to exceed $20.0
million. The interest rate on borrowings under the revolving credit
facility is either (i) 0.75 to 1.50 percent over the prime rate, or (ii)
2.00 to 2.75 percent over LIBOR, with the precise rate depending upon
Newco's debt-to-cash flow ratio. The revolving credit facility matures on
March 13, 2003. Up to $1.0 million of the revolving credit facility is
available for the issuance of letters of credit. At December 31, 1997, the
outstanding amount of the revolving credit facility was approximately $7.6
million and the applicable interest rate was 2.75 percent over LIBOR.
The Term Loan A facility bears interest at the same rates as the revolving
credit facility. The principal portion of the Term Loan A facility must be
repaid quarterly beginning June 30, 1997, in amounts of between $0.5
million and $2.9 million, with the final quarterly installment due
December 31, 2002. Newco is also required to make annual prepayments on
the Term Loan A facility of between 50 and 75 percent of its excess cash
flow. Based on the excess cash flow calculation for the year ended
December 31, 1997, a mandatory prepayment of approximately $2.8 million is
required. This amount has been classified as part of the current portion
of long-term debt.
The Term Loan B facility bears interest at either 2 percent over the prime
rate or 3.25 percent over LIBOR. The Term Loan B facility matures June 30,
2003, but must be prepaid quarterly beginning June 30, 1997, in amounts of
between $16,667 and $33,334.
On March 13, 1997, Swing-N-Slide and Newco entered into Securities
Purchase Agreements with Massachusetts Mutual Life Insurance Company and
certain of its affiliates, pursuant to which the Company sold warrants
(the "MassMutual Warrants") to purchase an aggregate of 607,297 shares of
its Class A Common Stock, and Newco sold its 12 percent Senior
Subordinated Notes due March 13, 2005 (the "MassMutual Notes"), in the
aggregate principal amount of $12.5 million. The MassMutual Warrants are
exercisable at any time during the period commencing March 13, 1997, and
terminating on the later of March 13, 2003, or the date upon which all of
the MassMutual Notes have been paid in full, at an exercise price of $.001
per share.
On March 13, 1997, the Company also entered into an Investment Agreement
with GreenGrass Holdings pursuant to which the Company sold to GreenGrass
Holdings 1,245,331 shares of its Common Stock for an aggregate purchase
price of $5.0 million or a per share purchase price of $4.015, and sold
its Junior Subordinated Bridge Note (the "Bridge Note") in the principal
amount of $2.5 million due no later that December 31, 1997, bearing
interest at a rate of 13.5 percent per annum. On December 31, 1997, the
Bridge Note of $2.5 million was paid. The Company used the proceeds from
the issuance of $2.5 million of its Common Stock at a per share purchase
price of $4.015 to pay-off the Bridge Note. Of the $2.5 million of Common
Stock sold, GreenGrass Holding purchased approximately $2.0 million and
the remainder was purchased by non-GreenGrass Holdings stockholders of
record on August 25, 1997.
The Company made capital expenditures totaling approximately $1.6 million
in the year ended December 31, 1997. The Company continues to evaluate
opportunities for both internal and external growth and believes that
funds generated from operations and its current and future capacity for
borrowing will be sufficient to fund current business operations as well
as future capital expenditures and growth opportunities.
Impact of Year 2000
Certain of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, such
older computer programs could misinterpret a dating using "00" as the year
1900 rather than the year 2000. The computer software of the Swing-N-
Slide/R/ division has been updated to address the year 2000 issue. The
GameTime/R/ division is in the process of updating its computer software
and is expected to complete the updating process by the end of 1998. The
Company does not believe (1) that the cost of addressing the year 2000
issues is a material event or uncertainty that would cause reported
financial information not to be necessarily indicative of future operating
results or financial conditions, or (2) that the costs or the consequences
of incomplete or untimely resolution of the year 2000 issue represent a
known material event or uncertainty that is reasonably expected to affect
its future financial results, or cause its reported financial information
not to be necessarily indicative of future operating results or future
financial conditions.
Item 8 - Financial Statements and Supplementary Data
Index to Financial Statements:
Form 10-K
Swing-N-Slide Corp.: Page Number
Report of Independent Auditors . . . . . . . . . . . . . . . . 22
Consolidated Balance Sheets at December 31, 1996
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 23-24
For the years ended December 31, 1995, 1996 and 1997:
- Consolidated Statements of Income . . . . . . . . . . . . . 25
- Consolidated Statements of Stockholders' Equity . . . . . . 26
- Consolidated Statements of Cash Flows . . . . . . . . . . 27-28
Notes to Consolidated Financial Statements . . . . . . . . . 29-43
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors and Stockholders
Swing-N-Slide Corp.
We have audited the accompanying consolidated balance sheets of Swing-N-
Slide Corp. (the Company) as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997.
Our audits also included the financial statement schedules listed in the
Index at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules 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 consolidated financial position of the
Company at December 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information
set forth therein.
Milwaukee, Wisconsin /s/ ERNST & YOUNG LLP
January 30, 1998
<PAGE>
Swing-N-Slide Corp.
Consolidated Balance Sheets
December 31
1996 1997
(In Thousands)
Assets
Current assets:
Cash $1 $677
Accounts receivable, less allowance for
doubtful accounts of $98 and $407 5,637 13,295
Other receivables 550 162
Refundable income taxes - 1,157
Inventories 7,235 12,533
Prepaid expenses 1,654 1,586
Deferred income taxes - 765
------- -------
Total current assets 15,077 30,175
Property, plant and equipment, net 5,524 20,535
Deferred financing and other costs, net
of accumulated amortization of $914 and
$868 2,478 3,639
Identifiable intangible assets, net of
accumulated amortization of $253 and
$527 1,147 6,909
Deferred income taxes 560 -
Goodwill, net of accumulated amortization
of $3,048 and $4,049 21,478 39,907
------- -------
$46,264 $101,165
======= =======
<PAGE>
December 31
1996 1997
(In Thousands)
Liabilities and stockholders' equity
Current liabilities:
Revolving loan $5,625 $7,615
Accounts payable 2,711 5,949
Accrued income taxes 1 -
Accrued expenses 1,155 9,396
Deferred income taxes 110 -
Current portion of long-term debt 7,000 9,457
------- -------
Total current liabilities 16,602 32,417
Long-term debt 23,550 49,590
Convertible subordinated debentures
payable to stockholder 5,323 5,869
Deferred income taxes - 1,595
Commitments and contingent liability
(Notes 4 and 10)
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized, no
shares issued or outstanding - -
Common stock, $.01 par value,
25,000,000 shares authorized,
9,604,000 and 11,542,268 shares issued 96 115
Class B common stock, $.01 par value,
1,750,000 shares authorized, no
shares issued or outstanding - -
Additional paid-in capital 27,646 37,518
Excess purchase price over predecessor
basis (5,627) (5,627)
Retained earnings 19,022 20,199
Cost of 3,600,000 and 3,634,385 shares
of common stock in treasury (40,348) (40,511)
------- -------
Total stockholders' equity 789 11,694
======= =======
$46,264 $101,165
======= =======
See accompanying notes.
<PAGE>
Swing-N-Slide Corp.
Consolidated Statements of Income
Year ended December 31
1995 1996 1997
(In Thousands, Except Per Share Data)
Net sales $45,077 $41,872 $89,494
Cost of goods sold 23,175 21,328 48,593
------- ------- -------
Gross profit 21,902 20,544 40,901
Operating expenses:
Selling 5,296 4,991 17,813
General and
administrative 4,416 4,710 9,616
Amortization of
intangible assets 1,059 1,225 1,899
------- ------- -------
10,771 10,926 29,328
------- ------- -------
Operating income 11,131 9,618 11,573
Other expense:
Interest expense 4,312 3,931 7,485
Other, net 92 2,637 781
------- ------- -------
Total other expense 4,404 6,568 8,266
------- ------- -------
Income before income taxes
and extraordinary item 6,727 3,050 3,307
Provision (credit) for
income taxes:
Current 1,745 625 (235)
Deferred 630 630 1,280
Benefit applied to reduce
goodwill 225 225 225
------- ------- -------
2,600 1,480 1,270
------- ------- -------
Income before extraordinary
item 4,127 1,570 2,037
Extraordinary loss, net of
income tax benefit of $540 - - 860
------- ------- -------
Net income $ 4,127 $ 1,570 $ 1,177
======= ======= =======
Basic earnings per share:
Income before
extraordinary item $.67 $.26 $ .29
Extraordinary item - - (.12)
------- ------- ------
Net income $.67 $.26 $ .17
======= ======= ======
Diluted earnings per share:
Income before
extraordinary item $.67 $.26 $ .28
Extraordinary item - - (.10)
------- ------- ------
Net income $.67 $.26 $ .18
======= ======= ======
<PAGE>
<TABLE>
Swing-N-Slide Corp.
Consolidated Statements of Stockholders' Equity
<CAPTION>
Excess Purchase
Additional Price Over
Common Stock Paid-In Predecessor Retained
Shares Amount Capital Basis Earnings
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 9,600,000 $ 96 $27,631 $(5,627) $13,325
Purchase of common stock for
treasury - - - - -
Net income - - - - 4,127
--------- --------- --------- ---------- ---------
Balance at December 31, 1995 9,600,000 96 27,631 (5,627) 17,452
Exercise of stock options 4,000 - 15 - -
Net income - - - - 1,570
--------- --------- --------- ---------- ---------
Balance at December 31, 1996 9,604,000 96 27,646 (5,627) 19,022
Issuance of common stock, net of
offering costs of $617 1,381,238 13 4,918 - -
Issuance of common stock warrant - - 2,723 - -
Purchase of common stock for
treasury - - - - -
Issuance of common stock in
repayment of Junior Subordinated
Bridge Note 488,382 5 1,956 - -
Interest on Junior Subordinated
Bridge Note converted to common
stock 68,648 1 275 - -
Net income - - - - 1,177
---------- --------- --------- ---------- ---------
Balance at December 31, 1997 11,542,268 $115 $37,518 $(5,627) $20,199
========== ========= ========= ========== =========
<CAPTION>
Treasury Stock
Shares Amount Total
<S> <C> <C> <C>
Balance at December 31, 1994 - $ - $ 35,425
Purchase of common stock for treasury 3,600,000 (40,348) (40,348)
Net income - - 4,127
--------- --------- ---------
Balance at December 31, 1995 3,600,000 (40,348) (796)
Exercise of stock options - - 15
Net income - - 1,570
--------- --------- ---------
Balance at December 31, 1996 3,600,000 (40,348) 789
Issuance of common stock, net of
offering costs of $617 - - 4,931
Issuance of common stock warrant - - 2,723
Purchase of common stock for treasury 34,385 (163) (163)
Issuance of common stock in repayment
of Junior Subordinated Bridge Note - - 1,961
Interest on Junior Subordinated
Bridge Note converted to common
stock - - 276
Net income - - 1,177
--------- --------- ---------
Balance at December 31, 1997 3,634,385 $(40,511) $ 11,694
========= ========= =========
</TABLE>
<PAGE>
Swing-N-Slide Corp.
