UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 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: 0-24556
MARKER INTERNATIONAL
(Exact name of registrant as specified in its charter)
Utah 87-0372759
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 West 2300 South
Salt Lake City, Utah 84119
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 972-2100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, par value $.01 per share
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. [x]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of June 2, 1997 (based upon the average of closing bid and ask
prices as of such date) was $28,499,211.
The number of shares of Common Stock outstanding as of June 2, 1997 was
11,129,127.
Documents incorporated by reference: None.
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FORM 10-K
MARKER INTERNATIONAL
TABLE OF CONTENTS
PART I
Page
ITEM 1 Business 3
ITEM 2 Properties 11
ITEM 3 Legal Proceedings 12
ITEM 4 Submission of Matters to a Vote of Security Holders 13
PART II
ITEM 5 Market for the Registrant's Common Equity
and Related Stockholder Matters 14
ITEM 6 Selected Consolidated Financial Data 15
ITEM 7 Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 16
ITEM 8 Consolidated Financial Statements and
Supplementary Data 22
ITEM 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 22
PART III
ITEM 10 Directors and Executive Officers of the Registrant 23
ITEM 11 Executive Compensation 25
ITEM 12 Security Ownership of Certain Beneficial
Owners and Management 27
ITEM 13 Certain Relationships and Related Transactions 28
PART IV
ITEM 14 Exhibits, Consolidated Financial Statement
Schedules and Reports on Form 8-K 31
SIGNATURES 38
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PART I
This form 10-K contains forward-looking statements within the meaning of
that term in the Private Securities Litigation Reform Act of 1995 (Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934). Additional written or oral forward-looking statements may be made by the
Company from time to time, in filings with the Securities and Exchange
Commission or otherwise. Statements contained herein that are not historical
facts are forward-looking statements made pursuant to the safe harbor provisions
referenced above. Forward-looking statements may include, but are not limited
to, projections of revenue, income or loss and capital expenditures, statements
regarding future operations, financing needs, compliance with financial
covenants in loan agreements, plans for acquisition or sale of assets or
businesses and consolidation of operations of newly acquired businesses, and
plans relating to products or services of the Company, assessments of
materiality, predictions of future events and the effects of pending and
possible litigation, as well as assumptions relating to the foregoing. In
addition, when used in this discussion, the words "anticipates," "believes,"
"estimates," "expects," "intends," "plans" and variations thereof and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified based on current
expectations. Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements contained in this Annual Report. Statements in this
Annual Report, particularly in "Item 1. Business," "Item 3. Legal Proceedings,"
the Notes to Consolidated Financial Statements and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
describe certain factors, among others, that could contribute to or cause such
differences. Other factors that could contribute to or cause such differences
include, but are not limited to, unanticipated developments in any one or more
of the following areas: the rate and consumer acceptance of new product
introductions, competition, the number and nature of customers and their product
orders, pricing, foreign manufacturing, sourcing and sales (including foreign
government regulation, trade and importation concerns and fluctuation in
exchange rates), borrowing costs, changes in taxes due to changes in the mix of
U.S. and non-U.S. revenue, pending or threatened litigation, the availability of
key personnel and other risks factors which may be detailed from time to time in
the Company's Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of unexpected
events.
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Item 1. Business
General
Marker International ("Marker" or the "Company") is a leading designer,
developer, manufacturer and marketer of alpine ski bindings in the United States
and throughout the world. Marker had total annual sales equal to $126.4 million
in fiscal 1997, compared to $16.0 million in 1984, when Henry E. Tauber, the
Company's Chairman of the Board and President, acquired the Company. Marker
International is a holding company which operates through its subsidiaries,
Marker Deutschland GmbH ("Marker Germany"), Marker USA, Marker Japan Co., Ltd.
("Marker Japan"), Marker Austria GmbH ("Marker Austria") and Marker Canada, Ltd.
("Marker Canada"). Substantially all of the Company's ski bindings are
manufactured by Marker Germany, which also distributes bindings in Germany, to
subsidiaries of the Company, and to independent distributors in countries where
the Company does not have a distribution subsidiary. Marker Ltd., also a
subsidiary of the Company, designs, distributes and sells to retailers the
Company's clothing, gloves and luggage products for skiing and other
recreational activities. The principal markets for the Company's products are
North America, Europe and Asia.
In addition, Marker International, through its 80% owned subsidiary, DNR
Sportsystem Ltd. ("DNR"), and its newly created and wholly-owned subsidiaries,
DNR USA, Inc.("DNR USA"), DNR North America, Inc. ("DNR North America") and DNR
Japan Co., Ltd. ("DNR Japan"), is a leading designer, developer, manufacturer
and marketer of snowboards, Interface Step-in SYSTEMSTM, traditional snowboard
bindings and snowboard boots. DNR Sportsystem Ltd. designs, develops and
distributes snowboards and related products throughout the world. DNR USA
manufactures snowboards for distribution worldwide under the Santa CruzTM and
DNRTM brand names. DNR North America and DNR Japan, through their own sales
force market snowboards, Interface Step-in SystemsTM, snowboard bindings and
boots directly to retailers in the United States and Japan, respectively.
In June of 1995, the Company acquired a 25% equity interest in DNR. In
June of 1996, the Company acquired an additional 55% of the common shares of
DNR, bringing its total ownership in DNR to 80%. The Company's 80% interest in
DNR is held by the Company's wholly-owned subsidiary, Marker AG.
In July of 1996, the Company closed a secondary public offering of the
Company's Common Stock. In connection therewith, the Company issued 2,680,000
shares of Common Stock, including 180,000 shares issued in connection with the
closing of the underwriters over-allotment option. The Company received
aggregate net proceeds of approximately $14.8 million and utilized such net
proceeds to partly finance the purchase of the additional shares of DNR.
During fiscal 1997, the Company formed DNR USA, to manufacture snowboards
at a state-of-the-art snowboard production facility in Salt Lake City, Utah. In
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addition, the Company formed DNR North America and DNR Japan, as distribution
companies for snowboards and related products in the United States and Japan,
respectively.
In January of 1997, the Company completed construction of its 56,608
square foot snowboard manufacturing facility located in Salt Lake City, Utah.
Products
Ski Bindings
The Company designs, develops, manufactures and distributes ski bindings
consisting of more than 30 high quality models. The models range from high
performance racing models, such as the Logic M9.1 Turbo SC RacingTM and other
top-end models featuring the Company's patented Selective Control SystemTM,
BiometricTM Programmed Upward Release and Comshock PistonTM, to the children's
M9 model. Suggested retail prices in the United States of such models range from
$115 to $395. Each model is available in a variety of colors selected by the
Company based on an analysis of consumer preferences.
In addition to a ski binding's primary function of attaching a ski to a
ski boot, the binding serves as a safety mechanism. The timing of a binding's
release mechanism is significant in both its retention and release functions.
When a skier applies an amount of force to a ski binding that exceeds the safety
setting of the binding, the binding is designed to release the ski boot from the
ski in order to decrease the risk of injury to the skier. Therefore, a binding
must be designed to recognize specific levels of force exerted against it.
Marker bindings feature LogicTM, TwincamTM, and Gliding AFDTM technology.
The Company developed the patented LogicTM, TwincamTM, and Gliding AFDTM
technology, which together tightly couple the ski boot and binding toe-piece,
resulting in a binding system that is designed not to be affected by
contamination between the ski boot and binding. In addition, certain models of
Marker bindings also feature either the Company's BiometricTM, Full SpectrumTM
or V-TECHTM technology. These technologies allow the ski boot to be released
from a binding at any angle in a 180 degree spectrum, thereby increasing skier
safety.
Snowboard, Interface, Bindings and Boots
The Company designs, develops, manufacturers and distributes snowboards
and offers more than 40 models designed for novice to world-class snowboard
riders. The Company's line of snowboards accommodates the needs of a full range
of snowboarding styles, including racers, freeriders, freestylers and
freecarvers. The snowboards range in suggested retail price, in the United
States, from approximately $230 to $500.
The Company seeks to apply innovative technologies to the manufacture of
snowboards. Innovations introduced by the Company include the SplitTM snowboard
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which features two independent Lightweight Sensor Wood Cores with Isocore
connecting the cores. Isocore is used in the Company's top-end models to enhance
edge hold and tracking, making it possible to easily and quickly change the arc
of a turn while on edge. Lightweight Sensor Wood Cores are also used in top-end
models to enhance snowboard durability and performance. The use of torsion frame
and carbon torsion frame construction by the Company increases snowboard edge
pressure.
In addition to providing technologically advanced snowboards, the Company
produces creative graphics for its snowboards. The Company believes that the use
of transparent constructions, three-dimensional topsheets and innovative color
schemes have helped to establish it as a leader in snowboard graphic design. One
of the Company's high performance snowboard models, the H-Type Riders Choice,
which is marketed under the Santa Cruz brand name, has been exhibited for its
design at the Museum of Modern Art in New York City.
Snowboard bindings connect the snowboard rider to the snowboard and can
have a significant affect on the performance of the board. In 1996, the Company
introduced a technologically advanced soft boot Interface Step-in SystemTM for
snowboarders. The Interface Step-in SystemTM was developed by the Company and
Tecnica(R), a leading ski and snowboard boot manufacturer. The Company believes
that the new Interface Step-in SystemTM includes innovative features which
provide entry and exit convenience and incorporates a new soft boot design which
offers comfort, mobility and more precise power transmission and edge pressure
distribution than was previously available in the industry. The Interface
Step-in SystemTM has a suggested retail price, in the United States, ranging
from $250 to $450.
The Company offers more than 15 models of traditional soft boot snowboard
bindings that incorporate lightweight designs and high grade materials. In
developing its traditional snowboard bindings, the Company seeks to provide
durability, comfort, ease of use and performance for riders of all levels.
The Company has developed a wide range of snowboard boots for snowboard
riders of varying riding types, ages and abilities. The Company has more than 15
models that incorporate innovative technologies, including one-piece linerless
softboot construction, laceless liner, gel-cushioned soles and dual-density
shock absorbing soles.
Soft Goods
The Company designs, distributes and markets apparel for adults and
children, gloves and ski and non-ski luggage. The Company's clothing line
features quality, functional and versatile performance wear for year-round
sports and recreational activities available at a wide range of prices.
In October 1995, Marker Ltd. was selected by the Salt Lake Olympic
Organizing Committee for the 2002 Olympic Winter Games ("SLOC") as the licensee
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for the sale in the state of Utah of winter outerwear, polar fleece, luggage and
gloves with the imprint and embroidery of the 2002 Olympic Winter Games. In
February 1996, Marker Ltd. was selected as licensee for the sale in the state of
Utah of T-shirts, sweatshirts, golf shirts and related apparel with the imprint
and embroidery of the 2002 Olympic Winter Games. In January 1997, both of these
contracts were extended through December 31, 1997 and the distribution territory
was expanded to include several states.
The Company's apparel lines, gloves and luggage are sold year round to
retailers mainly in the United States through Marker Ltd.'s own sales force.
Marketing
The Company actively advertises and markets its products. The Company
spends the majority of its advertising budget on advertisements in ski and
snowboard magazines, such as Skiing Magazine, Ski Magazine, Snow Country, Powder
Magazine, Snowboarder and Transworld Snowboarding in the United States, and
similar magazines in foreign markets.
To increase brand recognition, in addition to offering technologically
advanced bindings, the Company aggressively markets the Marker brand name. To
influence its presence in retail shops, the Company devotes resources to
maintaining and improving its relationships with retailers and shop personnel so
that they will use Marker products and recommend them to their retail customers.
In this regard, the Company, through its sales force, conducts in-shop sales
clinics. In addition, the Company, as part of the United States Authorized
Retailer Program, requires that all authorized retail shops employ a technician
who has been trained and certified by the Company concerning the installation
and adjustment of Marker bindings. Additionally, the Company sells its bindings
to the sales staff of its retailers and to professional skiers at special prices
so that they will be able to recommend the Company's products as a result of
personal experience.
To foster recognition of the Marker brand name, the Company also
establishes endorsement relationships with national ski teams and racing
professionals. These endorsement contracts typically run from one to two years
and provide for a base payment to the racer, with additional payments for
placing in a competition. Racers using and endorsing Marker bindings have been
among the winners in World Cup, World Championship and Olympic competitions.
Many of the United States' best-known skiers, including 1996 World Alpine
Downhill champion Picabo Street, three-time World Cup Champion and Olympic Gold
medalist Phil Mahre, World Champions Steve Mahre and Tamara McKinney and Olympic
Gold medalist Stein Eriksen, endorse and use Marker bindings.
Many Olympic, World Cup and professional ski competitions have been won by
racers endorsing and using Marker bindings. Skiers endorsing and using Marker
bindings dominated the 1997 FIS World Championships held in Sestrieres, Italy in
February 1997, winning more medals than any other company: 3 Gold, 3 Silver and
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4 Bronze. The 1997 World Championship Gold medalists endorsing and using Marker
bindings included Michael Von Gruenigen of Switzerland in the Alpine Giant
Slalom, Isolde Kostner of Italy in the Alpine Super G and Renate Goetschl of
Austria in the Alpine Downhill.
Skiers endorsing and using Marker bindings also excelled in the season
long 1997 FIS World Cup competition. Marker skiers include Pernilla Wiberg of
Sweden, the 1997 Women's Overall World Cup Champion and Slalom World Cup
Champion, Hilde Gerg of Germany, the Women's 1997 Super G World Cup Champion,
Renate Goetschl of Austria, the Women's 1997 Downhill World Cup Champion, and
Michael Von Gruenigen of Switzerland, the Men's 1997 Giant Slalom World Cup
Champion. Hans Hofer of Austria was the Men's 1997 US Pro Tour Overall Champion.