Consolidated Statements of Cash Flows
Year ended December 31
1995 1996 1997
(In Thousands)
Operating activities
Net income $4,127 $1,570 $1,177
Adjustments to reconcile net
income to net cash provided by
operating activities:
Deferred income taxes 630 630 1,280
Benefit applied to reduce goodwill 225 225 225
Write-off of unamortized deferred
financing costs - - 1,400
Depreciation 1,279 1,219 1,666
Amortization of deferred financing
costs and intangible assets 1,059 1,225 1,899
Amortization of debt discount - - 289
Interest converted to convertible
subordinated debentures and
common stock - 323 822
Other 29 7 -
Changes in operating assets and
liabilities:
Accounts receivable (87) (1,068) (2,692)
Other receivables 45 (385) 529
Refundable/accrued income taxes 613 (48) (1,158)
Inventories 1,853 (830) (1,129)
Prepaid expenses (258) (687) 681
Accounts payable (623) 459 (567)
Accrued expenses (380) (187) 4,699
------- ------- --------
Net cash provided by operating
activities 8,512 2,453 9,121
Investing activities
Purchase of property, plant and
equipment (669) (448) (1,640)
Purchase of GameTime, Inc., net of
cash acquired of $461 and
including transaction costs of
$2,896 - - (42,614)
Other - - (141)
------- ------- --------
Net cash used in investing
activities (669) (448) (44,395)
Financing activities
Net change in revolving loan (5,750) 3,925 1,990
Issuance of long-term debt 45,000 - 63,777
Payments of long-term debt (5,100) (9,488) (34,264)
Issuance of convertible subordinated
debentures payable to stockholder - 5,000 -
Debt issuance costs incurred (1,645) (1,463) (3,044)
Proceeds from issuance of common
stock - - 4,931
Proceeds from issuance of common
stock warrant - - 2,723
Proceeds from exercise of stock
options - 15 -
Purchase of treasury stock (40,348) - (163)
-------- ------- --------
Net cash provided by (used in)
financing activities (7,843) (2,011) 35,950
-------- ------- --------
Net increase (decrease) in cash - (6) 676
Cash at beginning of year 7 7 1
------- ------- -------
Cash at end of year $7 $1 $677
======= ======= =======
Supplemental disclosure of cash
flows information -
Cash paid during the year for:
Interest $4,313 $3,513 $5,619
Income taxes, net of refunds
received 1,132 661 384
See accompanying notes.
<PAGE>
Swing-N-Slide Corp.
Notes to Consolidated Financial Statements
December 31, 1997
1. Significant Accounting Policies
Consolidation
The consolidated financial statements of Swing-N-Slide Corp. (the Company)
include the accounts of Swing-N-Slide Corp. and its wholly owned
subsidiary, Newco, Inc. (Newco).
Nature of Business
The Company operates in one business segment, designing and manufacturing
consumer and commercial outdoor playground equipment. The Swing-N-Slide
division markets its primary product lines, kits for wooden swing sets and
climbing units, plastic slides and related accessories, nationwide through
home improvement retail centers. The GameTime division markets its modular
and custom playground systems and components to municipalities, schools,
park districts and other playground equipment users through a network of
independent representatives. The Company performs periodic credit
evaluations of its customers and generally does not require collateral.
Revenue Recognition
Revenue is recognized when product is shipped to customers.
Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method.
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets for financial reporting purposes and under
accelerated methods for income tax purposes.
Deferred Financing Costs
Costs incurred to obtain long-term financing are amortized on a straight-
line basis over the term of the related debt.
Identifiable Intangible Assets and Goodwill
Identifiable intangible assets and the excess of the cost of acquisition
over the fair value of net assets acquired (goodwill) are amortized on a
straight-line basis over their estimated useful lives, ranging from 5 to
40 years.
Impairment of Long-Lived Assets
Property, plant and equipment, identifiable intangible assets and goodwill
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the sum of
the expected undiscounted cash flows is less than the carrying value of
the related asset or group of assets, a loss will be recognized for the
difference between the fair value and carrying value of the asset or group
of assets. Such analyses necessarily involve significant judgment.
Income Taxes
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for income tax purposes.
Advertising
Advertising costs are expensed as incurred and totaled $1,712,000,
$1,728,000 and $2,490,000 in 1995, 1996 and 1997, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying
consolidated financial statements and notes. Actual results could differ
from those estimates.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share," which replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible
securities. All earnings per share amounts for all periods have been
restated to conform to the SFAS No. 128 requirements. The numerator and
denominator for the calculation of basic and diluted earnings per share
are computed as follows (in thousands):
1995 1996 1997
Numerator:
Numerator for basic
earnings per share -
income before
extraordinary item $4,127 $1,570 $2,037
Effect of dilutive
securities -
10% convertible subordinated
debentures - - 343
------ ------ ------
Numerator for diluted
earnings per share $4,127 $1,570 $2,380
======= ======= =======
Denominator:
Denominator for basic
earnings per share -
weighted average shares 6,178 6,004 6,942
Effect of dilutive
securities:
Employee stock options
(treasury stock method) - - 36
Warrants - - 485
10% convertible subordinated
debentures - - 1,161
------ ------ -------
Denominator for diluted
earnings per share 6,178 6,004 8,624
====== ====== =======
Pending Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes the standards
for reporting and displaying comprehensive income and its components
(revenues, expenses, gains and losses) as part of a full set of financial
statements. This statement requires that all elements of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. The statement is effective
for fiscal years beginning after December 15, 1997. Since this statement
applies only to the presentation of comprehensive income, it will not have
any impact on the Company's results of operations, financial position or
cash flows.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which establishes the
standards for the manner in which public enterprises are required to
report financial and descriptive information about their operating
segments. The statement defines operating segments as components of an
enterprise for which separate financial information is available and
evaluated regularly as a means for assessing segment performance and
allocating resources to segments. A measure of profit or loss, total
assets and other related information are required to be disclosed for each
operating segment. In addition, this statement requires the annual
disclosure of information concerning revenues derived from the
enterprise's products or services, countries in which it earns revenue or
holds assets, and major customers. The statement is also effective for
fiscal years beginning after December 15, 1997. The adoption of SFAS No.
131 will not affect the Company's results of operations or financial
position, but may affect the disclosure of segment information.
2. Acquisition
On March 13, 1997, Newco acquired all of the issued and outstanding shares
of capital stock of GameTime, Inc. (GameTime), a leading manufacturer of
modular and custom commercial outdoor playground equipment, for
$27,000,000 ($25,000,000 in cash and Newco's unsecured 10.0% Subordinated
Notes due March 2005 in the principal amount of $2,000,000) and the
assumption of GameTime indebtedness of approximately $13,179,000.
Immediately following the acquisition, GameTime was merged with and into
Newco.
The acquisition has been accounted for under the purchase method;
accordingly, the results of operations of GameTime are included in the
consolidated financial statements from the acquisition date. The purchase
price was allocated based on the estimated fair values of identifiable
intangible and tangible assets acquired and liabilities assumed at the
acquisition date. The excess of the purchase price over the net assets
acquired of $19,655,000 has been recorded as goodwill.
The following unaudited pro forma results of operations for the years
ended December 31, 1996 and 1997 assume the acquisition of GameTime
occurred on January 1, 1996:
1996 1997
(In Thousands, Except
Per Share Data)
Net sales $92,138 $96,445
Income before extraordinary item 1,987 1,022
Income before extraordinary item
per share:
Basic 0.25 0.13
Diluted 0.24 0.12
This pro forma information does not purport to be indicative of the
results that actually would have been obtained if the combined operations
had been conducted during the periods presented and is not intended to be
a projection of future results.
3. Balance Sheet Detail
Inventories consist of the following:
December 31
1996 1997
(In Thousands)
Finished goods and work in process $3,109 $ 7,112
Raw materials 4,126 5,421
------- --------
$7,235 $12,533
======= =========
Property, plant and equipment consist of the following:
December 31
1996 1997
(In Thousands)
Land and land improvements $ 253 $ 982
Buildings 3,122 7,581
Shop equipment 6,175 16,253
Office equipment 654 1,790
Vehicles 2 57
------- -------
10,206 26,663
Less accumulated depreciation 4,814 6,479
------- --------
5,392 20,184
Construction in progress 132 351
------- --------
$ 5,524 $20,535
======= ========
Identifiable intangible assets consist of the following:
December 31
1996 1997
(In Thousands)
Patent cost $1,400 $1,995
Trademarks and trade names - 5,441
------- -------
1,400 7,436
Less accumulated amortization 253 527
------- -------
$1,147 $6,909
======= ========
Accrued expenses consist of the following:
December 31
1996 1997
(In Thousands)
Accrued commissions $ - $2,557
Other accrued expenses 1,155 6,839
------ -------
$1,155 $9,396
====== =======
4. Revolving Loan, Long-Term Debt, Convertible Subordinated Debentures and
Lease Commitments
Long-term debt and convertible subordinated debentures consist of the
following:
December 31
1996 1997
(In Thousands)
Term loans $30,550 $46,450
12% senior subordinated notes, net of
original issue discount of $2,434 at
December 31, 1997 based on an imputed
interest rate of 14.9% - 10,066
10% convertible subordinated debentures
payable to stockholder 5,323 5,869
10% subordinated notes payable (see
Note 2) - 2,000
Other - 531
------- -------
Total long-term debt 35,873 64,916
Less amounts due within one year 7,000 9,457
------- -------
$28,873 $55,459
======= =======
On January 4, 1996, the Company entered into an agreement with GreenGrass
Holdings, a general partnership of which one of the general partners is a
group of the Company's senior management, pursuant to which the general
partnership commenced a tender offer for up to 3,510,000 shares of common
stock of the Company at a purchase price of $6.50 per share. The tender
offer was completed on February 16, 1996. The agreement also provided that
GreenGrass Holdings would purchase the Company's newly authorized 10%
convertible subordinated debentures, maturing in 2004. The proceeds from
the issuance of the debentures was used to pay down approximately $2.5
million of the Company's borrowings under its term loan and to pay fees
associated with the tender offer and the issuance of the debentures. The
debentures are convertible into shares of common stock of the Company at
the rate of $4.80 of the face amount of the debentures for each share of
common stock. Interest on the debentures is payable semiannually. Through
February 15, 1999, at the option of the Company, interest on the
debentures may be paid in the form of additional debentures. The
debentures are unsecured.
To provide financing for the acquisition of GameTime (see Note 2) and to
refinance certain indebtedness of Newco and GameTime, the Company and
Newco entered into the following agreements during 1997. In connection
with the prepayment in full of the previous Newco credit agreement, the
Company wrote off the unamortized balance of the related deferred
financing costs of $1,400,000.
On March 13, 1997, Newco entered into a $69,500,000 senior credit
facility. The facility consists of a $20,000,000 revolving loan facility,
a $45,000,000 Term Loan A facility and a $4,500,000 Term Loan B facility.
The entire credit facility is guaranteed by the Company and secured by
substantially all assets of Newco. Newco is subject to certain
restrictive covenants which include, among other things, restrictions on
the payment of dividends or issuance of capital stock and a limitation on
additional indebtedness.
Borrowings under the revolving loan facility are limited to specified
percentages of inventories and accounts receivable, not to exceed
$20,000,000. Interest on borrowings under the revolving loan facility is
payable quarterly at either 0.75 to 1.5% over the prime rate or 2.0 to
2.75% over LIBOR, with the precise rate dependent upon Newco's debt-to-
cash flow ratio. The revolving loan facility matures in March 2003. Up
to $1,000,000 of the revolving loan facility is available for issuance of
letters of credit. The Company is subject to an annual commitment fee of
0.5% of the daily unused portion of the commitment.
The weighted average interest rate on the revolving loan facility at
December 31, 1996 and 1997, is 10.0% and 8.8%, respectively.
The Term Loan A facility bears interest at the same rates as the revolving
loan facility. The principal portion of the Term Loan A facility is
payable quarterly in amounts between $500,000 and $2,900,000, with the
final quarterly principal payment due in December 2002. In addition,
mandatory prepayments are required based on excess cash flow, as defined.
The Term Loan B facility bears interest at either 2% over the prime rate
or 3.25% over LIBOR, at the Company's option. The Term Loan B facility is
payable quarterly in amounts between $16,667 and $33,334, with the final
quarterly principal payment due in June 2003.
On March 13, 1997, the Company and Newco entered into Securities Purchase
Agreements with Massachusetts Mutual Life Insurance Company, pursuant to
which the Company sold warrants (the MassMutual Warrants) to purchase an
aggregate of 607,297 shares of its common stock, and Newco sold its 12%
Senior Subordinated Notes due March 2005 in the aggregate principal amount
of $12,500,000. The MassMutual Warrants are exercisable at any time
through March 2003 at an exercise price of $.001 per share. The warrant
has been valued at $2,723,000 for financial statement purposes.