The Company believes that winning World Cup, World Championship and Olympic
competitions at places like St. Anton, Sestrieres and Nagano increases the
Company's visibility in the marketplace. Marker engineers also use these
competitions as opportunities to work with the Marker skiers to develop new
products and to test and refine prototypes, with the goal of benefiting skiers
of all levels.
For its snowboard products, the Company markets the "Santa Cruz" and "DNR"
brands through the implementation of product advertising programs with its
distribution subsidiaries and its distributors. The Company and certain
distributors also sponsor teams of professional riders as part of the Company's
marketing and communications strategy. These riders typically enter into
endorsement contracts with DNR Sportsystem, with a length of one to two years,
providing for a base payment to the rider, with additional payments for placing
in a competition. These riders are involved in the testing phase of new or
prototype DNR Sportsystem products and often contribute ideas for future
developments. The riders participate in International, World-Cup, Pro Tour and
other events to promote DNR Sportsystem products. Bertrand Denervaud, who rides
"Santa Cruz" snowboards and is the five-time overall World Pro Tour winner,
endorses the Company's products.
Sales
Approximately 60% of the Company's total orders for a fiscal year are
obtained through its "Pre-Season Sales Program," which runs from February 1st
through September 15th. In clothing, luggage and gloves, approximately 75% of
the total orders for a fiscal year are obtained during this period. The volume
of Pre-Season orders is affected by the volume of the retailers' prior season's
sales and inventory levels. Marker bindings ordered under the Pre-Season Sales
Program are shipped to retailers from July through November and are recorded by
the Company as sales on the date of shipment. This results in the recording of
the majority of the Company's annual sales during its second and third fiscal
quarters. Although certain of Marker's customers have contributed significantly
to the Company's sales, no customer represented more than 10% of its sales in
any of the last three years.
Approximately 35% of the Company's total orders for a fiscal year are
obtained through its "Reorder Program," which includes products ordered after
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September 15th and shipped before March 31st of each year. Bindings sold under
the Reorder Program usually include models in the Company's existing inventory
and products which will be discontinued in the upcoming season. The success of
the Reorder Program primarily affects the Company's third and fourth fiscal
quarter results.
Approximately 5% of the Company's total orders for a fiscal year are
obtained through its Shop and Pro Programs, which offer reduced pricing on the
Company's products to retail ski shop employees, ski instructors and other
professionals in the industry. The Company believes that recommendations from
sales persons and professional skiers can be an important factor in influencing
consumer decisions to purchase a particular binding brand.
Sales of the Company's snowboard products have historically occurred
during the pre-season period. As the snowboard market matures, the Company
believes that sales of snowboard products will approximate the timing of ski
binding sales.
Product Development and Intellectual Property
In order to maintain its leadership position and to continue to offer
technologically advanced ski bindings, snowboards and Interface Step-in SystemTM
bindings, the Company continues to devote resources to improving and developing
its current products and those it will use in the future. The Company's
research, development and design of both ski and snowboard bindings is managed
by the Company's Research and Development Department (the "R&D Department") at
the Company's plant in Eschenlohe, Germany. The Company has developed
substantially all of the Company's proprietary technology used in manufacturing
Marker ski bindings and has acted in partnership with others on the development
of the Interface Step-in SystemTM binding. During fiscal years 1997, 1996 and
1995, the Company's research and development expenses were approximately $3.1
million, $2.8 million, and $2.3 million, respectively.
Product development is a result of the integrated efforts of the Company's
R&D, Manufacturing and Sales departments, all of which work together to generate
new ideas to be incorporated into its products. The Company also regularly
receives suggestions from ski racers and snowboard riders who use the Company's
products. After the Company decides to use a new component in a product, the R&D
Department, with the assistance of machine shop personnel, integrates the
mechanical process and refines the product design and mechanism of the
developing product. Simultaneously with the development of the internal
mechanisms of its products, the Company engages an outside firm to assist in the
determination of colors and the integration of shape with the new technology.
The Company has a state-of-the-art laboratory used for testing products in
the development stage as well as products currently on the market. Additionally,
the laboratory technicians regularly test products produced by the Company's
competitors.
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The R&D Department continually develops new components for which the
Company may obtain patents. The Company typically files its patent applications
in the name of Marker International or the appropriate subsidiary. Patent
applications have been filed in the United States, Germany, Japan and, in
certain cases, the countries in which the Company's competitors manufacture ski
bindings or snowboard products. The Company has filed more than 25 patent
applications over the past two years and currently has over 130 families of
patents and patent applications covering its technology filed in numerous
countries around the world, of which over 35 are devoted to technology currently
in use by the Company.
The Company has been involved in patent disputes with its competitors in
the past. In connection with the resolution of such disputes, the Company has
negotiated settlements which include cross-licensing agreements involving
certain technology believed by the Company to be significant. Based on the
Company's analysis of its competitors' products, the Company believes it may
have present patent infringement claims. The Company has not determined whether
to pursue any such claims, nor is there any assurance that if so pursued, the
Company would be successful on the merits.
The Company markets its products under a number of trademarks registered
in various countries throughout the world. The Company believes that the MARKER
trademark is widely known as identifying high-quality, high-technology ski
bindings and is deemed to be a valuable asset of the Company. The Company is not
aware of any third party violations of its trademarks.
Competition
The Company competes on the basis of the quality, technology, brand name
recognition and performance of its ski bindings, snowboards and snowboard
bindings, and related products. Other competitive factors include marketing and
distribution methods, customer service and the management of sales promotion
activities.
The Company devotes resources to establishing and maintaining strong
relationships with retailers and shop personnel through sales clinics, technical
training and certification, and discounted prices to shop personnel. The Company
believes that its strong relationships with retailers and shop personnel gives
the Company advantageous shelf space in certain retail outlets and
recommendations from shop personnel.
Ski bindings
The Company's primary competitors are Salomon, Tyrolia, Rossignol and ESS.
Certain of the Company's competitors offer other ski equipment in addition to
ski bindings. Based upon market surveys of the alpine ski binding market in the
United States (computed in dollars), the Company estimates that its share of the
alpine ski binding market was more than 45% for the 1996/97 ski season. Foreign
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market surveys available to the Company indicate that its alpine ski binding
market share for such period was more than 40% in Germany and more than 17% in
Japan.
Due to existing technological and manufacturing barriers, as well as the
difficulty of overcoming lack of brand recognition and quality concerns, the
Company does not anticipate the entry of significant new competitors into the
ski binding market.
Snowboards, Interface System, Bindings and Boots
The snowboard industry has shown rapid growth over the past several years.
Growth attracts entrepreneurs who bring energy and creativity to the industry.
In fiscal 1997, the snowboard industry appeared to have reached its natural
growth limits, with supply exceeding demand. The excess supply has resulted in a
consolidation of snowboard brands.
Although many small snowboard companies remain in the market, the Company
estimates that the top 10 snowboard companies, including DNR, account for more
than 75% of the world market for snowboards and related products. The Company's
primary competitors include Burton, K2 and Morrow.
Raw Materials
The Company requires various readily available metals, fiber glass, woods
and plastics to manufacture its ski bindings, snowboard bindings and snowboards.
The Company furnishes its suppliers with the tooling for the metals and moldings
for the plastics used in production. The suppliers then provide the Company with
the required parts. The Company believes it is not dependent on any one supplier
or any group of suppliers for the raw materials necessary to manufacture its
bindings and snowboards.
Seasonality
The Company's business is seasonal in nature and results of operations
vary from quarter to quarter. Orders for the Company's products from retailers
and distributors are the highest during the Company's first fiscal quarter,
which ends June 30. The Company ships its products to fill those orders, and
records significant sales, during its second and third fiscal quarters. The
Company collects a substantial portion of its receivables during its third and
fourth fiscal quarters. Due to the seasonality of the Company's business, the
Company typically experiences losses or nominal profits in its first and fourth
fiscal quarters and profits in its second and third fiscal quarters.
Working Capital
The Company satisfies its working capital needs from credit facilities
obtained from banks as addressed in Management's Discussion and Analysis, set
forth in Item 7, below.
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Employees and Labor Relations
None of the Company's approximately 700 full-time and part-time worldwide
employees are unionized. In Germany, where more than 560 individuals are
employed by the Company, the employees are represented by a worker's council. As
required by German law, one of the council members is paid by the Company to
represent the interests of the workers. The Company believes that its relations
with its employees are good.
Regulations
Federal, state and local environmental regulations have not had, and are
not expected to have, any material effect upon the expenditures, earnings or
competitive position of the Company.
Foreign and Domestic Operations and Exports
Information regarding the Company's operations and assets by geographic
region for the fiscal years ended March 31, 1997, 1996 and 1995 appears in Note
12 of the Notes to Consolidated Financial Statements contained herein.
Item 2. Properties
The Company owns its 57,000 square foot combined headquarters and western
United States distribution facility located in Salt Lake City, Utah, which was
completed in fiscal 1995. The Company's headquarters and distribution facility
is suited to the Company's business and is presently being utilized at
approximately 65% of its productive capacity. The Company also leases an 8,600
square foot warehouse in Manchester, New Hampshire for use as its eastern United
States distribution hub. The Company believes that the additional warehouse
space is adequate to meet the needs of the Company's eastern cusotmers.
The Company leases a 124,146 square foot office, research and development
and manufacturing facility in Germany. Nearly all of the Company's binding
products are manufactured at this facility which houses technologically advanced
production and quality assurance machinery. The Company believes that the
facility, which is well suited to meet the manufacturing needs of the Company,
is presently utilized at approximately 70% of total capacity. The lease for the
manufacturing facility expires in 2012.
The Company also leases three offices in Japan from which sales and
distribution activities are directed. These offices are located in the cities of
Tokyo, Sapporo and Osaka and comprise approximately 3,500, 500 and 675 square
feet, respectively. In addition, Marker Japan leases warehouse space for
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inventory storage in Tokyo and Osaka totaling approximately 12,900 and 1,075
square feet, respectively. Management believes that these facilities are
suitable for the required operational needs of Marker Japan.
In January 1997, the Company completed construction of its 56,608 square
foot snowboard manufacturing facility located on approximately five acres of
land which are owned by the Company and are adjacent to the Company's
headquarters in Salt Lake City.
DNR Sportsystem leases a 2,580 square foot property in Zurich, Switzerland
where its headquarters are located, as well as a 3,440 square foot property in
Baar, Switzerland, where its marketing and sales force is located. The lease for
the Zurich property expires in March of 2001. The lease for the Baar property is
a year-to-year tenancy requiring one year's notice, as of any December 31, for
termination.
Item 3. Legal Proceedings
On September 26, 1996, Thomas P. Sims ("Sims") filed an action (the
"Action") in the Superior Court of California for the County of Santa Barbara
(the "Superior Court") against the Company and DNR relating to a license
agreement dated September 8, 1991, between Sims and DNR ( the "License") for the
production and distribution of snowboards and related products bearing the Sims
trademark outside of the United States and Canada. Sims alleged, among other
things, that the Company and DNR were promoting products (including DNR's soft
boot Step-in Interface SystemTM binding, the "Interface System") that unfairly
competed with Sims' products and that DNR had breached the License. On September
27, 1996, Sims notified DNR of his intention to terminate the License agreement,
which was scheduled to continue until July 1, 2001, and, pursuant to the terms
of the License, initiated arbitration proceedings against DNR by filing a demand
for arbitration (the "Arbitration"). Sims claims that termination was justified
by the alleged breaches of the License agreement by DNR. Sims also claims that
the Company misappropriated a Sims design for a snowboard binding and seeks
damages based upon various legal and factual theories, including claims that
DNR's conduct damaged the value of his trademarks and that DNR distributed goods
not authorized by the License agreement. Sims has not specified the amount
sought as damages.
The Company denies Sims' claims and DNR has filed a counter claim against
Sims in which it seeks damages from Sims for wrongfully terminating the license
agreement, for selling his interest in his trademarks and the License agreement
to a third party in violation of a right of first refusal in favor of DNR that
is stated in the License agreement, and for other relief and damages.
On November 27, 1996, the Superior Court granted Sims' request for a
preliminary injunction against the Company and DNR. The Superior Court's ruling
prevents DNR from manufacturing, shipping, selling or distributing snowboard
products with the Sims trademark, pending the outcome of the Arbitration. The
Superior Court, however, refused to grant Sims' request that DNR be enjoined
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from producing and marketing the Interface System under the "DNR" and other
brand names. Additionally, the preliminary injunction does not restrict the
right of DNR to produce and market snowboards and related products under brand
names other than Sims.
The preliminary injunction is not a final judgment and factual findings
made by the Superior Court in the preliminary injunction proceeding are not
binding upon the arbitrator. In the Arbitration, Sims has filed a claim against
DNR for breach of the License and DNR has filed a counterclaim against Sims for
wrongful termination of the License. The Arbitration hearing is scheduled to
take place over a four week period beginning in July 1997. Under the terms of
the License, the arbitrator's award is binding on the parties and is not subject
to appeal or further court review except for extraordinary circumstances.
Although only Sims and DNR are parties to the arbitration, the arbitrators
decision could conclude many of the disputes that are the subject of the Action,
which has been stayed while the Arbitration is pending.
In the opinion of the Company, neither the Company nor any of its
subsidiaries is currently a party to or subject to any other material pending
legal proceedings. The nature of the sports of skiing and snowboarding entail
inherent risks of injury. It is expected that the Company from time to time will
be subject to claims and lawsuits as a result of the nature of its businesses.
The Company maintains insurance that it believes meets industry standards to
protect itself against product liability claims. The adequacy of the insurance
coverage and reserves established by the Company to cover known, as well as
incurred but unknown, product liability claims are evaluated at the end of each
fiscal year. There can be no assurance, however, that such coverages or reserves
will be sufficient protection against any future legal proceedings (including
any related payments, settlements or costs).
In September 1995, the Company, along with other significant companies in
its business, received a letter from the Department of Justice (the "DOJ")
explaining that the pricing practices of the various companies in the ski
industry were being reviewed. Although to date the Company has not received
further correspondence from the DOJ, there can be no assurance that the DOJ will
not pursue these matters further.
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered in this report.
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Prior to the Company's Initial Public Offering in August 1994, quotations
for the Company's common stock were not reported on any market, and there was no
established public trading market for the common stock. Since the Initial Public
Offering, the Company's common stock has been listed on the NASDAQ National
Market System under the symbol "MRKR". The following table sets forth high and
low prices for the common stock as quoted on NASDAQ during the periods
indicated.
Quarter Ended High Low
----------------------- -------- ---------
1995
----
June 30 $ 7.63 $ 5.88
September 30 9.75 6.00
December 31 12.25 9.75
1996
----
March 31 12.38 7.13
June 30 8.88 7.00
September 30 9.75 5.75
December 31 9.50 5.38
1997
----
March 31 5.75 4.13
June 30 (through June 24) 4.88 2.75
Based upon information available from the Company's registrar and transfer
agent, the Company estimates that at June 2, 1997 there were approximately 1,800
holders of record of the Company's common stock.
Dividend Policy
No dividends have been declared on the Company's common stock since 1984
and the Company does not anticipate paying any dividends in the foreseeable
future. It is the present intention of the Board of Directors to retain all
earnings to finance operations and for the expansion of the business.
14
<PAGE>
Item 6. Selected Consolidated Financial Data
The following consolidated financial information is provided for the last
five fiscal years. The information is qualified in its entirety by, and should
be read in conjunction with, the Consolidated Financial Statements and Notes
thereto included herein (in thousands, except per share data and notes).
<TABLE>
<CAPTION>
Consolidated Income Statement Data for Fiscal Year Ended March 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Net sales $126,403 $87,911 $83,962 $82,637 $84,920
Cost of sales 80,531 52,608 48,878 49,572 55,537
------ ------ ------ ------ ------
Gross profit 45,872 35,303 35,084 33,065 29,383
------ ------ ------ ------ ------
Operating expenses:
Selling 15,553 14,592 13,049 13,029 11,020
General and administrative 12,840 10,559 9,314 9,316 8,480
Research and development 3,141 2,762 2,349 2,158 1,999
Warehouse and shipping 1,827 1,566 1,455 1,343 1,325
Amortization of goodwill
and intangibles 621 - - - -
------ ------ ------ ------ ------
Total operating expenses 33,982 29,479 26,167 25,846 22,824
------ ------ ------ ------ ------
Operating income 11,890 5,824 8,917 7,219 6,559
------ ------ ------ ------ ------
Other income (expense):
Interest expense (5,104) (5,193) (4,999) (4,316) (5,322)
Investment in unconsolidated
subsidiary (281) 1,595 - - -
Other, net 1,274 2,072 1,584 826 490
------ ------ ------ ------ ------
Total other income
(expense) (4,111) (1,526) (3,415) (3,490) (4,832)
------ ------ ------ ------ ------
Income before income taxes,
minority interest and
cumulative effect of
accounting change 7,779 4,298 5,502 3,729 1,727
Provision for income taxes (1,656) (609) (1,395) (510) (133)
Minority interest (1,521) - - - -
------- ------ ------ ------ ------
Income before cumulative
effect of accounting change 4,602 3,689 4,107 3,219 1,594
Cumulative effect of
accounting change, net of tax - (266) - - -
------ ------ ------ ------ ------
Net income $4,602 $3,423 $4,107 $3,219 $1,594
====== ====== ====== ====== ======
Net income applicable to
common shares (1) $4,602 $3,423 $3,653 $1,803 N/A
====== ====== ====== ======
Net income per common
share (2) $ 0.45 $ 0.40 $ 0.50 $ 0.31 N/A
======= ======= ======= =======
Weighted average common
shares outstanding 10,285 8,595 7,368 5,785 N/A
====== ====== ====== ======
</TABLE>
_____________
(1) Net income applicable to common shares reflects the following transactions
as if they occurred on April 1, 1993 (the beginning of fiscal 1994): (a) the
exchange of Series A preferred stock (including the premium thereon) for
378,572 shares of Common Stock resulting in the elimination of dividends
totaling approximately $87,000 and $387,000 for the fiscal years ended March
31, 1995 and 1994, respectively, (b) the exchange of Series A-1, A-2 and A-3
redeemable preferred stock for $19 million aggregate principal amount of
Series A-1, A-2 and A-3 bonds resulting in the treatment of dividends
totaling approximately $454,000 and $1,416,000 as interest expense net of the
related tax effect for the fiscal years ended March 31, 1995 and 1994,
respectively, and (c) the 3,604 to 1 stock split of the Company's outstanding
Common Stock.
(2) For the fiscal year ended March 31, 1996, the cumulative effect of
accounting change (CEC) had a dilutive effect on net income per common share
of $ 0.03 per share. This resulted in net income per common share before CEC
of $ 0.43 and after CEC of $ 0.40.
15
<PAGE>
Consolidated Balance Sheet Data at March 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Current assets $78,271 $64,592 $66,856 $45,093 $42,411
Total assets 117,140 87,265 82,998 56,540 52,316
Current liabilities 57,146 51,045 44,930 36,922 34,624
Long-term debt, net of
current maturities 16,487 5,452 6,244 3,324 2,685
Series A Bonds, net of
current maturities 10,000 10,000 13,500 - -
Minority Interest 1,810 - - - -
Redeemable preferred stock - - - 19,000 8,000
Total shareholders'
equity (deficit) 31,697 20,768 18,324 (2,706) 7,007
Item 7. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
Overview
Marker International is a leading designer, developer, manufacturer and
marketer of alpine ski bindings in the United States and throughout the world.
The Company is a holding company which operates through its subsidiaries, Marker
Germany, Marker USA, Marker Japan, Marker Austria, and Marker Canada.
Substantially all of the Company's ski bindings are manufactured by Marker
Germany, which also distributes bindings in Germany, to subsidiaries of the
Company and to independent distributors in countries where the Company does not
have a distribution subsidiary. Marker USA and Marker Japan each has its own
sales force and marketing departments for sales and marketing of bindings and
related parts directly to retailers in the United States, and to both retailers
and wholesalers in Japan, respectively. Marker Austria distributes the Company's
ski bindings into Austria through an independent sales force. Marker Canada
distributes the Company's ski bindings into Canada which are then sold through
an independent distributor. Marker Ltd., also a subsidiary of the Company,
designs, distributes and sells to retailers the Company's clothing, gloves and
luggage products for skiing and other recreational activities. The principal
markets for the Company's products are North America, Europe and Asia.
In addition, Marker International, through its 80% owned subsidiary, DNR
Sportsystem Ltd., and newly created and wholly-owned subsidiaries, DNR USA,
Inc., DNR North America, Inc. and DNR Japan, is a leading designer, developer,
manufacturer and marketer of snowboards, Interface Step-in SystemsTM,
traditional snowboard bindings and snowboard boots. DNR Sportsystem Ltd.
designs, develops and distributes snowboards and related products throughout the
world. DNR USA manufactures snowboards for distribution worldwide under the
16
<PAGE>
Santa Cruz and DNR brand names. DNR North America and DNR Japan, through their
own sales force, market snowboards, Interface Step-in SystemsTM, snowboard
bindings and boots directly to retailers in the United States and Japan,
respectively.
Marker Germany receives payment primarily in German marks ("Marks") for
ski bindings sold. For subsidiaries of the Company (principally Marker USA and
Marker Japan), Marker Germany may allow payment for ski bindings sold to be made
in the functional currency of the subsidiary. Marker Germany or the distribution
subsidiary, as applicable, routinely enters into forward foreign exchange
contracts with financial institutions in order to fix the cost of converting the
functional currency to Marks. Sales prices for the ski bindings offered to the
subsidiaries and ultimately the price the subsidiaries offer for the sale of the
ski bindings to their customers is based upon, among other things, the rate
afforded by the forward foreign exchange contracts and market conditions.
Accordingly, the relationship of the exchange rate between the functional
currency of the subsidiary and the Mark has a direct impact on the cost of the
products sold by the distribution subsidiary.
From fiscal 1994 to fiscal 1995, fiscal 1995 to fiscal 1996, and fiscal
1996 to fiscal 1997, based upon forward foreign exchange contracts entered into
by the Company, the United States dollar ("Dollar") increased in value 1.0%,
decreased in value 12.3%, and increased in value 2.1%, respectively, against the
Mark. During the same periods, based upon forward foreign exchange contracts
entered into by the Company, the Japanese yen ("Yen") appreciated 3.1%, 1.9%,
and 2.7%, respectively, against the Mark. Assuming that foreign exchange rates
between the Dollar and the Mark, and between the Yen and the Mark, had remained
constant from fiscal 1994 to fiscal 1995, fiscal 1995 to fiscal 1996, and fiscal
1996 to fiscal 1997, the Company's cost of sales would have increased by
approximately $0.6 million, decreased by $2.4 million, and increased by $0.7
million, respectively. The total deferred loss on forward foreign exchange
contracts which were accounted for as hedges of firm commitments was
approximately $1.1 million at March 31, 1997.
In accordance with United States generally accepted accounting principles,
upon consolidation of the Company's financial statements, the income and expense
items of the Company's foreign subsidiaries are translated at the weighted
average rates of exchange prevailing during the period. Therefore, Marker's
results of operations are subject to translation risks and can vary as a result
of fluctuations in the exchange rates between the functional currencies of such
foreign subsidiaries and the Dollar.
In addition, upon consolidation of the Company's financial statements, the
assets and liabilities of the Company's foreign subsidiaries are translated into
Dollars from their functional currencies at the rate of exchange on the last day
of the fiscal year. Therefore, Marker's consolidated assets and liabilities may
vary as a result of fluctuations in the exchange rates between the functional
currencies of such foreign subsidiaries and the Dollar. The resulting
translation adjustments from foreign currency fluctuations are recorded in
shareholders' equity as cumulative foreign currency translation adjustments.
17
<PAGE>
The Company's business is seasonal in nature and results of operations
vary from quarter to quarter. Orders for the Company's products from retailers
are highest during the Company's first fiscal quarter, which ends June 30. The
Company ships its products to fill those orders, and records a significant
portion of its annual sales, during its second and third fiscal quarters. The
Company then collects a substantial portion of its receivables during its third
and fourth fiscal quarters. In accordance with industry practice, a substantial
portion of the Company's accounts receivable remains outstanding for five to six
months and a small percentage remains outstanding for more than six months.
These factors result in variations in the Company's results of operations and
cash flows.
Results of Operations
Fiscal 1997 Compared to Fiscal 1996
The Company's net sales for the fiscal year ended March 31, 1997 increased
to $126.4 million, compared to $87.9 million in fiscal 1996. The increase in net
sales is attributable to the consolidation of approximately $43.8 million of
DNR's net sales into the Company's operating results for the year ended March
31, 1997. Net sales decreased by approximately $4.4 million as a result of the
weighted average rates of exchange used to consolidate the sales of the German
and Japanese subsidiaries from their functional currency to Dollars.
During fiscal 1997, Thomas Sims terminated a license agreement (the "Sims
License") between DNR and Thomas Sims. The Sims License required DNR to pay Sims
certain royalties as a percentage of DNR's gross sales arising from products
sold under the Sims brand and that the Sims products comprise at least 60% of
DNR's total sales.
Gross profit for fiscal 1997 increased to $45.9 million, but decreased as
a percent of sales to 36.3%, compared to $35.3 million, or 40.2% of sales, for
fiscal 1996. The increase in gross profit is attributable to the consolidation
of DNR's operating results. The decrease in gross profit as a percentage of
sales is primarily a result of lower gross margins recognized by DNR, compared
to the consolidated margin percentage of the Company's other subsidiaries.
Historically, DNR has recognized gross margin only on sales of its products to
distributors at the wholesale level, unlike the Company's other subsidiaries,
which recognize gross margin from sales of their products at the production,
wholesale and distribution levels.
Operating expenses increased to $34.0 million for fiscal 1997, compared to
$29.5 million for fiscal 1996. The overall increase in operating expenses is
primarily a result of the consolidation of DNR's operating expenses of
approximately $5.0 million with those of the Company. Operating expenses
decreased for both Marker Germany and Marker Japan as a result of changes in the
foreign exchange rates used to consolidate the operating expenses of those
entities, from their functional currency to Dollars. Research and development
expenses increased as a result of increased research and development for the new
18
<PAGE>
Logic 1TM series alpine ski binding and the consolidation of DNR's research and
development expenses during fiscal 1997, compared to fiscal 1996.
Interest expense decreased to approximately $5.1 million for fiscal 1997,
compared to $5.2 million for fiscal 1996. The primary reasons for the decrease
in interest expense are a lower outstanding balance of Series A Bonds, lower
interest rates on various other borrowings and the effect of the foreign
exchange rates used for consolidation. The decrease was offset in part by a
corresponding increase in interest expense as a result of higher borrowings
related to the purchase of DNR.
Other income items decreased to $1.0 million for fiscal 1997, compared to
$3.7 million in fiscal 1996. The decrease is attributable to recognition of the
Company's equity share of an unconsolidated subsidiary's net income, which
totaled approximately $1.6 million for fiscal 1996, but which was a net loss of
$0.3 million for fiscal 1997. In addition, during fiscal 1997 and fiscal 1996,
the Company purchased and sold foreign exchange options and forward foreign
exchange contracts which were not accounted for as hedges and resulted in the
Company recording net gains of approximately $0.8 million and $1.0 million,
respectively.
The provision for income taxes increased from $.6 million in fiscal 1996
to approximately $1.7 million in fiscal 1997. The provisions for income taxes
for the fiscal years ended March 31, 1997 and 1996 were calculated using the
estimated consolidated annual effective tax rate which considers the effective
tax rates of domestic and foreign tax jurisdictions. The increase in the
provision for income taxes is primarily a result of increased pre-tax income for
fiscal 1997 compared to 1996. In addition, in fiscal 1996, the Company's
effective tax rate was lower as a result of recognizing deferred tax assets. The
Company anticipates that the effective tax rate realized in the future will
increase, as a result of prior recognition of deferred tax assets.