In addition, on March 13, 1997, the Company entered into an Investment
Agreement with GreenGrass Holdings pursuant to which the Company sold to
GreenGrass Holdings 1,245,331 shares of its common stock for an aggregate
purchase price of $5,000,000 and sold its Junior Subordinated Bridge Note
in the principal amount of $2,500,000 due no later than December 31, 1997,
bearing interest at 13.5%, to be paid by the issuance of shares of the
Company's common stock and accompanied by warrants exercisable through
March 2007 to purchase 50,000 shares of its common stock at a price of
$4.015 per share. On December 31, 1997, the Company paid approximately
$539,000 in cash and issued 488,382 shares of its common stock in
repayment of the principal amount of the Junior Subordinated Bridge Note.
Future maturities of long-term debt, including the convertible
subordinated debentures payable to stockholder, at December 31, 1997, are
as follows (in thousands):
1998 $ 9,457
1999 8,304
2000 8,720
2001 9,655
2002 6,895
Thereafter 24,319
--------
67,350
Less: original issue discount 2,434
--------
$64,916
========
Future minimum payments under a noncancelable operating lease total
$1,625,000 and are due as follows: 1998-$291,000; 1999-$299,000; 2000-
$308,000; 2001-$318,000; 2002-$327,000; and thereafter-$82,000. Rent
expense, including payments under operating leases, was $221,000, $480,000
and $820,000 in 1995, 1996 and 1997, respectively.
5. Income Taxes
Deferred income taxes consist of the following:
December 31
1996 1997
(In Thousands)
Deferred tax assets:
Noncompete agreement basis
difference $2,070 $1,865
Goodwill basis difference - 525
Inventory basis difference 30 395
Property, plant and equipment basis
differences 54 -
State net operating loss
carryforward - 184
Accrued liabilities not currently
deductible for tax 158 596
Other 38 157
------- -------
2,350 3,722
Deferred tax liabilities:
Goodwill basis difference 1,560 -
Intangible assets basis difference - 2,263
Property, plant and equipment basis
difference - 1,910
Prepaid expenses currently
deductible for tax 340 379
------- -------
1,900 4,552
------- -------
Net deferred tax asset (liability) $ 450 $ (830)
======= =======
For state income tax purposes, the Company has net operating loss
carryforwards of approximately $3,000,000 which expire in 2012.
The components of the provision for income taxes consist of the following:
Year ended December 31
1995 1996 1997
(In Thousands)
Current:
Federal $1,578 $ 576 $ (235)
State 167 49 -
------ ------ ------
1,745 625 (235)
Deferred:
Federal 556 556 1,130
State 74 74 150
------ ------ ------
630 630 1,280
Benefit applied to reduce
goodwill 225 225 225
------ ------ ------
$2,600 $1,480 $1,270
====== ====== ======
The provision for income taxes differs from the amount computed by
applying the federal statutory rate of 34% to income before income taxes
and extraordinary item as follows:
Year ended December 31
1995 1996 1997
(In Thousands)
Taxes at statutory rate $2,287 $1,037 $1,124
State income taxes, net of
federal benefit 212 107 29
Nondeductible expenses related
to tender offer - 281 -
Other 101 55 117
------ ------ ------
$2,600 $1,480 $1,270
====== ====== ======
6. 401(k) Plan
The Company sponsors two 401(k) plans covering employees who have
completed six months of service and are at least 21 years old. The plans
require Company contributions of 40% or 100% of each participant's
deferral, not to exceed 8% or 4% of the participant's eligible income,
respectively. The Company expensed $157,000, $169,000 and $249,000,
respectively, in connection with these plans in 1995, 1996 and 1997.
7. Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
interpretations in accounting for its stock options because, as discussed
below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing stock options.
Under APB 25, because the exercise price of the stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Effective April 1, 1996, the Company adopted a new Incentive Stock Plan,
which reserved 1,200,000 shares of common stock for granting of
nonqualified and incentive stock options to key employees and directors.
In addition, the Company has a Stock Program which has terminated except
as to outstanding options.
Any incentive stock option that is granted under the plan may not be
granted at a price less than the fair market value of the stock on the
date of grant. Nonqualified stock options may be granted at the exercise
price established by a committee, which may be less than, equal to or
greater than the fair market value of the stock on the date of grant.
Options expire no more than ten years from date of grant. For employees,
option vesting provisions are determined at the date of grant by the
compensation committee of the Board of Directors. Each independent
director receives an annual fully vested option for 5,000 shares of common
stock at a purchase price equal to the fair market value of the stock on
the date of grant.
At December 31, 1996 and 1997, there were 1,165,000 and 317,000 shares
available for grant, respectively. Changes in option shares are as
follows:
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 150,000 $5.76 258,220 $5.36 322,434 $4.24
Granted:
1995-$3.63 to $5.91 per
share 121,680 4.87 - - - -
1996-$3.70 to $4.67 per
share - - 239,284 3.80 - -
1997-$3.63 to $10.88 per
share - - - - 1,008,980 7.78
Exercised-$3.63 per share - - (4,000) 3.63 - -
Canceled or expired (13,460) 5.38 (171,070) 5.34 (37,207) 3.70
------- ------- ---------
Outstanding at end of year
(1997-$3.63 to $10.88 per
share) 258,220 5.36 322,434 4.24 1,294,207 7.01
======= ======= =========
Exercisable at December 31,
1997 481,207 4.27
=========
</TABLE>
The weighted average remaining contractual life of the outstanding options
is 8.7 years.
Pro forma information regarding net income and net income per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Company has accounted for its stock options granted
subsequent to December 31, 1994 under the fair value method of SFAS No.
123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 6.4% in 1995 and 1996 and 5.8% in 1997,
dividend yield of 0%, volatility factor of the expected market price of
the Company's common stock of .43 in 1995 and 1996 and .445 in 1997, and
expected life of the option of approximately 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
The Company's pro forma information follows:
Year ended December 31
1995 1996 1997
(In Thousands,
Except Per Share Data)
Pro forma net income $4,071 $ 994 $ 660
Pro forma net income per share:
Basic $ .66 $ .17 $ .10
Diluted .66 .17 .12
8. Related-Party Transactions
The Company has entered into a management consulting agreement with
certain members of GreenGrass Capital LLC, a stockholder, pursuant to
which these members provide management consulting services and receive an
annual fee of $300,000. Fees of $263,000 and $300,000 were expensed by the
Company during 1996 and 1997, respectively, pursuant to this agreement.
9. Major Customers
During 1997, there were no sales to any customer that exceeded 10% of net
sales. Sales to one customer were 16% and 22% of net sales during 1995
and 1996, respectively. Accounts receivable from this customer represented
28% of accounts receivable at December 31, 1996. Sales to another customer
were 11% and 16% of net sales during 1995 and 1996, respectively. Accounts
receivable from this customer represented 29% of accounts receivable at
December 31, 1996.
10. Contingent Liability
The Company has been named as a defendant in the proceeding Robert
Barbieri v. Swing-N-Slide Corp., Thomas R. Baer, Richard G. Mueller,
Andrew W. Code, James D. Dodson, Peter M. Gotsch, Terence S. Malone, Henry
B. Pearsall, Brian P. Simmons, GreenGrass Holdings and GreenGrass
Management LLC. The complaint alleges that the Company's purchase of 3.6
million outstanding shares of common stock, which was completed in January
1995, was the result of a deceptive and manipulative plan on the part of
the individual defendants to enrich themselves. The plaintiff also
challenges on similar grounds the purchase by GreenGrass Holdings of
approximately 3.6 million shares of common stock pursuant to a tender
offer in February 1996. The plaintiff was granted certification of two
classes of stockholders consisting of all stockholders other than the
defendants at November 14, 1994 or at March 15, 1995. The relief sought
includes the imposition of a constructive trust on all proceeds of the
repurchase received by the defendants as well as various nonmonetary forms
of relief. The parties have tentatively agreed to a settlement which is
subject to court approval. The Company does not believe the results of the
suit or settlement will have a material adverse effect on the financial
condition or results of operations of the Company.
11. Quarterly Results of Operations (Unaudited)
1996
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
(In Thousands, Except Per Share Data)
Net sales $ 9,602 $19,213 $6,728 $6,329
Gross profit 5,019 10,367 2,622 2,536
Net income (loss) (1,151) 3,379 (198) (460)
Earnings (loss) per
share:
Basic (.19) .56 (.03) (.08)
Diluted (.19) .49 (.03) (.08)
1997
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
(In Thousands, Except Per Share Data)
Net sales $10,849 $34,923 $24,827 $18,895
Gross profit 4,970 17,736 10,940 7,255
Income (loss) before
extraordinary item (282) 4,291 98 (2,070)
Net income (loss) (1,142) 4,291 98 (2,070)
Earnings (loss) per
share:
Basic earnings (loss)
per share:
Income (loss) before
extraordinary item $ (.04) $.61 $.01 $ (.29)
Extraordinary item (.14) - - -
----- ------ ------ ------
Net income (loss) $ (.18) $.61 $ .01 $ (.29)
===== ====== ====== ======
Diluted earnings
(loss) per share:
Income (loss) before
extraordinary item $(.04) $.49 $.01 $(.29)
Extraordinary item (.14) - - -
----- ------ ------ ------
Net income
(loss) $(.18) $.49 $.01 $(.29)
===== ====== ====== ======
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with SFAS No. 128.
<PAGE>
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
Information concerning directors is incorporated by reference
from the "Election of Directors" section of Swing-N-Slide's
Proxy Statement for the annual meeting of stockholders to be
held on June 4, 1998 (the "Proxy Statement"), which Proxy
Statement will be filed within 120 days after the end of Swing-
N-Slide's fiscal year. Information concerning the executive
officers will be included in Exhibit A, "Executive Officers of
Swing-N-Slide", to the Proxy Statement. Information concerning
compliance with Section 16(a) of the Exchange Act is
incorporated by reference from the "Section 16(a) Beneficial
Ownership Reporting Compliance" section of the Proxy Statement.
Item 11 - Executive Compensation
Incorporated by reference from the "Executive Compensation"
section of the Proxy Statement.
Item 12 - Security Ownership of Certain Beneficial
Owners and Management
Incorporated by reference from the "Ownership of Common
Stock" section of the Proxy Statement.
Item 13 - Certain Relationships and Related
Transactions
Incorporated by reference from the "Executive Compensation"
and "Other Transactions and Certain Relationships" sections
of the Proxy Statement.
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedules
The following consolidated financial statements are included in
Item 8:
Form 10-K
Page Number
Swing-N-Slide Corp.:
Consolidated Balance Sheets at December 31, 1996
and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 23-24
For the years ended December 31, 1995, 1996, and 1997:
- Consolidated Statements of Income . . . . . . . . . . . . . . 25
- Consolidated Statements of Stockholders' Equity . . . . . . . 26
- Consolidated Statements of Cash Flows . . . . . . . . . . 27-28
Notes to Consolidated Financial Statements . . . . . . . . 29-43
The following consolidated financial statement
schedules are included in Item 14(d):
Form 10-K
Page Number
Schedule I Condensed Financial Information of
Registrant . . . . . . . . . . . . . . . . . . . 50-51
Schedule II Valuation and Qualifying Accounts . . . . . . . . . 52
All other schedules are omitted since the required
information is not present or is not present in amounts
sufficient to require submission of the schedule, or because
the information required is included in the consolidated
financial statements or the notes thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
(c) Exhibits
Exhibit
Number Exhibit
(3.1) Amended and Restate Certification of Incorporation of Swing-N-
Slide Corp. [Incorporated by reference to Exhibit 4.(i)(2) of
Swing-N-Slide Corp.'s Registration Statement on Form S-8
(Registration No. 33-48735)].