Fiscal 1996 Compared to Fiscal 1995
The Company's net sales increased 4.6% in fiscal 1996 to $87.9 million,
compared to $84.0 million in fiscal 1995. The increase in net sales was
primarily a result of an increase in market share in Germany and the United
States, and an increase in the sales price of the Company's products in those
markets. As a result of large amounts of inventory on hand at the retail level
in the Japanese market, sales decreased at Marker Japan. In addition, Marker
Ltd., the Company's soft goods subsidiary, increased sales during fiscal 1996,
compared to fiscal 1995. During fiscal 1996, Marker Ltd. obtained an exclusive,
one-year license to market, in Utah, apparel with the imprint and embroidery of
the Salt Lake City 2002 Olympic Winter Games logo. Sales of Olympic items,
combined with an extended product line, served to increase sales of Marker Ltd.
Gross profit for fiscal 1996 increased to $35.3 million, but decreased as
a percent of sales to 40.2%, compared to $35.1 million, or 41.8% of sales, for
19
<PAGE>
fiscal 1995. The reduction in gross profit percentage was primarily a result of
the rate of forward foreign exchange contracts used to convert Dollars and Yen
to Marks which resulted in an increase in cost of goods sold of approximately
$2.4 million for fiscal 1996, compared to fiscal 1995.
Operating expenses increased to $29.5 million for fiscal 1996, compared to
$26.2 million for fiscal 1995. Approximately $1.3 million of the increase
resulted from fluctuations in the foreign currency exchange rates used to
translate operating expenses to Dollars in fiscal 1996, compared to fiscal 1995.
In addition, research and development expenses increased as a result of
increased research and development for alpine bindings and snowboard bindings
during fiscal 1996. Moreover, selling and general and administrative expenses
increased in fiscal 1996 compared with fiscal 1995, because of additional
marketing and advertising costs believed necessary to promote the Marker brand
name and costs associated with being a public company for the full 1996 fiscal
year.
Interest expense increased approximately $200,000 to $5.2 million for
fiscal 1996, compared to $5.0 million for fiscal 1995. The increase was the
result of the $5.3 million loan which the Company obtained to finance its
investment in DNR Sportsystem. This loan contributed approximately $244,000 in
additional interest expense during fiscal 1996.
Other income items increased to $3.7 million for fiscal 1996, compared to
$1.6 million in fiscal 1995. The increase is attributable to recognition of the
Company's equity share of an unconsolidated subsidiary's net income which
totaled approximately $1.6 million for fiscal 1996. In addition, during fiscal
1996, the Company purchased and sold forward foreign exchange contracts which
were not accounted for as hedging transactions. As a result, the Company
recorded a net gain of approximately $1.0 million which has been recorded in
other income.
The provision for income taxes decreased from $1.4 million in fiscal 1995
to approximately $0.6 million in fiscal 1996. The decrease in the provision for
income taxes was attributable to reduced pre-tax income and recognition of
deferred tax benefit through reduction of the valuation allowance on deferred
tax assets. As the Company has recorded taxable income during its past several
years, circumstances regarding the valuation allowance have changed and the
allowance has been adjusted to reflect deferred tax assets which are more likely
than not to be utilized in the future by the Company.
Liquidity and Capital Resources
The Company's primary cash needs are for purchases of raw materials
inventory for production, finished goods inventory, funding of accounts
receivable, capital expenditures and strategic business acquisitions.
Historically, the Company's primary sources of cash for its business activities
have been cash flows from operations and borrowings under its lines of credit
and term loans.
20
<PAGE>
Working capital increased from $13.5 million at March 31, 1996 to $21.1
million, at March 31, 1997. The increase in working capital is primarily the
result of the consolidation of the results of DNR with those of the Company and
its other subsidiaries, which contributed approximately $8.0 million to working
capital at March 31, 1997. In addition, the Company refinanced certain long-term
debt, which at March 31, 1996 was classified as current maturities of long-term
debt.
During fiscal 1997, the Company spent approximately $10.3 million on
capital expenditures which consisted primarily of manufacturing equipment in
Germany and the US. In addition, the Company completed the construction of a
snowboard manufacturing facility located adjacent to the Company's Salt Lake
City, Utah headquarters. The Company anticipates spending approximately $4.0
million on capital expenditures in fiscal 1998.
On June 26, 1996, the Company acquired an additional 55% of DNR,
increasing the Company's total ownership of DNR to 80%. The total purchase price
for the additional 55% of DNR was approximately $19.8 million. The Company
financed the purchase with the aggregate net proceeds of approximately $14.8
million from a secondary offering of primary shares of its common stock and
proceeds of approximately $5.0 million from long-term borrowings.
In January of 1997, the Company completed the construction of its
snowboard manufacturing facility in Salt Lake City, Utah. At March 31, 1997, the
Company had disbursed approximately $.7 million for the purchase of the land and
$2.6 million for the construction of the building. The Company financed
approximately $2.3 million of the $3.3 million facility with long-term debt to
be paid over a period of 15 years.
At March 31, 1997, the Company's primary sources of liquidity consisted of
cash and short-term investments and available borrowings under lines of credit.
The Company has approximately $68.1 million available under various lines of
credit. At March 31, 1997, the Company had approximately $38.9 million borrowed
under such credit agreements. The Company's borrowings under lines of credit
typically reach their maximum during the Company's third fiscal quarter. In
fiscal 1997 and 1996, the Company had maximum borrowings outstanding under its
lines of credit of approximately $68.3 and $59.7 million, respectively.
The Company anticipates being able to fund its current operations and
capital expenditures in the foreseeable future with existing cash and short-term
investments together with internally generated funds and borrowings under
available lines of credit.
21
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
Refer to Consolidated Financial Statements included separately herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
22
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth information with respect to the executive
officers and Directors of the Company:
Date
Appointed
to
Present Other Business Experience
Name Title Age Position During Past Five Years
- ------------------- ------------ ---- -------- ----------------------------
Henry E. Tauber President, 56 1984 Same
Chief
Executive
Officer and
Chairman of
the Board of
Marker
International
Eiichi Isomura Chairman of 60 1981 President of Isomura
Marker Sangyo Kaisha Ltd. and
Japan, 1990 President of Isomura
Executive Seisakusho KK.
Vice
President
and a
Director of
Marker
International
Dr. Wilhelm Chairman and 56 1990 Same
Fahrngruber Managing
Director of
Marker
Germany
Otto H. Harsanyi Director of 49 1992 Patent Engineer and
Marker General Manager of Group
Germany and Bernard Tapie, 1986-1992
Assistant
Secretary of
Marker
International
Kirk S. Langford Executive 42 1994 Vice President of Marker
Vice USA, 1992-1994; Director
President of of Sales of Marker USA,
Marker USA 1990-1992
Daryl P. Santos Vice 45 1985 Same
President of
Marker
International
Premek Stepanek Managing 60 1991 Same
Director of
Marker
Germany
(Continued on next page)
23
<PAGE>
Brad L. Stewart Executive 39 1997 Vice President and Chief
Vice Financial Officer of
President, Marker International
Chief 1991-1996
Operating
Officer,
Secretary
and
Treasurer of
Marker
International
Sally F. Tauber (1) Vice 36 1989 Same
President of
Marker Ltd.
Terry J. Tuttle Chief 37 1996 Chief Financial Officer of
Financial San Diego Business Journal
Officer of 1992-1996
Marker
International
Graham S. Anderson Director 64 1985 Chairman and Chief
Executive Officer of
Pettit-Morry Co.,
1987-1994. Director of
Commerce Bank Corporation,
Gray Harbor Paper Company
and Acordia Northwest,
Inc. Chairman of the
National Association of
Insurance Brokers and
Alberg Holding Company.
John G. McMillian Director 70 1990 Chairman of the Board,
President and Chief
Executive Officer of
Allegheny & Western Energy
Corporation, 1987-1995;
Director of SunBank Miami
N.A. (Sun Trust).
Vinton H. Sommerville Director 60 1990 Chief Executive Officer
and Chairman of the Board
of Slim Sommerville, Inc.,
1988-present.
Lucio Roffi Chairman and 52 1996 Chairman and Chief
Chief Executive Officer of DNR
Executive Sportsystem Ltd.,
Officer of 1990-present.
DNR
Sportsystem
Ltd and
Director of
Marker
International
- ---------------------------------
(1) Sally F. Tauber is the wife of Henry E. Tauber.
Each executive officer is appointed by the Board of Directors and serves
at its pleasure. Each member of the Board of Directors who is not an officer or
consultant of the Company receives an annual fee of $6,000 for serving on the
Board of Directors and reimbursement of expenses for each Board or committee
meeting attended. Directors of the Company are eligible to participate in the
Company's 1994 Non-Qualified and Incentive Stock Option Plan (the "Stock Option
Plan").
24
<PAGE>
Item 11. Executive Compensation
The following table sets forth the compensation paid or accrued by the
Company to or on behalf of its Chief Executive Officer and each of its other
four most highly compensated executive officers who earned over $100,000 in
fiscal years 1997, 1996 and 1995 (collectively, the "Named Executive Officers")
for services rendered during the fiscal years ended March 31, 1997, 1996 and
1995, respectively. One additional named executive officer, who had resigned
during fiscal 1997, has been included on the list.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Other Awards
Annual ------------
Name and Principal Fiscal Salary Bonus Compensation Options All Other(4)
Position Year $ $ $ # Compensation
- ------------------- ------ ------- ------ ------------ ------- -------------
Henry E. Tauber 1997 300,000 25,000 (2) 0 500
President and 1996 300,000 75,000 (2) 0 1,000
Chief Executive 1995 300,000 0 (2) 0 3,908
Officer of Marker
International
Eiichi Isomura 1997 165,421 0 (2) 0 0
Chairman Marker 1996 212,150 0 (2) 0 0
Japan and Vice 1995 212,150 0 (2) 0 0
President of
Marker
International (1)
Masayuki Chiba 1997 152,025 0 25,794(6) 0 0
President Marker 1996 207,414 0 (2) 0 0
Japan (1),(5) 1995 207,414 0 (2) 15,000 0
Dr. Wilhelm 1997 206,996 0 (2) 0 0
Fahrngruber 1996 206,996 0 (2) 10,000 0
Chairman and 1995 179,996 0 27,000(3) 40,000 0
Managing Director
of Marker Germany
(1)
Premek Stepanek 1997 137,972 32,394 (2) 0 0
Managing Director 1996 146,817 0 (2) 10,000 0
of Marker Germany 1995 142,431 0 (2) 40,000 0
(1)
Lucio Roffi 1997 277,286 360,714 (2) 0 0
Chairman and 1996 - - - - -
Chief Executive 1995 - - - - -
Officer of DNR
Sportsystem (1)
(1) The Company pays salaries to its employees in the applicable local
currency. The above salaries are translated into US Dollars based on
exchange rates of US $1 for DM 1.667, US $1 for Yen 107, and US $1 for SFr
1.4 with respect to the employees employed by Marker Germany, Marker Japan
and DNR Sportsystem, respectively.
(Notes (2) through (6) continue on next page)
25
<PAGE>
(Footnotes continued from previous page relating to Summary Compensation Table)
(2) The amount of perquisites and other personal benefits received by the
indicated officer did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for the year.
(3) Represents reimbursement of interest expense related to a personal
mortgage.
(4) Amounts indicated pertain to Company contributions to the Company's 401(k)
retirement plan.
(5) In February 1997, Masayuki Chiba resigned as President of Marker Japan and
is no longer employed by the Company.
(6) Represents housing allowance paid to Masayuki Chiba, while serving as
President of Marker Japan.
The Company has entered into employment agreements with Premek Stepanek,
Managing Director of Marker Germany, Dr. Wilhelm Fahrngruber, Chairman and
Managing Director of Marker Germany, and Otto H. Harsanyi, Director of Marker
Germany. Mr. Stepanek, Dr. Fahrngruber and Mr. Harsanyi receive base salaries of
$137,972, $206,996 and $104,979, respectively (based on an exchange of the
German Mark to the US Dollar of US $1 to DM 1.667). Mr. Harsanyi's contract
expires in 1998, Dr. Fahrngruber's contract expires in 2000, and Mr. Stepanek's
contract expires in 2002.
The Board of Directors has a standing Compensation Committee consisting of
Messrs. John G. McMillian and Graham S. Anderson. The Compensation Committee met
four times during the fiscal year ended March 31, 1997. The Compensation
Committee's responsibilities are: (a) to determine and approve compensation
arrangements for executive officers of the Company and to review and oversee any
stock option, stock award plan and employee benefit plan or arrangement
established by the Board of Directors for the benefit of the executive officers
of the Company; and (b) to review and recommend director and officer nominees
for election by the Company's shareholders or the Board of Directors, as the
case may be. The Compensation Committee does not have a procedure for
considering nominees to the Board of Directors who have been recommended by the
shareholders.
Stock Option Grants in Last Fiscal Year
During the fiscal year ended March 31, 1997, there were no stock option
grants made by the Company to any of the Named Executive Officers listed in the
Summary Compensation Table above.
26
<PAGE>
Aggregated Stock Option Exercises in the Last Fiscal Year and Fiscal Year-End
Values
During the fiscal year ended March 31, 1997, none of the Named Executive
Officers exercised stock options to acquire shares of the Company's Common
Stock. The following table sets forth information with respect to the aggregate
number and value of unexercised options held by the Named Executive Officers at
March 31, 1997. In addition, none of the stock options held by the Named
Executive Officers at March 31, 1997 had a fair market value in excess of the
exercise price or base price.