(3.2) Amended and Restate By-Laws of Swing-N-Slide Corp. [Incorporated
by reference to Exhibit 3.2 of Swing-N-Slide Corp.'s Annual
Report on Form 10-K for the fiscal year ended December 31,
1996].
(4.1) Credit Agreement, dated as of March 13, 1997, among Swing-N-
Slide Corp., Newco, Inc., the Lenders party thereto and Fleet
National Bank, as lender and agent, together with the notes
related thereto [Incorporated by reference to Exhibits 4.1
through 4.10 of Swing-N-Slide Corp.'s Current Report on Form 8-K
dated March 13, 1997].
(4.2) Securities Purchase Agreement, dated as of March 13, 1997, among
Swing-N-Slide Corp., Newco, Inc. and Massachusetts Mutual Life
Insurance Company, together with the notes and warrants related
thereto [Incorporated by reference to Exhibits 4.11, 4.15, 4.16,
4.20, and 4.21 of Swing-N-Slide Corp.'s Current Report on Form
8-K dated March 13, 1997].
(4.3) Securities Purchase Agreement, dated as of March 13, 1997, among
Swing-N-Slide Corp., Newco, Inc. and MassMutual Corporate
Investors, together with the note and warrant related thereto
[Incorporated by reference to Exhibits 4.12, 4.17 and 4.22 of
Swing-N-Slide Corp.'s Current Report on Form 8-K dated March 13,
1997].
(4.4) Securities Purchase Agreement, dated as of March 13, 1997, among
Swing-N-Slide Corp., Newco, Inc. and Mass Mutual Participation
Investors, together with the note and warrant related thereto
[Incorporated by reference to Exhibits 4.13, 4.18 and 4.23 of
Swing-N-Slide Corp.'s Current Report on Form 8-K dated March 13,
1997].
(4.5) Securities Purchase Agreement, dated as of March 13, 1997, among
Swing-N-Slide Corp., Newco, Inc. and MassMutual Corporate Value
Partners Limited, together with the note and warrant related
thereto [Incorporated by reference to Exhibits 4.14, 4.19 and
4.24 of Swing-N-Slide Corp.'s Current Report on Form 8-K dated
March 13,1997].
(4.6) 10% Convertible Subordinated Debenture due 2004, dated February
16, 1996, in the original principal amount of $4,300,000 issued
by Swing-N-Slide Corp. to GreenGrass Holdings [Incorporated by
reference to Exhibit 10.(i)(1) of Swing-N-Slide Corp.'s
Registration Statement of Form S-2 (Registration No. 333-3907)].
(4.7) 10% Convertible Subordinated Debenture due 2004, dated April 25,
1996, in the original principal among of $700,000 issued by
Swing-N-Slide Corp. to GreenGrass Holdings [Incorporated by
reference to Exhibit 10.(i)(2)of Swing-N-Slide Corp.'s
Registration Statement on Form S-2(Registration No. 333-3907].
(4.8) Warrant No.1 for the Purchase of Common Stock of Swing-N-Slide
Corp., dated as of March 13,1997 [Incorporated by reference to
Exhibit 4.27 of Swing-N-Slide Corp.'s Current Report on Form 8-K
dated March 13, 1997].
(4.9) Amended and Restated Registration Rights Agreement, dated as of
March 13, 1997, between Swing-N-Slide Corp. and GreenGrass
Holdings [Incorporated by reference to Exhibit 4.28 of Swing-N-
Slide Corp.'s Current Report on Form 8-K dated March 13, 1997].
(10.1) Lease dated October 13, 1995, between Hovde Development,
Inc.,lessor, and Swing-N-Slide Corp., Lessee [Incorporated by
reference to Exhibit 10.2 of Swing-N-Slide Corp.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1996].
(10.2) Swing-N-Slide Corp. 1996 Incentive Stock Plan [Incorporated by
reference to Exhibit 10 (iii) (A)(1) of Swing-N-Slide Corp.'s
Registration Statement on Form S-2 (Registration No. 333-3907)].
(10.3) Management Consulting Agreement dated as of February 16, 1996,by
and among Newco, Inc., Swing-N-Slide Corp., Glencoe Investment
Corporation and Desai Capital Management Incorporated
[Incorporated by reference to Exhibit 10.5 of Swing-N-Slide
Corp.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1996].
(10.4) Employment Agreement dated November 25,1997 between
Swing-N-Slide Corp.and Frederic L.Contino.
(21) Subsidiaries of Swing-N-Slide Corp.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedule [EDGAR version only].
(27.1) Financial Data Schedule Restated for the period ended June 30,
1997 [EDGAR version only].
(27.2) Financial Data Schedule Restated for the period ended September
30, 1997 [EDGAR version only].
<PAGE>
(d) Financial Statement Schedules
Schedule I
Swing-N-Slide Corp.
Condensed Financial Information of Registrant
Years Ended December 31, 1995, 1996 and 1997
Swing-N-Slide Corp. (Parent Company)
Condensed Balance Sheet
December 31
1996 1997
(In Thousands)
Investment in, and amounts due from, wholly
owned subsidiary $ 36,113 $ 37,122
------- -------
Total assets $ 36,113 $ 37,122
======= =======
Current liabilities $ 34 $ 215
Amounts due to wholly owned subsidiary 29,967 19,344
Convertible subordinated debentures
payable to stockholder 5,323 5,869
Stockholders' equity:
Common stock 96 115
Cost of 3,600,000 and 3,634,385 shares of
common stock in treasury (40,348) (40,511)
Other stockholders' equity 41,041 52,090
------- -------
789 11,694
------- -------
Total liabilities and stockholders' equity $36,113 $37,122
======= =======
Condensed Statement of Income
Year Ended December 31
1995 1996 1997
(In Thousands)
Management fees from wholly
owned subsidiary $ 2,100 $ 2,200 $ 2,200
Costs and expenses:
Administrative expense 432 503 428
Interest expense - 437 832
Other expense - 1,488 682
------ ------- ------
432 2,428 1,942
------ ------- ------
Income (loss) before income taxes
and equity in net income of
subsidiary 1,668 (228) 258
Provision (credit) for income taxes 570 (80) 90
Equity in net income of subsidiary 3,029 1,718 1,009
------ ------- ------
Net income $ 4,127 $ 1,570 $ 1,177
====== ======= ======
Condensed Statement of Cash Flows
Year Ended December 31
1995 1996 1997
(In Thousands)
Operating activities:
Net income $ 4,127 $ 1,570 $ 1,177
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Equity in net income of
subsidiary (3,029) (1,718) (1,009)
Interest converted to
convertible subordinated
debentures and common stock - 323 822
Increase (decrease) in current
liabilities 34,651 (5,190) (10,442)
Net cash provided by (used
in) operating activities 35,749 (5,015) (9,452)
Net cash provided by (used
in) investing activities 4,599 - -
Financing activities:
Issuance of long-term debt - - 2,500
Payments of long-term debt - - (539)
Issuance of convertible
subordinated debentures - 5,000 -
Proceeds from issuance of
common stock - - 4,931
Proceeds from issuance of
common stock warrant - - 2,723
Proceeds from exercise of
stock options - 15 -
Purchase of treasury stock (40,348) - (163)
------ ------ -------
Net cash provided by (used in)
financing activities (40,348) 5,015 9,452
------ ------ -------
Net increase in cash - - -
Cash at beginning of year - - -
------ ------ -------
Cash at end of year $ - $ - $ -
====== ====== =======
<PAGE>
Schedule II
Swing-N-Slide Corp.
Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and Acquired End of
Description of Year Expenses Balance 1 Deductions 2 Year
(In Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995 $ 75 $ 25 $ - $ 9 $ 91
======= ========= ======= ======= ========
Year ended December 31, 1996 $ 91 $ 10 $ - $ 3 $ 98
======= ========= ======= ======= ========
Year ended December 31, 1997 $ 98 $ 259 $ 300 $ 250 $ 407
======= ========= ======= ======= ========
---------------
1 Balance of acquired company at date of acquisition.
2 Uncollectible accounts written of, net of recoveries.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on behalf
of the undersigned, thereunto duly authorized.
Swing-N-Slide CORP. Date
By /s/ Frederic L. Contino 3/27/98
Frederic L. Contino
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name and Title Signature Date
TERENCE S. MALONE /s/ Terence S. Malone 3/27/98
Chairman of the Board Terence S. Malone
of Directors and a Director
FREDERIC L. CONTINO /s/Frederic L. Contino 3/27/98
President and Chief Frederic L. Contino
Executive Officer
RICHARD E. RUEGGER /s/Ricahrd E. Ruegger 3/27/98
Vice President-Finance, Richard E. Ruegger
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
DAVID S. EVANS /s/ David S. Evans 3/27/98
Director David S. Evans
GEORGE N. HERRERA /s/Geroge N. Herrera 3/27/98
Director George N. Herrera
TIMOTHY R. KELLEHER /s/Timothy R. Kelleher 3/27/98
Director Timothy R. Kelleher
GARY A. MASSEL /s/Gary A. Massel 3/27/98
Director Gary A. Massel
CAROLINE L. WILLIAMS /s/Caroline L. Willams 3/27/98
Director Caroline L. Williams
<PAGE>
SWING-N-SLIDE CORP.
EXHIBIT INDEX TO FORM 10-K
For the Fiscal Year ended December 31, 1997
Exhibit
Number Exhibit
(3.1) Amended and Restate Certification of Incorporation of Swing-N-
Slide Corp. [Incorporated by reference to Exhibit 4.(i)(2) of
Swing-N-Slide Corp.'s Registration Statement on Form S-8
(Registration No. 33-48735)].
(3.2) Amended and Restate By-Laws of Swing-N-Slide Corp. [Incorporated
by reference to Exhibit 3.2 of Swing-N-Slide Corp.'s Annual
Report on Form 10-K for the fiscal year ended December 31,
1996].
(4.1) Credit Agreement, dated as of March 13, 1997, among Swing-N-
Slide Corp., Newco, Inc., the Lenders party thereto and Fleet
National Bank, as lender and agent, together with the notes
related thereto [Incorporated by reference to Exhibits 4.1
through 4.10 of Swing-N-Slide Corp.'s Current Report on Form 8-K
dated March 13, 1997].
(4.2) Securities Purchase Agreement, dated as of March 13, 1997, among
Swing-N-Slide Corp., Newco, Inc. and Massachusetts Mutual Life
Insurance Company, together with the notes and warrants related
thereto [Incorporated by reference to Exhibits 4.11, 4.15, 4.16,
4.20, and 4.21 of Swing-N-Slide Corp.'s Current Report on Form
8-K dated March 13, 1997].
(4.3) Securities Purchase Agreement, dated as of March 13, 1997, among
Swing-N-Slide Corp., Newco, Inc. and MassMutual Corporate
Investors, together with the note and warrant related thereto
[Incorporated by reference to Exhibits 4.12, 4.17 and 4.22 of
Swing-N-Slide Corp.'s Current Report on Form 8-K dated March 13,
1997].
(4.4) Securities Purchase Agreement, dated as of March 13, 1997, among
Swing-N-Slide Corp., Newco, Inc. and Mass Mutual Participation
Investors, together with the note and warrant related thereto
[Incorporated by reference to Exhibits 4.13, 4.18 and 4.23 of
Swing-N-Slide Corp.'s Current Report on Form 8-K dated March 13,
1997].
(4.5) Securities Purchase Agreement, dated as of March 13, 1997, among
Swing-N-Slide Corp., Newco, Inc. and MassMutual Corporate Value
Partners Limited, together with the note and warrant related
thereto [Incorporated by reference to Exhibits 4.14, 4.19 and
4.24 of Swing-N-Slide Corp.'s Current Report on Form 8-K dated
March 13,1997].
(4.6) 10% Convertible Subordinated Debenture due 2004, dated February
16, 1996, in the original principal amount of $4,300,000 issued
by Swing-N-Slide Corp. to GreenGrass Holdings [Incorporated by
reference to Exhibit 10.(i)(1) of Swing-N-Slide Corp.'s
Registration Statement of Form S-2 (Registration No. 333-3907)].