Value of Unexercised
Number of Unexercised In-the-Money
Options at March 31, 1997 Options at March 31, 1997
--------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ----------- ------------- ----------- -------------
Henry E. Tauber 0 0 $ 0 $ 0
Eiichi Isomura 0 0 0 0
Masayuki Chiba (1) - - - -
Dr. Wilhelm Fahrngruber 22,500 27,500 0 0
Premek Stepanek 22,500 27,500 0 0
Lucio Roffi 0 0 0 0
(1) Mr. Chiba's options have been terminated following his resignation in
February 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock as of June 2, 1997 by (i)
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock, (ii) each of the Company's Directors, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers as a group.
27
<PAGE>
Name and Address of Number of Percentage of
Beneficial Owner Shares (1) Class (2)
- ------------------------------------- ---------- -------------
Chancellor LGT Asset Management, Inc.
1166 Avenue of the Americas
New York, NY 10036 1,033,200 9.0%
Neuberger & Berman, LLC
605 Third Avenue
New York, NY 10158 781,750 6.8%
Directors and Executive Officers
- -------------------------------------
Henry E. Tauber
1070 West 2300 South
Salt Lake City, Utah 84119 4,326,055 37.6%
Graham S. Anderson 65,286 *
Eiichi Isomura 142,857 1.2%
John G. McMillian 179,640 1.6%
Vinton H. Sommerville 54,286 *
Dr. Wilhelm Fahrngruber 50,200 *
All directors and officers as a group 4,945,969 43.0%
- --------------------------------------
* Denotes less than 1% of outstanding shares
(1) Shares shown include common shares which could be acquired within 60 days
of June 2, 1997, by the exercise of outstanding stock options.
(2) All percentages are calculated on the basis of outstanding shares of
common stock, plus shares which could be acquired, within 60 days of June
2, 1997, by the exercise of outstanding stock options.
Item 13. Certain Relationships and Related Transactions
All of the Company's outstanding Series A Bonds are held by Isomura Sangyo
Kaisha Ltd., a Japanese corporation ("Isomura Sangyo" or the "Bondholder"),
controlled by Eiichi Isomura, a director of the Company, and his family. The
Company issued the Series A Bonds on the effective date of the Initial Public
Offering in exchange for the Redeemable Preferred Stock which was held by
Isomura Sangyo at the time of the Initial Public Offering. The amounts and
payment schedule of the interest payments on each of the Series A Bonds are the
same as those of the corresponding converted Redeemable Preferred Stock. The
Series A Bonds are subject to redemption upon not less than 30 days notice, in
whole or in part, at the option of the Company. As of March 31, 1997, the
redemption schedule was amended by the Bondholder and the Company. This
amendment to the redemption schedule extended the repayment schedule by one year
on all requested redemptions.
The Series A-1 Bonds had an original aggregate face value amount of $8.0
million and bore interest, payable semi-annually on September 30 and March 31,
at the effective borrowing rate for the Bondholder (the "Japanese Bank Rate") of
approximately 6.6% and 7.2% for the fiscal years ending March 31, 1997 and 1996,
28
<PAGE>
respectively. During the fiscal year ended March 31, 1997 and 1996, $1.0 million
of the Series A-1 Bonds were redeemed in each year. The Bondholder, upon six
months prior written notice, may elect to have the Company redeem a portion of
the bonds according to the following schedule:
Redemption Face Amount
Notice On or After On or After to be Redeemed
--------------- --------------- --------------
April 1, 1998 October 1, 1998 $2,000,000
April 1, 1999 October 1, 1999 $2,000,000
The redemption price of the Series A-1 Bonds equals the face amount of the
portion of such bonds redeemed plus accrued but unpaid interest thereon.
The Series A-2 Bonds have an original aggregate face value amount of $10.0
million and bear interest, payable semi-annually on September 30 and March 31,
at the Japanese Bank Rate plus three percent of the face value of the bonds
outstanding. During the fiscal year ending March 31, 1997, the Bondholder
redeemed $2.5 million of Series A-2 Bonds. Upon six months prior written notice,
the Bondholder may elect to have the Company redeem a portion of the Series A-2
Bonds, according to the following schedule:
Redemption Face Amount
Notice On or After On or After to be Redeemed
---------------- ----------------- --------------
June 16, 1998 December 16, 1998 $2,500,000
June 16, 1999 December 16, 1999 $2,500,000
The redemption price of the Series A-2 Bonds equals the face amount of the
portion of such bonds redeemed plus accrued, but unpaid interest thereon.
The Series A-3 Bond has an aggregate face value amount of $1.0 million and
bears interest, payable semi-annually on September 30 and March 31, at the
Japanese Bank Rate plus three percent of the face value of the bond outstanding.
The Bondholder of the Series A-3 Bond may redeem the bond by providing six
months prior written notice on or after June 16, 1998 for redemption on or after
December 16, 1998.
During fiscal years 1997, 1996 and 1995, Marker Japan purchased ski
bindings and services totaling approximately $93,000, $13,000, and $0.6 million,
respectively, from Isomura Seisakusho KK ("Isomura Seisakusho"), a company of
which Mr. Isomura is the president, director, and owner of more than ten percent
of the outstanding stock. In fiscal year 1995, a customer of Marker Japan
returned snowmaking equipment of approximately $0.5 million to Marker Japan for
warranty purposes. Marker Japan returned this equipment to Isomura Seisakusho,
the supplier of such equipment, for reimbursement. At March 31, 1997, 1996 and
1995, the net account receivable from Isomura Seisakusho was approximately $0.4
million, $0.5 million and $0.6 million, respectively.
29
<PAGE>
At March 31, 1997, the Company had outstanding notes in an aggregate
amount equal to approximately US $9.4 million payable to Japanese banks. Of
these amounts, approximately $3.2 million was secured by assets of Mr.
Isomura, a shareholder and director of the Company.
Marker Japan leases office space in Tokyo, Japan and receives distribution
services from Isomura Sangyo. In connection therewith, for the fiscal years
1997, 1996 and 1995, Marker Japan made payments to Isomura Sangyo totaling
approximately $287,000, $428,000 and $272,000, respectively.
The Company purchased insurance through an insurance broker, Acordia
Northwest Inc., of which Graham S. Anderson, a director of the Company, is also
a director. The Company incurred approximately $851,000, $746,000, and $821,000
of premiums for such insurance during fiscal 1997, 1996 and 1995, respectively.
During fiscal year 1997, DNR purchased substantially all of its snowboards
from an affiliated entity, of which Gregor Furrer & Partner Holding AG, a
minority shareholder of DNR, is a partner.
30
<PAGE>
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports on
Form 8-K
Page
Reference
(a) 1. Financial Statements
The following consolidated financial statements
required by Part II, Item 8, are included in Part
IV of this report.
Marker International and Subsidiaries
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of March 31, 1997
and 1996 F-3
Consolidated Statements of Income for the Years
Ended March 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Shareholders' Equity for
the Years Ended March 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the Years
Ended March 31, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-8
2. Financial Statement Schedules
Report of Independent Public Accountants on Schedule 36
Schedule II - Valuation and Qualifying Accounts 37
3. List of Exhibits
3.1 Form of Restated Articles of Incorporation of the Company (filed
as Exhibit 3.1 to the Company's Form S-1 Registration Statement,
Amendment No. 1 dated July 14, 1994 (File No. 33-80100) and
incorporated herein by reference).
3.2 Form of Amended and Restated By-Laws of the Company (filed as
Exhibit 3.2 to the Company's Form S-1 Registration Statement,
Amendment No. 1 dated July 14, 1994 (File No. 33-80100) and
incorporated herein by reference)
4.1 Form of Certificate representing Common Stock (filed as Exhibit
4.1 to the Company's Form S-1 Registration Statement, Amendment
No. 1 dated July 14, 1994 (File No. 33-80100) and incorporated
herein by reference).
31
<PAGE>
10.1 Employment Agreement for Premek Stepanek (filed as Exhibit 10.1
to the Company's Form S-1 Registration Statement dated June 10,
1994 (File No. 33-80100) and incorporated herein by reference).
10.2 Employment Agreement for Dr. Wilhelm Fahrngruber (filed as
Exhibit 10.2 to the Company's Form S-1 Registration Statement
dated June 10, 1994 (File No. 33-80100) and incorporated herein
by reference).
10.3 Employment Agreement for Otto Harsanyi (filed as Exhibit 10.3 to
the Company's Form S-1 Registration Statement dated June 10,
1994 (File No. 33-80100) and incorporated herein by reference).
10.4 Form of 1994 Stock Option Plan (filed as Exhibit 10.4 to the
Company's Form S-1 Registration Statement dated June 10, 1994
(File No. 33-80100) and incorporated herein by reference).
10.5 401(k) Plan (filed as Exhibit 10.5 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No. 33-80100)
and incorporated herein by reference).
10.6 Manufacturing Facility Lease Agreement (filed as Exhibit 10.6 to
the Company's Form S-1 Registration Statement dated June 10,
1994 (File No. 33-80100) and incorporated herein by reference).
10.7 Second Amended and Restated Revolving Credit Agreement with
First Security Bank of Utah, N.A., including Extension Agreement
(filed as Exhibit 10.7 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.8 Loan Agreement with First Interstate Bank (filed as Exhibit 10.8
to the Company's Form S-1 Registration Statement dated June 10,
1994 (File No. 33-80100) and incorporated herein by reference).
32
<PAGE>
10.9 Agreement with Bayerischi Hypotheken-und Wechsel-Bank ("Hypo
Bank") for a DM 60,000,000 Line of Credit (filed as Exhibit 10.9
to the Company's Form S-1 Registration Statement dated June 10,
1994 (File No. 33-80100) and incorporated herein by reference).
10.10 Loan Agreement with Hypo Bank for a DM 4,000,000 loan (filed as
Exhibit 10.10 to the Company's Form S-1 Registration Statement
dated June 10, 1994 (File No. 33-80100) and incorporated herein
by reference).
10.11 Loan Agreement with Hypo Bank for a DM 1,863,333 loan (filed as
Exhibit 10.11 to the Company's Form S-1 Registration Statement
dated June 10, 1994 (File No. 33-80100) and incorporated herein
by reference).
10.12 Loan Agreement with Hypo Bank for a DM 2,220,000 loan (filed as
Exhibit 10.12 to the Company's Form S-1 Registration Statement
dated June 10, 1994 (File No. 33-80100) and incorporated herein
by reference).
10.13 Loan Agreement with Hypo Bank for a DM 3,000,000 loan (filed as
Exhibit 10.13 to the Company's Form S-1 Registration Statement
dated June 10, 1994 (File No. 33-80100) and incorporated herein
by reference).
10.14 Loan Agreement with Hypo Bank for a DM 10,000,000 loan (filed as
Exhibit 10.14 to the Company's Form S-1 Registration Statement
dated June 10, 1994 (File No. 33-80100) and incorporated herein
by reference).
10.15 Loan Agreement with Hypo Bank for a DM 64,000,000 Line of Credit
(filed as Exhibit 10.15 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated
herein by reference).
10.16 Loan Agreement with Hypo Bank for a DM 7,284,205 loan (Filed as
Exhibit 10.16 to the Company's Form 10-Q dated August 11, 1995
and incorporated herein by reference).
10.17 Pledge Agreement and Conditional Assignment with Hypo Bank for a
$3.5 million time deposit (Filed as exhibit 10.17 to the
Company's Form 10-Q dated August 11, 1995 and incorporated
herein by reference).
33
<PAGE>
10.18 Line of Credit Agreement Between Marker Deutschland GmbH and
Hypo Bank for DM 70,000,000 and a Foreign Exchange Line of
Credit for DM 60,000,000 (Filed as exhibit 10.18 to the
Company's Form 10-Q dated November 13, 1995 and incorporated
herein by reference).
10.19 Amended and Restated Revolving Credit Agreement with First
Security Bank for up to $18,000,000 (Filed as exhibit 10.19 to
the Company's Form 10-Q dated November 13, 1995 and incorporated
herein by reference).
(a) 10.20 Loan Agreement between Marker Deutschland and Hypo Bank
for a DM 1,180,100 loan (Filed as Exhibit 10.20 to the Company's
Form 10-Q dated August 13, 1996 and incorporated herein by
reference).
10.21 Second Restated and Amended Promissory Note Agreement with Hypo
Bank for a DM 7,284,205.42 loan. (Filed as exhibit 10.21 to the
Company's Form 10-Q dated February 13, 1997 and incorporated
herein by reference).
10.22 Amended and Restated Conditional Pledge Agreement and Assignment
with Hypo Bank for a $2.0 million time deposit. (Filed as
exhibit 10.22 to the Company's Form 10-Q dated February 13, 1997
and incorporated herein by reference).
10.23 Bond Payment Extension Agreement between Marker
International and Isomura Sangyo Kaisha Ltd. (the
Bondholder).*
10.24 Loan Agreement between Marker International and
Jackson National Life Insurance Company for
$2,250,000.*
2.1 Share Purchase and Shareholders Agreement among Lucio Roffi,
Gregor Furrer & Partner Holding AG and Marker International,
dated June 11, 1996 (Filed as exhibit 2(a) to the Company's
Current Report on Form 8-K dated June 19, 1996 and incorporated
herein by reference).
2.2 Letter Agreement between Lucio Roffi and Marker International,
dated June 11, 1996 (Filed as exhibit 2(b) to the Company's
Current Report on Form 8-K dated June 19, 1996 and incorporated
herein by reference).
2.3 Intentionally Omitted
34
<PAGE>
2.4 Short-term Promissory Note for CHF 12,084,832.65 executed by the
Company and payable in full to Gregor Furrer & Partner Holding
AG on or prior to August 31, 1996 (filed as exhibit 2(c) to the
Company's Current Report on Form 8-K dated July11, 1996 and
incorporated herein by reference).