(4.7) 10% Convertible Subordinated Debenture due 2004, dated April 25,
1996, in the original principal among of $700,000 issued by
Swing-N-Slide Corp. to GreenGrass Holdings [Incorporated by
reference to Exhibit 10.(i)(2)of Swing-N-Slide Corp.'s
Registration Statement on Form S-2(Registration No. 333-3907].
(4.8) Warrant No.1 for the Purchase of Common Stock of Swing-N-Slide
Corp., dated as of March 13,1997 [Incorporated by reference to
Exhibit 4.27 of Swing-N-Slide Corp.'s Current Report on Form 8-K
dated March 13, 1997].
(4.9) Amended and Restated Registration Rights Agreement, dated as of
March 13, 1997, between Swing-N-Slide Corp. and GreenGrass
Holdings [Incorporated by reference to Exhibit 4.28 of Swing-N-
Slide Corp.'s Current Report on Form 8-K dated March 13, 1997].
(10.1) Lease dated October 13, 1995, between Hovde Development,
Inc.,lessor, and Swing-N-Slide Corp., Lessee [Incorporated by
reference to Exhibit 10.2 of Swing-N-Slide Corp.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1996].
(10.2) Swing-N-Slide Corp. 1996 Incentive Stock Plan [Incorporated by
reference to Exhibit 10 (iii) (A)(1) of Swing-N-Slide Corp.'s
Registration Statement on Form S-2 (Registration No. 333-3907)].
(10.3) Management Consulting Agreement dated as of February 16, 1996,by
and among Newco, Inc., Swing-N-Slide Corp., Glencoe Investment
Corporation and Desai Capital Management Incorporated
[Incorporated by reference to Exhibit 10.5 of Swing-N-Slide
Corp.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1996].
(10.4) Employment Agreement dated November 25,1997 between
Swing-N-Slide Corp.and Frederic L.Contino.
(21) Subsidiaries of Swing-N-Slide Corp.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedule [EDGAR version only].
(27.1) Financial Data Schedule Restated for the period ended June 30,
1997 [EDGAR version only].
(27.2) Financial Data Schedule Restated for the period ended September
30, 1997 [EDGAR version only].
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of January 5,
1998 is made and entered into by and between SWING-N-SLIDE CORP., a
Delaware corporation (the "Company"), located at 1212 Barberry Drive,
Janesville, WI 54545 and FREDERIC L. CONTINO (the "Executive"), residing
at 12109 Grandview Terrace, Apple Valley, MN 55124.
The Company desires to employ the Executive under the terms and
conditions set forth in this Agreement, and the Executive desires to
accept such employment subject to the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and
covenants set forth herein, the parties agree as follows:
1. Employment and Duties
1.1 Subject to the terms and conditions of this Agreement, the
Company hereby agrees to employ the Executive to serve as the President
and Chief Executive Officer of the Company. The Executive shall be
elected to the Board of Directors effective as of the Commencement Date
(as defined below). The Company shall use its best efforts to retain the
Executive on the Board of Directors during the Term (as defined below) and
any extensions thereof. During or prior to December, 1998, the Board of
Directors shall review the Executive's performance and shall consider
appointing him to the position of Chairman of the Board.
1.2 The Executive shall report directly to the Board of Directors of
the Company. The Executive shall perform the duties, and assume the
responsibilities and obligations, contemplated by the title referred to in
Section 1.1, and shall perform such other duties and undertake such other
responsibilities and obligations, consistent with his position, as the
Board of Directors shall determine from time to time.
1.3 The Executive shall (i) devote his full business time and
attention and best efforts to the business and affairs of the Company and
its affiliates, (ii) use his best efforts to promote the further the
interests of the Company, and (iii) faithfully and diligently perform his
responsibilities and duties hereunder.
1.4 The Executive shall not, without the prior written consent of
the Company, render services, whether or not compensated, to any other
person or as an employee, independent contractor or otherwise; provided,
however, that nothing herein shall prevent or restrict the Executive from
(a) rendering services to charitable, civic or other not-for-profit
organizations or managing his personal and family interests in such a
manner as shall not materially interfere with Executive's performance of
his duties under this Agreement; or (b) serving on the Board of Directors
of a corporation not in competition with the Company, with the consent of
the Company which shall not be unreasonably withheld; or (c) accepting
speaking engagements which do not materially interfere with the normal
performance of the Executive's duties.
1.5 The Executive shall comply with all employment policies and
practices of the Company as announced in writing from time to time,
provided that none of such policies conflict with any provision of this
Agreement, as the same may be modified from time to time.
2. Term of Agreement
2.1 The term of employment shall be deemed to commence on January 5,
1998 (the "Commencement Date"). The Executive shall not be deemed an
employee of the Company for any purpose until the Commencement Date.
2.2 Unless extended by mutual consent or as provided in Section 2.3
below, this Agreement shall terminate on the third (3rd) anniversary of
the Commencement Date (such three-year period being hereinafter referred
to as the "Initial Term").
2.3 Following the initial expiration date of the Initial Term, this
Agreement shall be deemed extended from year to year ("Extension Year")
unless, no later than six (6) months prior to the end of the Term (or any
Extension Year) the Company shall have notified the Executive in writing
that it doe snot elect to extend the Term past its then expiration date.
The expression "Term" as used herein shall mean the Initial Term and all
Extension Years during which this Agreement remains in effect.
3. Compensation
3.1 Annual Base Salary. During the Term, the Company shall pay to
the Executive an Annual Base Salary of Three Hundred Thousand
Dollars ($300,000), payable in equal installments in arrears in accordance
with the Company's customary payroll practices. The Company will review
the Executive's performance within 45 days after the end of each fiscal
year of the Term, and will increase the Executive's Annual Base Salary for
the then-current year by up to ten percent (10%) of the previous year's
Annual Base Salary, based upon (a) a three-level good-excellent-outstanding
set of criteria, and (b) a good faith evaluation by the Board of Directors
of the Executive's performance in such previous year.
3.2 Incentive Bonus. In addition to the Annual Base Salary, the
Company will pay to the Executive, with respect to each fiscal year, a
two-tiered Incentive Bonus computed in accordance with the following
provisions of this Section 3.2.
3.2.1 First Tier Bonus
(a) First Year
(i) If the EBITDA of the Company for the fiscal year ending
December 31, 1998 at least equals or exceeds EBITDA for the fiscal year
ending December 31, 1997, the First Tier Bonus shall be the sum of
(A) First Portion:
(1) a fraction, the numerator of which is the
percentage by which the Company's EBITDA for such year exceeds the
Company's EBITDA for 1997 (but not exceeding 30%) and the denominator of
which is ten percent (10%), and
(ii) forty percent (40%) of the Executive's Adjusted Annual Base
Salary (as defined below); plus
(B) Second Portion: An additional bonus of up to 10% of
Adjusted Annual Base Salary, based upon a sliding scale of achievement of
personal goals as established by the Board of Directors in consultation
with the Executive no later than March 1, 1998.
(b) Years After First Year. The First Tier Bonus for all years
after 1998 shall be the sum of
(A) First Portion: an amount (not exceeding 120% of
Adjusted Annual Base Salary) which is the product of
(1) a fraction, the numerator of which is the
percentage by which the Company's EBITDA for such year exceeds the
Company's EBITDA for the prior year and the denominator of which shall be
the Target EBITDA Growth Rate for such year and
(ii) forty percent (40%) of the Executive's Adjusted
Annual Base Salary (as defined below); plus
(B) Second Portion: An additional bonus of up to 10% of
Adjusted Annual Base Salary, based upon a sliding scale of achievement of
personal goals as established by the Board of Directors in consultation
with the Executive no later than first day of each such year.
(c) "Adjusted Annual Base Salary" means the greater of
(i) $325,000 and (ii) the Executive's actual Annual Base Salary.
(d) The "Target EBITDA Growth Rate" shall be established by the
Board of Directors in consultation with the Executive no later than
January 1 of each fiscal year after the first fiscal year.
3.2.2 Second Tier Bonus
(a) On or before the commencement of each fiscal year during
the Term, the Board of Directors, in consultation with the Executive,
shall establish the Company's Operating Budget for each fiscal quarter of
the then-current fiscal year.
(b) The Second Tier Bonus shall be twelve and one-half
percent (12 and 1/2%) of the Adjusted Base Salary for each quarter at the
end of which the Company's Cumulative EBITDA Budget from the beginning of
such year through the end of such quarter has been attained.
3.2.3 Certain Adjustments for EBITDA (a) The
calculation of EBITDA for the purpose of calculating all bonus and
termination payments for Executive shall exclude any charge incurred for
(i) as to the First Tier Bonus for the year 1998, the aggregate
amount by which the actual payroll expense in 1998 attributable to
the Executive (including Annual Base Salary as the same may be
adjusted from time to time and all bonus compensation) chargeable to
current expense exceeds the actual payroll expense (other than
severance payments) attributable to the chief executive officer in
1997,
(ii) executive search fees and legal fees incurred by the
Company in 1998 in respect of the future hire of the senior GameTime
division officer,
(iii) The aggregate amount by which the actual payroll
expense of the senior GameTime officer exceeds the budgeted payroll
expense in 1998, and
(iv) the expense of paying, plus any increase over 1997 in
accruals or reserves with respect to, any legal settlements or legal
judgments entered against the Company respecting any legal claims
made or lawsuits in process as of the Effective Date hereof.
3.2.4 Minimum First Year Bonus. Notwithstanding the results
of the calculations prescribed by the previous sections of this
Section 3.2, the Executive shall be paid a minimum bonus of one hundred
seventy-five thousand dollars ($175,000) in respect of the 1998 fiscal
year.
3.3 Calculation of Bonuses. The Company, within 75 days after the
close of each fiscal year with respect to the First Tier Bonus, and within
sixty (60) days after the end of the first three calendar quarters and
75 days after the end of the fourth calendar quarter with respect to the
Second Tier Bonus, shall deliver to the Executive a statement ("Bonus
Statement"), prepared by the Company's internal accounting staff and
reviewed by the Company's regularly employed accountants, setting forth
(a) in the case of the First Tier Bonus a comparison of the target EBITDA
and the Company's actual EBITDA for such fiscal year, prepared on a
consistent basis; (b) in the case of the Second Tier Bonus a comparison of
the line items comprising the Quarterly Projected Cumulative Budget for
each quarter of the fiscal year with the amounts actually attained by the
Company for such line items (resulting in a comparison of projected and
actual EBITDA for each such quarter); and (c) a calculation of the First
Tier and Second Tier Bonuses earned by the Executive.
3.4 Payment of Bonuses. First Tier and Second Tier Bonuses will be
paid within thirty (30) days after delivery to the Executive of the
applicable Bonus Statement.
3.5 Stock Options.
3.5.1 Grant of Option. The Executive is hereby granted,
effective as of the Commencement Date, options (the "Options") to purchase
three hundred seventy-five thousand (375,000) shares of the Company's
common stock, $.01 par value ("Shares"). The Options shall be divided
into three levels (the second and third levels being hereinafter sometimes
referred to as "Cliff Vesting Options") as follows:
Level One 175,000 shares
Level Two 150,000 shares
Level Three 50,000 shares
3.5.2 Exercise Price. The exercise price as to all of the
Shares covered by the Options shall be the closing price of the Company's
common stock on the American Stock Exchange on the last trading date prior
to the Commencement Date.
3.5.3 Vesting Schedule. The Options shall vest and become
exercisable in accordance with the following schedule:
Level One . . . 25,000 Shares on the Commencement Date;
50,000 Shares on each of the first and second
anniversaries of the Commencement Date; and
50,000 Shares on January 2, 2001
Level Two . . . On the first date that the average of the
closing trade prices of the Shares on the
American Stock Exchange (or NASDAQ or such
other primary market or exchange on which the
Company's common stock may be listed or
traded) for the fifteen (15) consecutive
trading days ending on such date shall have
been $6.50 or higher
Level Three . . On the first date that the average of the
closing trade prices of the Shares on the
American Stock Exchange (or NASDAQ or such
other primary market or exchange on which the
Company's common stock may be listed or
traded) for the fifteen (15) consecutive
trading days ending on such date shall have
been $11.00 or higher
3.5.4 Expiration. The Options, to the extent not exercised
or not terminated pursuant to other provisions of this Agreement or of the
Plan, shall expire on the tenth (10th) anniversary of the Commencement
Date.