2.5 Short-term Promissory Note for CHF 12,084,832.65 executed by the
Company and payable in full to Lucio Roffi on or prior to August
31, 1996 (filed as exhibit 2(d) to the Company's Current Report
on Form 8-K dated July 11, 1996 and incorporated herein by
reference).
21.1 Subsidiaries of the Registrant*:
23.1 Consent of Arthur Andersen LLP, independent public
accountants.*
(b) Reports Filed on Form 8-K:
1 Current Report on Form 8-K dated June 19, 1996.
2 Current Report on Form 8-K dated July 11, 1996, including the
Consolidated Balance Sheets of DNR Sportsystem and its
subsidiaries as of December 31, 1994 and 1995, the related
Consolidated Statements of Income and Retained Earnings and Cash
Flows for each of the three years in the period ended December
31, 1995.
- -----------------------------
* filed herewith
35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Marker International:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Marker International included in this Form
10-K, and have issued our report thereon dated June 13, 1997. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. Schedule II is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
June 13, 1997
36
<PAGE>
MARKER INTERNATIONAL
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
FOR THE THREE YEARS ENDING MARCH 31, 1997
(in thousands)
For the Year Ended:
<TABLE>
<CAPTION>
Balance at
Beginning Amounts Balance at
of Period Provisions Written Off Other (1) End of Period
--------- ---------- ----------- --------- -------------
March 31, 1997
Allowance for
<S> <C> <C> <C> <C> <C>
doubtful accounts $ 2,173 $ 521 $ (431) $(124) $2,139
March 31, 1996
Allowance for
doubtful accounts $ 1,725 $ 703 $ (172) $ (83) $2,173
March 31, 1995
Allowance for
doubtful accounts 1,420 481 (317) 141 1,725
</TABLE>
(1) The allowance for doubtful accounts is translated to U.S. Dollars at the
exchange rate at the end of a reporting period. The provision and amounts
written off are translated at the weighted average rates of exchange prevailing
during the reporting period. Amounts classified as "other" represent the effects
of foreign currency translation on the allowance amount for the period.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MARKER INTERNATIONAL
Date: June 27, 1997 By: /s/ Terry J. Tuttle
------------- --------------------
Terry J. Tuttle
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Henry E. Tauber Chairman of the Board, June 27, 1997
--------------------------- Chief Executive Officer -------------
Henry E. Tauber and President (Principal
Executive Officer)
/s/ Terry J. Tuttle Chief Financial Officer June 27, 1997
---------------------------- (Principal Financial -------------
Terry J. Tuttle and Accounting Officer)
/s/ John G. McMillian Director June 27, 1997
--------------------------- -------------
John G. McMillian
/s/ Graham S. Anderson Director June 27, 1997
--------------------------- -------------
Graham S. Anderson
/s/ Vinton H. Sommerville Director June 27, 1997
--------------------------- -------------
Vinton H. Sommerville
/s/ Eiichi Isomura Director and Chairman June 27, 1997
--------------------------- of Marker Japan -------------
Eiichi Isomura
/s/ Lucio Roffi Director and Chief June 27, 1997
--------------------------- Executive Officer of DNR -------------
Lucio Roffi Sportsystem
38
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MARKER INTERNATIONAL FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of March 31, 1997 and 1996 F-3
Consolidated Statements of Income for the Years Ended
March 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Shareholders' Equity for
the Years Ended March 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Marker International:
We have audited the accompanying consolidated balance sheets of Marker
International (a Utah corporation) and subsidiaries as of March 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended March 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marker International and
subsidiaries as of March 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1997 in conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective April 1, 1995, the
Company changed its method of accounting for advertising costs.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
June 13, 1997
F-2
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 and 1996
(Dollars in Thousands)
- --------------------------------------------------------------------------------
ASSETS
1997 1996
------- ------
CURRENT ASSETS:
Cash and cash equivalents $13,532 $ 6,189
Accounts receivable, net of allowance for
doubtful accounts of $2,139 and $2,173,
respectively 26,279 22,151
Inventories 33,849 32,668
Prepaid and other current assets 4,611 3,584
------- -------
Total current assets 78,271 64,592
------- -------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,050 386
Building and improvements 7,356 4,912
Machinery and equipment 25,302 19,973
Furniture, fixtures and office equipment 4,511 4,225
Construction in progress - 913
--------- -------
38,219 30,409
Less accumulated depreciation and amortization (18,941) (17,288)
--------- -------
Net property, plant and equipment 19,278 13,121
========= =======
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY - 6,832
--------- -------
INTANGIBLE ASSETS, net of accumulated amortization 17,475 -
---------- --------
OTHER ASSETS 2,116 2,720
------- -------
$ 117,140 $87,265
========== =======
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
F-3
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
AS OF MARCH 31, 1997 and 1996
(Dollars in Thousands)
- ------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
------- ------
CURRENT LIABILITIES:
Notes payable to banks $38,930 $30,556
Current maturities of long-term debt 3,038 7,576
Current maturities of Series A Bonds, issued
to a related party - 3,500
Accounts payable 5,393 2,899
Other current liabilities 9,785 6,514
------- -------
Total current liabilities 57,146 51,045
------- -------
LONG-TERM DEBT, net of current maturities 16,487 5,452
------- -------
SERIES A BONDS, net of current maturities,
issued to a related party 10,000 10,000
------- -------
MINORITY INTEREST 1,810 -
------- --------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 5,000,000
shares authorized and none issued - -
Common stock, $0.01 par value, 25,000,000
shares authorized; issued and
outstanding:1997 - 11,129,127 shares, 1996 -
8,447,877 shares 111 84
Additional paid-in capital 36,293 21,531
Retained earnings (deficit) 858 (1,293)
Cumulative foreign currency translation
adjustments (5,565) 446
---------- -------
Total shareholders' equity 31,697 20,768
---------- -------
$117,140 $87,265
========== =======
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
F-4
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1997, 1996 and 1995
(Dollars in Thousands, Except Per Share Amounts)
- ------------------------------------------------------------------------------
1997 1996 1995
-------- -------- ------
NET SALES $126,403 $ 87,911 $ 83,962
COST OF SALES 80,531 52,608 48,878
-------- -------- --------
GROSS PROFIT 45,872 35,303 35,084
-------- -------- --------
OPERATING EXPENSES:
Selling 15,553 14,592 13,049
General and administrative 12,840 10,559 9,314
Research and development 3,141 2,762 2,349
Warehousing and shipping 1,827 1,566 1,455
Amortization of goodwill and intangibles 621 - -
-------- -------- --------
33,982 29,479 26,167
-------- -------- --------
OPERATING INCOME 11,890 5,824 8,917
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (5,104) (5,193) (4,999)
Equity in income (loss) of
unconsolidated subsidiary (281) 1,595 -
Other, net 1,274 2,072 1,584
-------- -------- --------
(4,111) (1,526) (3,415)
--------- -------- --------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 7,779 4,298 5,502
PROVISION FOR INCOME TAXES (1,656) (609) (1,395)
MINORITY INTEREST (1,521) - -
--------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 4,602 3,689 4,107
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAX (Note 1) - (266) -
-------- -------- -------
NET INCOME $ 4,602 $ 3,423 $ 4,107
======== ======== ========
NET INCOME APPLICABLE TO COMMON
SHARES (Note 1) $ 4,602 $ 3,423 $ 3,653
======== ======== ========
INCOME PER COMMON SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ 0.45 $ 0.43 $ 0.50
ACCOUNTING CHANGE PER COMMON SHARE - (0.03) -
-------- -------- -------
NET INCOME PER COMMON SHARE $ 0.45 $ 0.40 $ 0.50
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 10,285,038 8,595,453 7,367,531
========== ========= =========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
F-5
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands, Except Shares)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative
Series A Foreign
Preferred Stock Common Stock Additional Accumulated Currency Total
------------------- --------------- Paid-in Earnings Translation Shareholders'
Shares Amount Shares Amount Capital (Deficit) Adjustments Equity(Deficit)
------ ------ ------ ------ ------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994 2,500 $2,500 5,406,055 $ 54 $ 2,692 $(8,132) $ 180 $ (2,706)
Exchange of series
A preferred stock for
common stock (2,500) (2,500) 378,572 4 2,496 -- -- --
Initial public offering of
common stock, net -- -- 2,662,250 26 16,336 -- -- 16,362
Net income -- -- -- -- -- 4,107 -- 4,107
Translation adjustments -- -- -- -- -- -- 1,252 1,252
Dividends on preferred stock -- -- -- -- -- (691) -- (691)
----------- -------- ----------- -------- ----------- -------- -------- --------
BALANCE, MARCH 31, 1995 -- -- 8,446,877 84 21,524 (4,716) 1,432 18,324
Common stock options
exercised -- -- 1,000 -- 7 -- -- 7
Net income -- -- -- -- -- 3,423 -- 3,423
Translation adjustments -- -- -- -- -- -- (986) (986)
----------- -------- ----------- -------- ----------- -------- -------- --------
BALANCE, MARCH 31, 1996 -- -- 8,447,877 84 21,531 (1,293) 446 20,768
Secondary public offering of
common stock, net -- -- 2,680,000 27 14,753 -- -- 14,780
Common stock options
exercised -- -- 1,250 -- 9 -- -- 9
Adjustment for change in
reporting period of -- -- -- -- -- (2,451) -- (2,451)
consolidated subsidiary
Net income -- -- -- -- -- 4,602 -- 4,602
Translation adjustments -- -- -- -- -- -- (6,011) (6,011)
----------- -------- ----------- ------- ----------- -------- -------- --------
BALANCE, MARCH 31, 1997 -- $ -- 11,129,127 $111 $ 36,293 $ 858 $ (5,565) $ 31,697
=========== ======== =========== ======= =========== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these consolidated statements.
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 and 1995
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1997 1996 1995
------- ------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 4,602 $ 3,423 $ 4,107
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority interest in income 1,521 - -
Depreciation and amortization 4,386 3,131 2,521
Equity in (income) loss of unconsolidated
subsidiary 281 (1,595) -
Loss from consolidated subsidiary
resulting from change in reporting
period (Note 8) (3,063) - -
Loss on sale of property, plant and equipment 444 - -
Change in assets and liabilities (net of
amounts acquired):
Accounts receivable, net (3,109) (753) (1,431)
Inventories (3,596) (7,127) (1,868)
Prepaid and other assets 2,876 (317) (526)
Accounts payable (1,015) 45 (569)
Other liabilities 875 684 1,940
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
4,202 (2,509) 4,174
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (10,269) (4,380) (5,167)
Equity investment in DNR - (5,325) -
Majority purchase of DNR, net of cash
acquired ($5,263) (14,560) - -
Proceeds from disposition of equipment 143 361 72
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES (24,686) (9,344) (5,095)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on notes payable to banks 12,060 3,833 (2,727)
Issuance of common stock, net of issuance costs 14,780 - 16,362
Dividends paid on preferred stock - - (1,551)
Proceeds from common stock options exercised 9 7 -
Proceeds from issuance of long-term debt 10,385 8,037 5,367
Principal payments on long-term debt (3,176) (3,262) (2,875)
Redemption of Series A Bonds (3,500) (3,500) (2,000)
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 30,558 5,115 12,576
------- ------- -------
Effect of foreign exchange rate changes on cash (2,731) 646 157
-------- ------- -------
Net increase (decrease) in cash and cash equivalents 7,343 (6,092) 11,812
Cash and cash equivalents at beginning of year 6,189 12,281 469
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $13,532 $ 6,189 $12,281
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these consolidated statements.
F-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Marker International ("Marker" or the "Company") is a holding company
which operates through its subsidiaries, Marker Deutschland GmbH ("Marker
Germany"), Marker USA, Marker Japan Co., Ltd. ("Marker Japan"), Marker Austria
GmbH ("Marker Austria") and Marker Canada, Ltd. ("Marker Canada"). Substantially
all of the Company's ski bindings are manufactured by Marker Germany, which also
distributes bindings in Germany, to subsidiaries of the Company, and to
independent distributors in countries where the Company does not have a
distribution subsidiary. Marker Ltd., also a subsidiary of the Company, designs,
distributes and sells to retailers the Company's clothing, gloves and luggage
products for skiing and other recreational activities. The principal markets for
the Company's products are North America, Europe and Asia.
In addition, Marker International, through its 80% owned subsidiary, DNR
Sportsystem Ltd. ("DNR"), and its newly created and wholly-owned subsidiaries,
DNR USA, Inc.("DNR USA"), DNR North America, Inc. ("DNR North America") and DNR
Japan Co., Ltd. ("DNR Japan"), is a leading designer, developer, manufacturer
and marketer of snowboards, Interface Step-in SystemsTM, traditional snowboard
bindings and snowboard boots. DNR Sportsystem Ltd. designs, develops and
distributes snowboards and related products throughout the world. DNR USA
manufactures snowboards for distribution worldwide under the Santa Cruz and DNR
brand names. DNR North America and DNR Japan, through their own sales force
market snowboards, Interface Step-in SystemsTM, snowboard bindings and boots
directly to retailers in the United States and Japan, respectively.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Consolidation
The consolidated financial statements include the accounts of Marker
International and its subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
F-8
<PAGE>
Foreign Currency Translation
The functional currency for the Company's foreign operations is the
applicable local currency: Marker Germany - Deutsch Marks, Marker Japan and DNR
Japan - Japanese Yen, Marker Canada - Canadian Dollars, Marker Austria -
Austrian Schillings, and DNR Sportsystem Ltd. - Swiss Francs. The financial
statements of foreign subsidiaries are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 52.
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars
at the applicable rates of exchange at the end of the reporting period. Income
and expense items are translated at the weighted average rates of exchange
prevailing during the period. Translation gains and losses are reflected as a
separate component of shareholders' equity as "cumulative foreign currency
translation adjustments."
At March 31, 1997, Marker AG, a subisdiary of Marker International had
intercompany borrowings of approximately CHF 26.9 million, from Marker
International. The borrowings are long-term in nature, and in accordance with
SFAS No. 52, a translation loss of approximately $3.2 million has been included
in the cumulative foreign currency translation adjustment section of
shareholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents include investments in certificates of deposit
with original maturities of less than 30 days. As of March 31, 1997, the Company
has granted a security interest in a $2.0 million time deposit held in the
Company's name at a United States branch of a German bank. This deposit is
restricted for use as collateral on borrowings from such bank.
Accounts Receivable
The Company has certain sales programs which result in the majority of the
annual net sales occurring in the second and third fiscal quarters. The
remaining balance of the annual net sales occurs primarily during the fourth
fiscal quarter. In accordance with industry practice, the Company grants payment
terms to its customers in excess of 30 days. As of March 31, 1997, the Company
has certain accounts receivable from customers which are not due for over six
months.
F-9
<PAGE>
Inventories
Inventories include direct materials, direct labor and manufacturing
overhead costs and are recorded at the lower of cost (using the first-in,
first-out method) or market. The major classes of inventories are as follows (in
thousands):
March 31,
----------
1997 1996
---- ----
Raw materials $ 1,054 $ 489
Work in process 2,739 2,551
Finished goods 30,056 29,628
------- -------
$33,849 $32,668
======= =======
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Major additions and
improvements are capitalized, while costs for minor replacements, maintenance
and repairs that do not increase the useful life of an asset are expensed as
incurred.
For financial reporting purposes, the provision for depreciation and
amortization is determined using the straight-line or declining-balance methods
based on the expected remaining economic useful lives of the assets as follows:
Description Useful Lives
Machinery and equipment 2 - 10 years
Furniture, fixtures and office equipment 2 - 10 years
Building and improvements 2 - 30 years
In January 1997, the Company completed construction of its snowboard
manufacturing facility located on property adjacent to the Company's
headquarters in Salt Lake City. The total cost of the manufacturing facility
excluding equipment, was approximately $3.3 million, which includes land with a
cost of approximately $0.7 million. The Company has financed approximately $2.3
million of the completed facility with long-term debt to be paid over a period
of 15 years.
For the year ended March 31, 1997, the Company capitalized interest costs
totaling approximately $237,000, related to the construction of corporate
facilities. No interest was capitalized during fiscal 1996.
F-10
<PAGE>
Intangible Assets
Intangible assets consist of goodwill, trade names and licenses resulting
from the Company's acquisition of DNR (See Note 8). Intangible assets are
amortized using the straight-line method over lives ranging from 5 to 30 years.
At March 31, 1997, accumulated amortization of intangible assets totaled
approximately $621,000.
Advertising
Prior to fiscal 1996, the Company capitalized certain advertising costs
and amortized those costs over the period for which the revenue related to the
costs was recognized. During fiscal 1996, the Company adopted the provisions of
Statement of Position 93-7, Reporting on Advertising Costs, which requires
advertising costs to be expensed the first time the advertising takes place or
when incurred. The Company has elected to expense advertising costs the first
time the advertising takes place. In fiscal 1996, the cumulative effect of
adopting this change in accounting principle, net of the related income tax
effect, was approximately $266,000. On a pro forma basis, this change would have
had no material impact on fiscal 1995 net income.
For the years ended March 31, 1997, 1996 and 1995, advertising expenses
totaled approximately $ 3.3 million, $4.2 million and $3.3 million,
respectively.
Net Income per Common Share
Net income per common share is based upon the weighted average number of
shares of common stock and dilutive common stock equivalent shares outstanding
during the periods presented. Common stock equivalent shares consist of stock
options that have a dilutive effect when applying the treasury stock method.
In connection with the Initial Public Offering in August 1994, all of the
outstanding shares of the Series A preferred stock were exchanged for 378,572
shares of common stock, and all of the outstanding shares of Redeemable
Preferred Stock were converted to Series A Bonds issued to a related party with
an aggregate principal amount of $19,000,000 (See Note 3).
Net income applicable to common shares for fiscal year 1995 reflects a pro
forma presentation of the transactions described above as if the exchanges
occurred on April 1, 1994 (the beginning of the 1995 fiscal year). Accordingly,
net income applicable to common shares was computed by eliminating dividends
totaling approximately $87,000 on Series A preferred stock for the year ended
March 31, 1995, and by subtracting from net income dividends that would have
been treated as interest expense, net of the related tax effect, had the
exchange of the Redeemable Preferred Stock occurred on April 1, 1994. The amount
F-11
<PAGE>
by which net income was reduced totaled approximately $454,000 for the year
ended March 31, 1995. No dividends were paid during fiscal 1996 and 1997.
Fair Value of Financial Instruments
The fair value of the Company's long-term debt is approximately $19.9
million at March 31, 1997. The book value of all other financial instruments
approximates fair value except for derivatives (See Note 9). The estimated fair
values have been determined using appropriate market information and valuation
methodologies.
Recent Accounting Pronouncements
Earnings per Share
In February 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". This statement specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS") for financial statements issued for
all periods ending after December 15, 1997. Early adoption is prohibited and
upon adoption, all prior period EPS data presented must be restated. SFAS 128
simplifies the standards for computing EPS in comparison to APB Opinion No. 15
and replaces the presentations of Primary EPS and Fully Diluted EPS with a
presentation of Basic EPS and Diluted EPS. The Company believes that SFAS 128
will not have a material impact when adopted.
Long-lived Assets
In March 1995, SFAS No. 121 "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of," was issued. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used or disposed of by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. During fiscal 1997, the Company adopted this statement and
determined that no impairment loss need be recognized.
F-12
<PAGE>
NOTE 2. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT
Notes payable to banks at March 31, 1997 and 1996, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(in thousands)
Credit arrangement with a German bank, with maximum borrowing of DM 67,000,000
($39,999,000). The arrangement provides for maximum borrowings at the
bank's base rate or a combination of borrowings at the bank's base rate
with DM 59,000,000 ($35,223,000) maximum available for Euroloans and DM
8,000,000 ($4,776,000) available as a revolving line of credit. The line of
credit includes provisions for discounting customer notes with recourse.
Amounts outstanding under these credit arrangements at March 31, 1997
consisted of Euroloans of DM 26,000,000 ($15,522,000), bearing interest
rates ranging from 4.70% to 6.95% subject to an interest rate swap for the
initial DM 10,000,000 ($5,970,000) which limits the interest rate to a
maximum rate of 6.95%, and DM 3,324,467 ($1,984,707) on the revolving line
of credit which had an interest rate of 8.0% at March 31, 1997. Borrowings
are secured by the accounts receivable, inventory, and equipment of Marker
Germany and are guaranteed by Marker International and Marker USA. The
<S> <C> <C>
current agreement extends through July 1997. $17,507 $22,525
Credit arrangements with four Japanese banks, with maximum borrowing of YEN
1,500,000,000 ($12,121,500). At March 31, 1997, YEN 1,070,000,000
($8,646,670) of borrowings were outstanding with interest rates ranging
from 1.06% to 2.25%, due in installments at various dates through March
1998, YEN 300,000,000 ($2,424,300) secured by the assets of a director of
the Company, YEN 670,000,000 ($5,414,270) guaranteed by Marker
International, YEN 100,000,000 ($808,100) secured by certain accounts
receivable. 8,647 7,457
Line of credit with a U.S. bank, maximum borrowings of $20,000,000, subject to a
borrowing base limitation (maximum amount available at March 31, 1997 was
$16,000,000). Interest at the bank's prime rate (8.5% at March 31, 1997)
secured by the accounts receivable and inventory of Marker USA and Marker
Ltd. and guaranteed by Marker International. Expires August, 1997. 12,776 574
-------- --------
$38,930 $30,556
======== ========
</TABLE>
For the years ended March 31, 1997 and 1996, the weighted average interest
rate on short-term borrowings outstanding at year end was 5.2 percent and 4.9
percent, respectively, the maximum short-term borrowing amount outstanding
during the year was $68.3 million and $59.7 million, respectively, the average
amount outstanding during the year was $51.2 million and $40.5 million,
respectively, and the weighted average interest rate during the years ended
March 31, 1997 and 1996 was 5.2 percent and 5.3 percent, respectively.
F-13
<PAGE>
Long-term debt at March 31, 1997 and 1996, consisted of the following:
1997 1996
---- ----
(in thousands)
Notes payable to two German banks, interest rates
ranging from 5.80% to 9.75%, due in installments
through September 2002, secured by accounts
receivable, inventory and equipment of
Marker Germany and guaranteed by Marker
International and Marker USA $5,282 $4,946
Note payable to a U.S. bank, interest at 8.75%
due October 1999, secured by the inventory and
accounts receivable of Marker USA and Marker 5,000 -
Ltd. and guaranteed by Marker International
Note payable to a U.S. branch of a German bank,
interest at 4.81% due April 1998, secured by a
$2,000,000 time deposit held in the Company's 4,349 4,932
name at the bank
Note payable to a U.S. bank, interest at 9.7%,
due in monthly installments through July 2004, 1,461 1,590
secured by a building
Note payable to a Japanese bank, interest at
2.13%, due in installments through November
2000, secured by the assets of a director of 818 1,211
the Company
Notes payable to an insurance company, interest
at 8.09%, due in installments through May 2012, 2,250 -
secured by a building
Other 365 349
------ ------
19,525 13,028
Less current maturities (3,038) (7,576)
------ ------
$16,487 $5,452
====== ======
The following are scheduled principal maturities of long-term debt as of
March 31, 1997 (in thousands):
Year Ending March 31, Amount
1998 $3,038
1999 6,995
2000 5,563
2001 1,003
2002 437
Thereafter 2,489
-------
$19,525
=======
Total cash paid for interest during the years ended March 31, 1997, 1996
and 1995 was approximately $5,276,000, $5,172,000, and $3,635,000, respectively.
Included in total cash payments for interest are Series A Bond (See Note 3)
interest payments which totaled approximately $1,253,000, $1,556,000 and
$183,000 for the years ended March 31, 1997, 1996 and 1995, respectively.
F-14
<PAGE>
NOTE 3. BONDS
The holder of the then outstanding Series A-1, A-2, and A-3 Redeemable
Preferred Stock (collectively, the "Redeemable Preferred Stock") exchanged, on
the effective date of the Initial Public Offering (August 1994), its shares of
Redeemable Preferred Stock for Series A-1, A-2 and A-3 bonds (collectively, the
"Series A Bonds") of the Company. The holder of the Series A Bonds is a Japanese
corporation (the "Bondholder") controlled by a director of the Company. The
Series A Bonds are subject to redemption upon not less than 30 days notice, in
whole or in part, at the option of the Company. As of March 31, 1997, the
redemption schedule was amended by the bond holder and the Company. This
amendment to the redemption schedule extended the repayment schedule by one year
on all requested redemptions.
Series A-1 Bonds
The Series A-1 bonds had an original aggregate face value of $8.0 million
and bear interest, payable semi-annually on September 30 and March 31, at the
effective borrowing rate for the Bondholder (the "Japanese Bank Rate"). The
effective Japanese Bank Rate at March 31, 1997 and 1996 was 6.79 percent and
6.95 percent, respectively. The average effective Japanese bank rate during the
years ended March 31, 1997 and 1996 was 6.6 percent and 7.2 percent,
respectively. During the fiscal year ended March 31, 1997 and 1996, $1.0 million
of the Series A-1 bonds were redeemed in each year. The remaining $4.0 million
aggregate principal amount of Series A-1 bonds outstanding may be redeemed
according to the following schedule:
Redemption Face Amount
Notice On or After On or After to be Redeemed
April 1, 1998 October 1, 1998 $2,000,000
April 1, 1999 October 1, 1999 $2,000,000
Series A-2 Bonds
The Series A-2 bonds had an original aggregate face value of $10.0 million
and bear interest, payable semi-annually on September 30 and March 31, at the
Japanese Bank Rate plus three percent of the face value of the bonds
outstanding. The effective rate on Series A-2 bonds at March 31, 1997 and 1996
was 9.79 percent and 9.95 percent, respectively. During the year ended March 31,
1997, $2.5 million of the Series A-2 bonds were redeemed by the Bondholder. The
Bondholder of the Series A-2 bonds may redeem the remaining bonds according to
the following schedule:
F-15
<PAGE>
Redemption Face Amount
Notice On or After On or After to be Redeemed
June 16, 1998 December 16, 1998 $2,500,000
June 16, 1999 December 16, 1999 $2,500,000
Series A-3 Bond
The Series A-3 bond has an aggregate face value amount of $1.0 million and
bears interest, payable semi-annually on September 30 and March 31, at the
Japanese Bank Rate plus three percent of the face value of the bond outstanding.
The effective rate on the Series A-3 bond at March 31, 1997 and 1996 was 9.79
percent and 9.95 percent, respectively. The Bondholder of the Series A-3 bond
may redeem the bond by providing six months prior written notice on or after
June 16, 1999 for redemption on or after December 16, 1999.
NOTE 4. COMMITMENTS AND CONTINGENCIES
Letters of Credit
The Company has available letters of credit with a U.S. bank of
$2,500,000. Letters of credit totaling approximately $713,000 were outstanding
as of March 31, 1997.
Leases
The Company is committed under various long-term noncancellable operating
leases requiring minimum annual rentals as follows (in thousands):
Year Ending March 31, Amount
1998 $2,237
1999 2,017
2000 1,704
2001 1,198
2002 1,127
Thereafter 10,760
-------
$19,043
=======
Rent and lease expense was approximately $3,176,000, $3,572,000, and
$2,996,000 for the years ended March 31, 1997, 1996 and 1995, respectively.
F-16
<PAGE>
Discounted Notes Receivable
Marker Japan was contingently liable for discounted trade notes receivable
on a full recourse basis of approximately $2,944,000 at March 31, 1997. These
notes receivable mature in various amounts through September 1997.