3.5.5 Option Plan.
(a) Options (other than those described as "Non-Plan Options"
under subsection 3.5.6) will be issued pursuant to Section 8 of the
Company's 1996 Incentive Stock Plan (the "Option Plan").
(b) Options issued pursuant to the Option Plan shall be issued
thereunder so as to constitute incentive stock options under Section 422
of the Internal Revenue Code and Regulations thereunder to the maximum
extent that such Options may be so qualified.
(c) Options issued pursuant to the Option Plan which can not be
so qualified under said Section 422 shall be separately issued as
non-qualified stock options.
(d) The provisions of Section 14 of the Option Plan (Change of
Control) shall not be applicable to Options issued pursuant to the Option
Plan under this Agreement.
3.5.6 Options Not Issued Pursuant to Option Plan. Options
with respect to twenty-five thousand (25,000) shares in Level One which
vest on the first anniversary of the Commencement Date (Non-Plan Options)
shall be separately issued and shall not be deemed issued pursuant to the
Option Plan or subject to its provisions.
3.5.7 Effect of Certain Termination Events. Upon the
termination of Executive's employment:
(a) by the Company for Cause or voluntarily by the Executive,
the Options, to the extent not yet vested pursuant to Section 3.5.3, shall
terminate immediately and shall no longer be exercisable, and vested
Options shall be exercisable only for a period of three (3) months
following the Termination Date (as defined in Section 5.7);
(b) by the Company without Cause, either
(i) in the absence of a Change in Control (as defined in
Section 5.7), or
(ii) within thirty (30) days prior to a Change of Control or
within 180 days after a Change of Control, then:
(A) all of the Options which are not Cliff Vesting Options
shall vest and, in addition,
(B) if on any date within sixty (60) days after such
termination the average closing price of the Shares on the
American Stock Exchange (or NASDAQ or such other primary market
or exchange on which the Company's common stock may be listed or
traded) for the ten (10) consecutive trading days ending on such
date shall have attained the price required for vesting Level
Two Options (or Level Two and Three Options) then the Options at
the level or levels as to which such price has been attained
shall also vest, and
(C) all of the Options which vest pursuant to this
subsection (b) shall be exercisable for a period of three months
following the Termination Date, or in the case of Options not
qualified under Section 422 of the Internal Revenue Code,
one (1) year following the termination date.
(c) by reason of the Executive's death or the occurrence of a
Disability Date (as defined in Section 5.7),
(i) prior to the first anniversary of the Commencement Date,
all of the unvested Options shall expire;
(ii) on or after the first anniversary of the Commencement Date,
(A) all of the unvested Options that are not Cliff Vesting
options shall vest, shall be immediately exercisable and shall
terminate to the extent not exercised on or prior to the first
anniversary of the earlier of the date of death or the
Disability Date; and, in addition
(B) if on any date within sixty (60) days after such
termination the average closing price of the Shares on the
American Stock Exchange (or NASDAQ or such other primary market
or exchange on which the Company's common stock may be listed or
traded) for the ten (10) consecutive trading days ending on such
date shall have attained the price required for vesting Level
Two Options (or Level Two and Three Options) then the Options at
the level or levels as to which such price has been attained
shall also vest.
(C) all of the Options which vest pursuant to this
subsection (c) (Death or Disability) shall be exercisable for a
period of one (1) year following the Termination Date.
3.5.8 Non-Transferability. The Options shall not be sold,
transferred or assigned by the Executive, shall be immediately null and
void if transferred by operation of law, and may be exercised during the
lifetime of the Executive only by him.
3.5.9 Conflict with Plan or Other Option Instruments. In
the event that, with respect to Options issued pursuant to the Option
Plan, any provision of the Option Plan or of any option award,
certificate, agreement or other instrument or document evidencing options
granted hereunder is in conflict with the foregoing provisions of this
Section 3.5, the provisions of this Section shall prevail.
3.5.10 Other Plans. The Executive shall be entitled to
participate in additional Company stock option plans or other equity plans
or programs, if any, in which executives of the Company are eligible to
participate generally as may be determined by the Board of Directors.
4. Benefits; Expenses
4.1 Benefit Plans. The Executive shall be entitled to participate
in all of the benefit plans and programs available to the Company's senior
executives of the Company, as such plans or programs may be in effect from
time to time. The Company may, in its sole and absolute discretion,
determine to amend, revise, replace or terminate any such plans or
programs at any time. In addition, the Company shall reimburse the
Executive for his cost of maintaining his current health insurance
programs under COBRA with his current employer during the waiting period
for enrollment under the Company's health plans.
4.2 Vacation. During the Tern, the Executive shall be entitled to
four (4) weeks of paid vacation per year and all other paid holidays given
to employees of the Company. Such vacation shall be cumulative and may be
carried over to ensuing years, but shall be taken with commercially
reasonable notice to the Company and shall be scheduled to minimize
conflict with the Company's reasonable business needs.
4.3 Business Expenses. The Company, upon presentation by the
Executive of appropriate documentation, shall reimburse the Executive for
all reasonable and necessary business expenses incurred by Executive in
connection with the performance of his duties under this Agreement,
including reasonable accommodation expenses during travel required in
connection with the performance of Executive's duties, and subject to
Company's written policies with respect thereto as in effect from time to
time. The Company shall provide Executive with a corporate credit card,
which Executive shall use solely for purposes of performing his duties
under this Agreement and not for personal use.
4.4 Use of Automobile. The Company shall lease and make available
to the Executive, during the Term, an automobile of a model of his
selection reasonably acceptable to the Company. The Company shall pay for
all expenses associates with the use and enjoyment of the automobile.
4.5 Relocation Expenses. The Executive agrees to relocate from his
home in Apple Valley, Minnesota in accordance with the policies of the
Compensation Committee applicable to the Chief Executive Officer.
4.6 Temporary Living Expenses. The Company shall reimburse
Executive for temporary residence expenses in accordance with the policies
of the Compensation Committee applicable to the Chief Executive Officer.
4.7 Bridge Loan. In order to facilitate the Executive's purchase of
a new residence in the vicinity of the corporate headquarters, the Company
will facilitate a bridge loan in the amount of the net proceeds payable to
Executive under an executed contract for the sale of his Apple Valley,
Minnesota home (but limited to the equity required to be invested by the
Executive in a new residence) to be repaid out of the proceeds of the sale
of such home. The Company will reimburse the Executive for any interest
costs associated with such loan.
4.8 Life Insurance. The Company will reimburse Executive for the
standard rate premium for a term life insurance policy having a face
amount of three times Executive's Annual Base Salary, with such additional
travel and accident benefits as may be standard with the Company's life
insurance policies provided to senior executives.
4.9 Country Club Membership. Promptly following the Commencement
Date the Company will reimburse the Executive for a husband and wife
membership in a reasonably appropriate country club.
4.10 Professional Services. The Company will reimburse the Executive
(a) for his reasonable legal services in connection with the negotiation
of this Agreement, and (b) up to $3,000 annually for professional
assistance in the preparation of his income tax returns.
4.11 Supplemental Benefit Plan Study. The Company will retain a
consulting firm recommended by the Executive and approved by the Board of
Directors, for the purpose of studying and recommending to the Board one
or more executive supplemental pension, profit sharing or retirement
plans. The implementation of any such plan shall require approval of the
Board of Directors.
4.12 Qualified Retirement Plans. The Company shall make
contributions to an account for Executive in such "employee pension
benefits plans" (within the meaning of Section 3(2) of ERISA) as the
Company shall maintain from time to time, all in accordance with Company
policies applicable generally to its employees and subject to such
restrictions and limitations as may be necessary and appropriate for such
plans to remain in compliance with all applicable laws and regulations.
4.13 Tax Gross-Up Payments. If any reimbursement or payment made to
or for the benefit of the Executive pursuant to this Section 4 ("Section 4
Payment"), would be subject to any federal, state or local income tax (the
"Income Tax"), the Company shall pay to the Executive an additional
payment (the "Gross-Up Amount") such that, upon receipt thereof, the sum
of (a) all Section 4 Payments less (b) any Income Tax on the Section 4
Payments and any Income Tax upon the Gross-up Amount, shall be equal to
the aggregate of the Section 4 Payments. The Gross-up Amount shall (a) be
calculated based upon the highest combined federal, state and local
marginal income tax rate applicable to the Executive and (b) shall be paid
on or before April 1 of each year or partial year of Executive's
employment in respect of which Section 4 Payments are made.
5. Termination Payments
5.1 General. This Agreement may be terminated by the Company, at
any time, with or without Cause (as defined below).
5.2 Termination Without Cause. If this Agreement is terminated by
the Company without Cause (which shall include the circumstances described
in Sections 5.7.5) the Executive shall be entitled to receive the payments
specified in the following subsections of this Section 5.2.
5.2.1 his Annual Base Salary through the Termination Date
(as defined in Section 5.7), pro rated to the Termination Date,
5.2.2 any cash bonus previously awarded but not yet paid,
5.2.3 reimbursement for expenses incurred in accordance with
Section 4 (but not yet reimbursed) and the Gross-up Payment due in respect
thereof,
5.2.4 any benefits available to the Executive under the
terms of the benefit plans and programs in which the Executive is a
participant on the Termination Date,
5.2.5 salary continuance commencing on the first day of the
month following the month in which the Termination Date occurs, at the
rate of the Annual Base Salary in effect on the Termination Date, for the
following periods:
(a) if the Termination Date occurs at any time prior to
expiration of eighteen (18) months after the Commencement Date,
twenty-four (24) months, and
(b) if such Termination Date occurs after the first
eighteen (18) months following the Commencement Date,
(i) if the Company's Cumulative EBITDA exceeds 115% of the
Cumulative Budgeted EBITDA, twenty-four (24) months;
(ii) if the Company's Cumulative EBITDA is at least 95% and
up to and including 115% of Budgeted Projected EBITDA,
eighteen (18) months;
(iii) if the Company's Cumulative EBITDA is less than
95% of Cumulative Budgeted EBITDA, twelve (12) months.
5.2.6 bonus replacement payments as follows:
(a) if the Termination Date occurs during the first
eighteen (18) months of the Term, twice the sum of any cash bonuses
applicable to the 1998 calendar year, computed in the case of each
such bonus as the greater of any applicable minimum bonus for
calendar year 1998 or such bonus pro-rated to the Termination Date
based on the computation formulas herein.
(b) if such Termination Date occurs after the first
eighteen (18) months of the Term;
(i) if the Company's Cumulative EBITDA equals or exceeds
115% of Cumulative Budgeted EBITDA (both such terms as defined
in subsection (v) below), an amount equal to two hundred
percent (200%) of the sum of the First and Second Tier bonuses
actually paid to the Executive in respect of the year prior to
the year in which the Termination Date occurs;
(ii) if the Company's Cumulative EBITDA is at least 95% and
up to and including 115% of Cumulative Budgeted EBITDA, an
amount equal to one hundred fifty percent (150%) of the sum of
the First and Second Tier bonuses actually paid to the Executive
in respect of the year prior to the year in which the
Termination Date occurs;
(iii) if the Company's Cumulative EBITDA is less than
95% of Cumulative Budgeted EBITDA, an amount equal to one
hundred percent (100%) of the sum of the First and Second Tier
bonuses actually paid to the Executive in respect of the year
prior to the year in which the Termination Date occurs; and
(iv) the bonus replacement amount shall be payable in equal
monthly installments over the same period for which salary
continuation payments are made pursuant to subsection 5.2.6 are
made.
(v) For purposes hereof "Cumulative EBITDA" and
"Cumulative Budgeted EBITDA" means each such EBITDA (adjusted
as required under section 3.2.3) computed from the beginning of
the year prior to the year in which the Termination Date occurs
through the end of the fiscal quarter prior to the quarter in
which the Termination Date occurs, without regard to any
retroactive downwards adjustment made to Budgeted EBITDA for any
period.
5.3 Termination with Cause. If this Agreement is terminated by the
Company with Cause (as defined below), then the Executive shall be
entitled to receive:
5.3.1 his Annual Base Salary to the Termination Date,
pro rated to the Termination date,
5.3.2 reimbursement for expenses incurred in accordance with
Section 4 (but not yet reimbursed) and the Gross-up Payment due in respect
thereof,
5.3.3 any benefits available to the Executive under the
terms of the benefit plans and programs in which Executive is a
participant on the Termination Date.
5.4 Voluntary Termination. The Executive agrees to provide services
to the Company as provided herein for the duration of the term (as the
same may be extended in accordance herewith). However, if this Agreement
is terminated by the Executive voluntarily, then the Executive shall be
entitled to receive:
5.4.1 his Annual Base Salary to the Termination Date, pro
rated to the Termination Date,
5.4.2 reimbursement for expenses incurred in accordance with
Section 4 (but not yet reimbursed) and the Gross-up Payment due in respect
thereof,
5.4.3 any benefits available to the Executive under the
terms of the benefit plans and programs in which Executive is a
participant on the Termination Date and
5.4.4 any cash bonuses awarded in respect of a year prior to
the year in which the Termination Date occurs but not yet paid.
5.5 Death or Disability of Executive. A Termination Date shall
occur without any further action, upon the death of the Executive or upon
the Executive's Disability Date. In the event of the death or the
occurrence of a Disability Date, the Company shall pay to Executive,or the
Executive's estate or personal representative.
5.5.1 his Annual Base Salary through the end of the month in
which the Termination Date occurs by reason of death or disability,
5.5.2 salary continuation payments based on his Annual Base
Salary then in effect, for a period of 12 months commencing in the first
day of the month following the month in which the Termination Date occurs,
5.5.3 any cash bonuses to the extent the same would have
been earned in the calendar year in which the Termination Date occurs,
based on the computation formulas herein had Executive continued to be
employed for the balance of such year and pro rated from the beginning of
the year to the Termination Date,
5.5.4 reimbursement for expenses required to be reimbursed
in accordance with Section 4 (but not yet reimbursed) and the Gross-up
Payment due in respect thereof, and
5.5.5 subject to applicable law, any benefits available to
the immediate family of a deceased Executive under the terms of the
benefit plans and programs in which Executive is a participant on the date
of death.
5.6 Change of Control.
5.6.1 The Executive shall be entitled to resign following a
Change in Control of the Company (as defined below).
5.6.2 If such resignation results in a Termination Date
which occurs:
(a) within 180 days or after 210 days after the Change of
Control, the Executive shall be deemed to have resigned voluntarily
and shall be entitled to receive the amounts specified under
section 5.4 (Voluntary Termination); and
(b) at any time (i) within 180 days after the Change of Control
if the successor to the Company does not at the closing agree to
assume all obligations and to provide all benefits under this
Agreement, or (ii) if the successor does so assume this Agreement,
after 180 days but not more than 210 days after the Change of
Control, the Executive shall be entitled to receive:
(i) salary continuance at the rate of the Annual Base
Salary in effect on the Termination Date, payable over a period
of twenty-four (24) months commencing on the first day of the
month following the month in which the Executive's the
Termination Date occurs,
(ii) an amount, which
(A) if such Termination Date occurs on or before
December 31, 1998 shall be equal to twice the sum of any
cash bonuses applicable to the 1998 calendar year, computed
in the case of each such bonus as the greater of any
applicable minimum bonus for calendar year 1998 or such
bonus pro-rated to the Termination Date based on the
computation formulas herein, or
(B) if such Termination Date occurs after
December 31, 1998, shall be equal to twice the aggregate of
the First Tier and Second Tier bonuses paid to the
Executive in respect of the fiscal year ended immediately
prior to the year in which such resignation is effective,
in either event payable in equal monthly installments over
a period of twenty-four (24) months commencing on the first
day of the month following the month in which the
Termination Date occurs,
(iii) any cash bonus previously awarded but not yet
paid,
(iv) reimbursement for expenses incurred in accordance with
Section 4 (but not yet reimbursed) and the Gross-up Payment due
in respect thereof, and
(v) any benefits available to the Executive under the
terms of the benefit plans and programs in which the Executive
is a participant on the Termination Date,
5.6.3 If the Company terminates Executive's employment
without Cause within 30 days prior to a Change of Control, or if the
Company or its successor (as the case may be) terminates Executive's
employment without Cause within 180 days after the Change of Control,
Executive shall be entitled to receive the payments set forth in
Section 5.6.2(b) herein).
5.7 Definitions
5.7.1 "Cause" shall mean:
(i) indictment or conviction of the Executive for any felony or
other crime involving moral turpitude, fraud or misrepresentation,
(ii) the Executive engaging (alone or with others) in any other
illegal conduct that is materially detrimental to the business or
reputation of the Company,
(iii) the repeated refusal, failure or neglect by the
Executive to perform any material duties under the terms of this
Agreement for reasons other than onset of a disability; provided that
such refusal, failure or neglect shall constitute "Cause" only if the
Board of Directors gives Executive written notice specifically
describing such refusal or neglect, and Executive either fails
promptly to cure the same if the same is reasonably curable, or
Executive thereafter repeats such refusal, failure or neglect,
(iv) the termination by the Company of this Agreement for Cause
shall be without prejudice to any claim which the Company may have,
at law or in equity, arising out of or in connection with the events
giving rise to such termination.
5.7.2 A "Change of Control" shall be deemed to have occurred
if any of the following shall occur:
(i) any person or group (as such terms are used in Securities
Exchange Commission Rule 13d-5(b) and Section 13(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), as amended (other than a
trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly of securities of the Company representing 50%
or more of the combined voting power of the Company's then
outstanding securities (excluding from such 50% calculation
Greengrass Holdings, a Delaware general partnership, GreenGrass
Capital LLC, a Delaware limited liability company ("Capital"), or any
member of Capital or their respective affiliates (the "Permitted
Holders") and any such securities that were sold to such person or
group by the Executive or any other officer of the Company where
(a) the securities were acquired by the Executive or officer upon
exercise of the Option, and (b) the sale by the Executive or any
other such officer was not on a blind basis to unknown or
undesignated purchasers); or
(ii) during any period of twenty-four consecutive months,
beginning on the Commencement Date, individuals who at the beginning
of such period constitute the Board of Directors of the Company
and/or any new director whose election was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors on the Commencement Date or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a two-thirds (2/3) majority thereof; or
(iii) there is a change in the composition of the majority
of the Board of Directors, or Executive is removed from the Board of
Directors, within twelve (12) months following shareholder
transactions subject to reporting pursuant to Regulation 13D under
the Exchange Act, if any Schedule 13D filed in connection therewith
indicates that the purpose of such transaction includes any plans or
proposals of the type required to be disclosed by paragraphs (a),
(b), (c) or (h) of Item 4 of Schedule 13D.
(iv) the shareholders of the Company approve a merger or
consolidation of the Company with any other entity other than a
Permitted Holder, or a disposition of a material portion of the
assets of the Company, other than a merger or consolidation, other
than to a Permitted Holder, which would result in the stockholders
holding the voting securities of the Company outstanding immediately
prior thereto continuing to represent at least 51% of the combined
voting power of the voting securities of the Company or the entity
surviving such transaction outstanding immediately after such merger
or consolidation.
The date on which a Change of Control shall be deemed to have occurred is
the date on which the last act or event occurs which is necessary to give
effect to any of the events described in subsection (1) through (iv)
above.
5.7.3 A "Disability Date" shall be deemed to have occurred
on the 60th day following the first day on which the Executive is unable
substantially to perform his duties because of a disability which is
expected to be permanent or to last for an indefinite duration, as
determined by a physician mutually acceptable to Executive and the
Company; and
5.7.4 "Termination Date" means (a) the Executive's last day
of employment on or following the date upon which written notice of
termination is delivered to him by the Company, as the same shall be
stated in such notice; (b) the Executive's last day of employment on or
following the date upon which the Executive delivers written notice of
resignation to the Company (including a resignation deemed a termination
without Cause under Section 5.7.5); (c) the Disability Date; or (d) the
date of the Executive's death.
5.7.5 Certain Circumstances Treated as Termination Without
Cause. The following events or circumstances shall constitute a
termination of the Executive without Cause for all purposes of this
Agreement:
(a) the resignation by the Executive delivered within 60 days
after (a) his removal from the Board of Directors, or (b) the failure
of the Company's stockholders to reelect the Executive to the Board
of Directors; and/or
(b) the expiration of this Agreement without further extension
either at the end of its Initial Term, or at the end of any Extension
Year ending on or before December 31, 2003.
6. Confidential Information
6.1 The term "Confidential Information" shall mean and include
6.1.1 any and all confidential, proprietary, secret or
non-public information related in any way to the business or operations,
present or future, of the Company or any customer of the Company (as such
term is hereinafter defined) of the Company, which is now, or in the
future shall become, known to Executive as a result of his relationship
with the Company; and
6.1.2 without limitation of the foregoing, any intellectual
property rights acquired or developed by the Company, whether or not
patentable or copyrightable, including all business plans, know-how,
technical information, inventions, designs, equipment, configurations,
ideas, concepts, processes, procedures, operations, research and
development plans, computer software, specifications, documentation, trade
secrets, technology (including the expression of any of the foregoing in
notes, formulas, test procedures and results, reports, memoranda or other
written materials, software or other materials of whatsoever nature)
pricing information, business, operational and marketing plans.
Notwithstanding the above, Confidential Information shall not include such
information as Executive can establish by written documentation:
(a) to have become known to the general public without fault on
the part of the Executive;
(b) to have been received by the Executive at any time from a
source other than the Company, its agents, representatives or
employees, lawfully having possession of such information without an
obligation of confidentiality; or
(c) to have been in the public domain or been part of a printed
publication available to the public.
6.2 The Executive acknowledges that the Confidential Information was
and in the future may have been acquired and/or developed by the Company
at great expense, may be a special, valuable and unique asset of the
Company, and represents the sole exclusive property of the Company. The
Executive in the course of his employment with the Company will obtain,
Confidential Information and personal knowledge of and influence over
clients of the Company. The Executive acknowledges that any wrongful use
or disclosure of any Confidential Information would greatly damage the
Company, causing it irreparable harm and injury. The Executive covenants
and agrees that, at all times during the Term and for a period of two
years thereafter, he shall not, directly or indirectly, publish, divulge
or disclose, in whole or in part, or suffer the use by any third party,
for his own benefit or the benefit of any other person, any Confidential
Information, other than:
(i) in the due course of performing his duties on behalf of the
Company, but then only to officers or others acting on behalf of the
Company or any client, where the duties of such person require such
disclosure; or
(ii) as may be required by law.
6.3 The Executive acknowledges and agrees that all copies (in any
form whatsoever) of all memoranda, documents, data, records, notes and
other written information in his possession or under his control, which
contain or pertain to any Confidential Information, shall at all times be
the sole and exclusive property of the Company. In the event Executive's
employment terminates for any reason, Executive shall promptly deliver to
the Company all copies of all such materials.
7. Non-Competition
7.1 During the Term and for an additional period ending
eighteen (18) months after the termination of his employment the Executive
will not control, manage, operate, be employed or engaged by, or otherwise
participate or engage in business as, or own any interest in, directly or
indirectly, any individual proprietorship, partnership, corporation, joint
venture, trust or any other form of business entity (whether as an
individual proprietor, partner, shareholder, joint venturer, trustee or in
any other manner whatsoever) if such entity is engaged anywhere in the
world in the manufacture and/or sale or furnishing of products and/or
services of the type and character manufactured, sold or furnished by the
Company, provided, however, that nothing contained in this clause shall be
deemed to prohibit the Executive from owning less than 2% of the shares of
a publicly held corporation engaged in any such business.
7.2 During the Term, and for one (1) year after his termination of
employment hereunder, the Executive will not, directly or indirectly
employ or attempt to employ or assist anyone else to employ any person who
is then or at any time during the preceding year was in the Company's
employ.
8. Specific Performance; Injunctive Relief, Reformation of
Restrictions
8.1 The Executive acknowledges that the services to be rendered by
Executive are of a special, unique, extraordinary and intellectual
character, (ii) that Executive will develop a personal acquaintanceship
and relationship with many of the Company's customers, as well as an
intimate knowledge of those customer's requirements, (iii) that the
Company's relationships with established customers are likely to be placed
in Executive's hands and (iv) that Executive's position with the Company
places him in a position of utmost confidence and trust with respect to
the clients and executives of the Company. Executive also acknowledges
that the Company's marketing efforts are targeted not only to existing and
potential customers in the United States but throughout the entire world
and accordingly, it is reasonable that the restrictive covenants set forth
above are not limited by specific geographic area but by the location of
the Company's clients.
8.2 The parties recognize, acknowledge and agree that, if the
Executive commits a breach or the Company has reasonable evidence that the
Executive is about to commit a breach, of any of the provisions of
Sections 6 or 7 above, the Company will suffer irreparable harm and
injury, and money damages will not provide an adequate remedy to the
Company. Accordingly, the Executive agrees that, in any such event, the
Company shall be entitled to have the provisions of this Agreement
specifically enforced by any court having jurisdiction, without being
required to post a bond or other security and without having to provide
the inadequacy of the available remedies at law. In addition,the Company
shall be entitled to avail itself of all such other actions and remedies
available to it under law or in equity and shall be entitled to such
damages as it sustains by reason of such breach. The Company agrees to
notify the Executive within seven (7) days after the discovery of any
breach or anticipated breach of any of the provisions of Sections 6 or 7
above.
8.3 The parties acknowledge that the type and periods of restriction
imposed on the Executive pursuant to the provisions of Sections 6 and 7
above are fair and reasonable, and are reasonably required for the
protection of the Company and the goodwill associated with the business of
the Company. It is the express desire and intent of the parties that the
provisions of Sections 6 and 7 be enforced to the fullest extent
permissible. If any of the covenants in Sections 6 or 7 above, or any
part thereof, is hereafter constructed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which
shall be given full effect, without regard to the invalid portions. If
any of the covenants contained in Sections 6 or 7, or any part thereof, is
held to be unenforceable because of the duration of such provision or the
area covered thereby, the parties hereby expressly agree that the court
making such determination shall have the power to reduce the duration of
such provision and/or areas to which any such provision shall apply, and,
in its reduced or limited form, said provision shall then be enforceable.
The parties hereto intend to and hereby confer jurisdiction to enforce the
covenants contained in Sections 6 and 7 above upon the courts of any state
within the geographical scope of such covenants.
8.4 If the courts of any one or more of such states shall hold any
of the previous covenants unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the parties hereto that such
determination not bar or in any way affect the Company's rights to the
relief provided above in the courts of any other states within the
geographical scope of such covenants, as to breaches of such covenants in
such other respective jurisdictions, the above covenants as they relate to
each state being, for this purpose, severable into diverse and independent
covenants.
8.5 The prevailing party in any action arising out of a dispute in
respect of any provision of this Section shall be entitled to recover
reasonable attorneys' fees and costs and disbursements incurred in
connection with the prosecution or defense, as the case may be, of any
such action.
9. Intellectual Property
9.1 During the Term, the Executive shall disclose to the Company all
business ideas, inventions and business plans developed by him during such
Term which relate directly or indirectly to the Company's business or any
of its affiliates, including without limitation any process, operation,
product or improvement which may be patentable or copyrightable. The
Executive agrees that all of the foregoing will be the sole and exclusive
property of the Company and that he will at the Company's request and cost
do whatever is necessary to secure the rights thereto, by patent,
copyright or otherwise, to the Company.
10. Life Insurance
The Executive agrees that the Company shall have the right to
obtain life insurance on the Executive's life, at the Company's sole
expense and with the Company as the sole beneficiary thereof. The
Executive shall (a) cooperate fully with the Company in obtaining such
life insurance, (b) sign any necessary consents, applications and other
related forms or documents, and (c) take any reasonably required medical
examinations. The Executive does not represent that he is insurable.
11. Representations
11.1 By Executive. The Executive hereby represents to the Company
that the execution and delivery of this Agreement by him, and the
performance of his obligations hereunder are not in violation of, and do
not conflict with or constitute a default under any agreement by which he
is bound or any order, decree or judgment to which he is subject; that
this Agreement constitutes the valid and binding obligation of Executive
and that he is not a party to or bound by any agreement, understanding or
arrangement which would prevent him from carrying out the terms of this
Agreement or subject the Company to liability for employing the Executive
pursuant to the terms hereof.
11.2 By Company.
11.2.1 Corporate Authority, etc. The Company represents and
warrants that it has all requisite corporate power and authority to enter
into and perform its obligations pursuant to the terms of this Agreement.
The execution and delivery of this Agreement by the Company and the
performance by the Company of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company
and the Stockholders and this Agreement has been duly and validly
authorized by all necessary corporate action. This Agreement is a legal,
valid and binding obligation of the Company.
11.2.2 Litigation. The Company is not a party to any
material legal proceedings other than the claim described in Appendix A
hereto and claims as to which the Company is insured.
12. Indemnification and Insurance
12.1 Indemnity. The Company hereby agrees to hold harmless and
indemnify the Executive to the full extent authorized or permitted by the
provisions of Delaware law authorizing or permitting such indemnification
currently prevailing or that are adopted after the date hereof.
12.2 Maintenance of Insurance
12.2.1 The Company represents that it presently has in full
force and effect a Directors and Officers Insurance Policy (the "Policy")
providing coverage in the amount of $7,500,000. A copy thereof has been
provided to the Executive.
12.2.2 Subject only to the provisions of the following
subsection 12.2.3, the Company hereby agrees that, so long as the
Executive shall continue to serve as a director or officer of the Company
(or shall continue at the request of the Company to serve as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise), and thereafter so long as the
Executive shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of fact that the Executive was
a director or officer of the Company (or served in any of said other
capacities), the Company will make all commercially reasonable efforts to
purchase and maintain in effect for the benefit of the Executive one or
more valid, binding and enforceable policies of Directors and Officers
Insurance providing, in all material respects, coverage at least
comparable to that presently provided pursuant to the Policy.
12.2.3 The Company shall not be required to maintain said
Policy in effect if said insurance is not reasonably available or if, in
the commercially reasonable business judgment of the then directors of the
Company, either (i) the premium cost for such insurance is substantially
disproportionate to the amount of coverage or (ii) the coverage provided
by such insurance is so limited by exclusions that there is insufficient
benefit from such insurance.
12.2.4 In the event the Company does not purchase and
maintain in effect said policy or policies pursuant to the provisions of
Section 12.2.3 above, the Company agrees to hold harmless and indemnity
the Executive to the full extent of the coverage which would otherwise
have been provided for the benefit of the Executive if the policy or
policies were then in effect.
12.3 Additional Indemnity. Subject only to the exclusions set forth
in Section 12.4 hereof, the Company hereby further agrees to hold harmless
and indemnity the Executive against any and all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by the Executive in connection with any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including an action by
or in the right of Corporation), to which the Executive is, was or at any
time becomes a party, or is threatened to be made a party, by reason of
the fact that the Executive is, was or at any time becomes a director,
officer, employee or agent of Corporation, or is or was serving or at any
time serves at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprise.
12.4 Limitation on Additional Indemnity. No indemnity pursuant to
Section 12.3 below shall be paid by the Company:
12.4.1 except to the extent the aggregate of losses to be
indemnified thereunder exceeds the amount of such losses for which the
Executive is indemnified either pursuant to Sections 12.1 or 12.2 hereof
or pursuant to any policy or policies purchased and maintained by the
Company;
12.4.2 in respect of remuneration paid to the Executive if
and to the extent it shall be determined by a final judgment or other
final adjudication that such remuneration was in violation of law;
12.4.3 on account of any suit in which final judgment is
rendered against the Executive for an accounting or profits made from the
purchase or sale by the Executive of securities of the Company pursuant to
the provisions of Section 16(b) of the Exchange Act or similar provisions
of any federal, state or local statutory law or regulation;
12.4.4 on account of the Executive's conduct that is finally
adjudged to have been knowingly fraudulent, deliberately dishonest or
willful misconduct; or
12.4.5 if a decision by a court having jurisdiction in the
matter shall finally determine that such indemnification is not unlawful.
12.5 Continuation of Indemnity. All agreements and obligations of
the Company contained herein shall continue during the period the
Executive is a director, officer, employee or agent of the Company (or is
serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise) and shall continue thereafter so long as Executive shall be
subject to any possible claim or threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that the Executive was a director or
officer of the Company or serving in any other capacity referred to
herein.
13. Miscellaneous
13.1 Entire Agreement. This Agreement (which includes the Exhibits
annexed hereto) sets forth the entire understanding between the parties
hereto as to the subject matter of this Agreement and merge and supersede
all prior agreements, commitments, representations, writings and
discussions between the parties with respect to such subject matter. This
Agreement may be terminated, altered, modified or changed only by a
written instrument signed by both parties hereto.
13.2 Subsequent Performance. The provisions of this Agreement which
by their terms call for performance subsequent to termination of this
Agreement or termination of the Executive's employment hereunder
(including without limitation the provisions of Sections 5, 6, 7 and 8
hereof), shall survive such termination.
13.3 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
sent by facsimile transmission or sent by certified, registered or express
mail (including any private carrier guaranteeing overnight delivery),
postage or delivery charges prepaid,or sent by private overnight carrier.
Any such notice shall be deemed delivered (a) when so delivered personally
or sent by confirmed facsimile transmission (provided that a manually
signed copy thereof is delivered by any of the other means provided herein
initiated no later than the next following business day), (b) on the date
of delivery if sent by express or private carrier, or (c) if delivered by
certified or registered mail, five (5) business days after the date of
deposit in the United States mail, in all cases addressed to the recipient
at the address of such recipient set forth at the head of this Agreement
or at such other address of which such recipient shall have given notice
to the other in the manner herein provided.
13.4 Governing Law. This Agreement shall be deemed to be a contract
made under the internal laws of the State of Wisconsin, without regard to
the principles of the conflict of laws thereof.
13.5 Unenforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
13.6 Counterparts. This Agreement may be executed in any number of
counterparts, and any party hereto may execute any such counterpart, each
of which when executed and delivered shall be deemed to be an original and
all of which counterparts taken together shall constitute but one and the
same instrument. This Agreement shall become binding when one or more
counterparts taken together shall have been executed and delivered (which
deliveries may be by telefax) by the parties.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement on the date first above written.
SWING-N-SLIDE
By: /s/Therese S. Malone /s/ Frederic L. Contino
Chairman Frederic L. Contino
Exhibit 21
Subsidiaries of Swing-N-Slide Corp.
The registrant has no parent but has the subsidiary listed below which is
included in the accompanying consolidated financial statements.
Newco, Inc. (Wisconsin Corporation) - Wholly owned.
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8, No. 33-48735) pertaining to the Swing-N-Slide Corp. Stock
Program of our report dated January 30, 1998, with respect to the
consolidated financial statements and schedules of Swing-N-Slide Corp.
included in the Annual Report (Form 10-K) for the year ended December 31,
1997.
Milwaukee, Wisconsin /s/ ERNST & YOUNG LLP
March 26, 1998
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