Royalty Agreements
During fiscal year 1997, the Company renewed its agreement with the Salt
Lake Organizing Committee for the 2002 Olympic Winter Games as licensee for the
sale of apparel, in the state of Utah and throughout various regions of the
U.S., with the imprint of the 2002 Olympic Winter Games to be held in Salt Lake
City. The Company was again awarded licenses for both winter and summer apparel
with the current agreements extending through December 31, 1997. Over the
remaining term of the agreements, the Company is required to pay the Salt Lake
Organizing Committee periodic minimum royalty payments totaling approximately
$600,000.
DNR Sportsystem Ltd. is party to a license agreement (the "Santa Cruz
License") with California based N.H.S., Inc. ("Santa Cruz"). The Santa Cruz
License may be terminated on May 31, 2001, upon one year's prior notice by
either party, and unless so terminated, will continue for successive two year
periods. Among other things, the Santa Cruz License requires that DNR pay Santa
Cruz certain royalties as a percentage of DNR's gross sales arising from
products sold under the Santa CruzTM brand name.
During fiscal 1997, Thomas Sims terminated a license agreement (the "Sims
License") between DNR and Thomas Sims. The Sims License required DNR to pay Sims
certain royalties as a percentage of DNR's gross sales arising from products
sold under the SimsTM brand and that the SimsTM products comprise at least 60%
of DNR's total sales (See Legal Matters below and See Note 8).
Royalties related to the license agreements ranged from 2% to 6% of sales.
For the period January 1, 1996 through December 31, 1996 DNR incurred royalty
expenses of approximately $1.5 million.
Legal Matters
On September 26, 1996, Thomas P. Sims ("Sims") filed an action (the
"Action") in the Superior Court of California for the County of Santa Barbara
(the "Superior Court") against the Company and DNR relating to a license
agreement dated September 8, 1991, between Sims and DNR ( the "License") for the
production and distribution of snowboards and related products bearing the Sims
trademark outside of the United States and Canada. Sims alleged, among other
things, that the Company and DNR were promoting products (including DNR's soft
boot Step-in Interface System binding, the "Interface System") that unfairly
competed with Sims' products and that DNR had breached the License. On September
F-17
<PAGE>
27, 1996, Sims notified DNR of his intention to terminate the License agreement,
which was scheduled to continue until July 1, 2001, and, pursuant to the terms
of the License, initiated arbitration proceedings against DNR by filing a demand
for arbitration (the "Arbitration"). Sims claims that termination was justified
by the alleged breaches of the License agreement by DNR. Sims also claims that
the Company misappropriated a Sims design for a snowboard binding and seeks
damages based upon various legal and factual theories, including claims that
DNR's conduct damaged the value of his trademarks and that DNR distributed goods
not authorized by the License agreement. Sims has not specified the amount
sought as damages.
The Company denies Sims' claims and DNR has filed a counter claim against
Sims in which it seeks damages from Sims for wrongfully terminating the license
agreement, for selling his interest in his trademarks and the License agreement
to a third party in violation of a right of first refusal in favor of DNR that
is stated in the License agreement, and for other relief and damages.
On November 27, 1996, the Superior Court granted Sims' request for a
preliminary injunction against the Company and DNR. The Superior Court's ruling
prevents DNR from manufacturing, shipping, selling or distributing snowboard
products with the Sims trademark, pending the outcome of the Arbitration. The
Superior Court, however, refused to grant Sims' request that DNR be enjoined
from producing and marketing the Interface System under the "DNR" and other
brand names. Additionally, the preliminary injunction does not restrict the
right of DNR to produce and market snowboards and related products under brand
names other than Sims.
The preliminary injunction is not a final judgment and factual findings
made by the Superior Court in the preliminary injunction proceeding are not
binding upon the arbitrator. In the Arbitration, Sims has filed a claim against
DNR for breach of the License and DNR has filed a counterclaim against Sims for
wrongful termination of the License. The Arbitration hearing is scheduled to
take place over a four week period beginning in July 1997. Under the terms of
the License, the arbitrator's award is binding on the parties and is not subject
to appeal or further court review except for extraordinary circumstances.
Although only Sims and DNR are parties to the arbitration, the arbitrators
decision could conclude many of the disputes that are the subject of the Action,
which has been stayed while the Arbitration is pending.
In the opinion of the Company, neither the Company nor any of its
subsidiaries is currently a party to or subject to any other material pending
legal proceedings. The nature of the sports of skiing and snowboarding entail
inherent risks of injury. It is expected that the Company from time to time will
be subject to claims and lawsuits as a result of the nature of its business. The
F-18
<PAGE>
Company maintains insurance that it believes meets industry standards to protect
itself against product liability claims. The adequacy of the insurance coverage
and reserves established by the Company to cover known, as well as incurred but
unknown, product liability claims are evaluated at the end of each fiscal year.
There can be no assurance, however, that such coverages or reserves will be
sufficient protection against any future legal proceedings (including any
related payments, settlements or costs).
In September 1995, the Company, along with other significant companies in
its business, received a letter from the Department of Justice (the "DOJ")
explaining that the pricing practices of the various companies in the ski
industry were being reviewed. Although to date the Company has not received
further correspondence from the DOJ, there can be no assurance that the DOJ will
not pursue these matters further.
NOTE 5. INCOME TAXES
The Company recognizes a liability or asset for the deferred tax
consequences of temporary differences between the tax bases of assets or
liabilities and their reported amounts in the financial statements.
The Company's subsidiaries file tax returns in their applicable
jurisdictions. U.S. income tax is not provided on unrepatriated foreign earnings
because management considers such amounts to be permanently invested abroad.
Management has deemed it impracticable to determine the amount of unrecognized
deferred tax liability on earnings which are considered permanently invested
abroad. However, the Company has provided for U.S. income taxes on the
undistributed earnings of its investment in DNR Sportsystem Ltd. prior to June
26, 1996, while it was an unconsolidated subsidiary.
The domestic and foreign components of income before provision for income
taxes for the years ended March 31, 1997, 1996 and 1995 were as follows (in
thousands):
1997 1996 1995
------ ------ -----
Domestic $(2,551) $ 386 $1,233
Foreign 8,809 3,912 4,269
------ ------ ------
$6,258 $4,298 $5,502
====== ====== ======
F-19
<PAGE>
The Company's provision for income taxes for the years ended March 31,
1997, 1996 and 1995 consisted of the following (in thousands):
1997 1996 1995
------ ------ -----
Current:
Federal $ 15 $ 15 $ 180
State 30 7 72
Foreign 1,945 1,210 1,143
------ ------ ------
1,990 1,232 1,395
Deferred (334) (623) -
------ ------ -----
$1,656 $ 609 $1,395
====== ====== ======
For the years ended March 31, 1997, 1996 and 1995, the federal and state
current provisions for income taxes are presented net of the benefits realized
from operating loss carryforwards which totaled approximately $166,000, $123,000
and $463,000, respectively. In addition, the foreign current provision for
income taxes are presented net of benefits realized from operating loss
carryforwards of approximately $0, $213,000 and $931,000, respectively.
The provision for income taxes as a percentage of income before provision
for income taxes differed from the statutory Federal rate due to the following:
1997 1996 1995
------ ------ -----
Statutory Federal income tax rate 34.0% 34.0% 34.0%
State income taxes net of Federal income
tax benefit 0.3 0.6 3.7
Change in deferred tax asset valuation
allowance (5.3) (20.2) (30.4)
Foreign earnings taxed at different rates (2.3) 12.1 16.1
Investment in unconsolidated subsidiary (1.9) (12.6) -
Other 1.7 0.3 2.0
----- ----- -----
26.5% 14.2% 25.4%
===== ===== =====
F-20
<PAGE>
The components of the net deferred tax assets and liabilities at March 31,
1997 and 1996 were as follows (in thousands):
1997 1996
---- ----
Deferred tax assets:
Intercompany profit $ 801 $ 842
Domestic net operating loss carryforwards 67 226
Allowance for doubtful accounts 410 343
Accrued expense reserves 625 404
Foreign tax credits and other credit
carryforwards 190 215
Other 376 341
----- -----
Total deferred tax assets 2,469 2,371
Valuation allowance (428) (574)
----- -----
2,041 1,797
Deferred tax liabilities:
Equity investment (139) (224)
Other (356) (360)
----- -----
Total deferred tax liabilities (495) (584)
----- -----
Net deferred tax assets $1,546 $1,213
====== ======
The recognition of deferred tax assets is based upon judgments regarding
the potential realization of such assets in the future. Based upon positive
evidence such as a recent history of earnings and utilization of net operating
loss carryforwards, management has deemed that a reduction of the valuation
allowance is appropriate to reflect utilization of certain recorded tax asset
amounts. Although realization is not assured, management believes it is more
likely than not that a portion of the net deferred tax asset will be realized.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
As of March 31, 1997, the Company has domestic tax net operating loss
carryforwards of approximately $198,000 which expire in 2006. Additionally, as
of March 31, 1997, the Company has domestic foreign tax credits, general
business credits and alternative minimum tax credits of $73,000, $36,000 and
$85,000, respectively.
Cash paid for income taxes in the years ended March 31, 1997, 1996 and 1995
was approximately $1,216,000, $1,114,000 and $507,000, respectively.
F-21
<PAGE>
NOTE 6. PREFERRED STOCK
Upon the effective date of the Initial Public Offering, the holders of the
Series A Preferred Stock exchanged all of the outstanding shares of such stock
for 378,572 shares of Common Stock. On the same date, the holder of the Series
A-1, A-2 and A-3 Redeemable Preferred Stock exchanged all of the outstanding
shares of such stock for Series A-1, A-2 and A-3 Bonds with an aggregate face
value of $19,000,000 (Note 3).
There were no preferred stock dividends for the years ended March 31, 1996
and 1997. However, dividends on the Series A preferred stock totaled
approximately $87,000 for the year ended March 31, 1995. Cumulative annual
dividends were computed in accordance with prescribed formulas which resulted in
total dividends for Series A-1 Redeemable Preferred Stock of approximately
$231,000 for the year ended March 31, 1995. Dividends for Series A-2 Redeemable
Preferred Stock and Series A-3 Redeemable Preferred Stock for the year ended
March 31, 1995 totaled $339,000 and $34,000, respectively.
NOTE 7. COMMON STOCK TRANSACTIONS
Stock Offering
On July 23, 1996, the Company closed on its Secondary Public Offering of
the Company's common stock. In connection therewith, the Company issued
2,680,000 shares of common stock, including 180,000 shares of common stock in
connection with the closing of the underwriters overallotment option. The
Company received aggregate net proceeds of approximately $14.8 million. The
Company utilized such net proceeds to partly finance the purchase of additional
shares of DNR.
Warrants
In connection with the Company's Initial Public Offering held during
fiscal 1995, the Company issued to the representative of the underwriters
nontransferable warrants to purchase 231,500 shares of the common stock,
exercisable for a period of four years commencing in August 1995 at an exercise
price of $8.75. Accordingly, at March 31, 1997, 115,750 warrants were
exercisable. The warrants provide for registration rights, anti-dilution
protection, and other customary terms. No warrants were exercised during the
fiscal year ended March 31, 1997.
F-22
<PAGE>
Stock Option Plan
During fiscal 1995, the Company established a nonqualified and incentive
stock option plan (the "Stock Option Plan"). The Stock Option Plan provides for
the issuance of a maximum of 2,500,000 shares of common stock to officers,
directors, consultants, and other key employees. The Stock Option Plan allows
for the grant of incentive or nonqualified options and is administered by the
Board of Directors. Incentive options are granted at not less than 100 percent
of the fair market value of the underlying common stock on the date of the
grant. The aggregate fair market value of shares which may be purchased for the
first time during any calendar year pursuant to an incentive stock option grant
may not exceed $100,000. Nonqualified stock options will be granted at a price
as determined by the Board of Directors. No stock options granted are
exercisable after ten years from the date of grant. As of March 31, 1997 and
1996, the Company had the following options outstanding and exercisable:
Weighted Avg
Year Ended March 31, 1997 Amount Exercise Price
Options Granted 236,000 $ 5.42
Options Exercised (1,250) 7.125
Options Expired/Forfeited (44,250) 6.83
Options Canceled (169,000) 5.75
Options outstanding 877,500 6.46
Options exercisable 277,750 6.96
Year Ended March 31, 1996
Options Granted 359,500 $ 5.91
Options Exercised (1,000) 7.125
Options Expired/Forfeited (25,000) 6.95
Options outstanding 856,000 6.62
Options exercisable 125,375 7.125
Subsequent to year end, the Board of Directors amended the exercise price
of 468,500 options originally granted on November 1, 1994 at an option price of
$7.125 per share to $4.125 per share, which was the closing price for Marker
common stock on April 15, 1997, the date the options were amended.
The Company has adopted the disclosure-only provisions of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation expense has been recognized for its stock option
plan. Had compensation cost for the Company's stock option awards been
determined in accordance with the provisions of SFAS No. 123, the Company's net
F-23
<PAGE>
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
1997 1996
---- ----
Net Income - As Reported (in thousands) $4,602 $3,423
Net Income - Pro Forma (in thousands) $4,190 $3,265
Earnings per share - As Reported $ 0.45 $ 0.40
Earnings per share - Pro Forma $ 0.41 $ 0.38
The following information applies to the options outstanding and
exercisable at March 31, 1997: 233,000 of the 877,500 options outstanding at
March 31, 1997 have exercise prices between $4.00 and $5.75, with a weighted
average exercise price of $5.41 and a weighted average remaining contractual
life of 9.3 years of which none of these options are exercisable, and the
remaining 644,500 options have exercise prices between $6.00 and $7.13, with a
weighted average exercise price of $6.83 and a weighted average remaining
contractual life of 7.7 years of which approximately 277,750 of these options
are exercisable; their weighted average exercise price is $6.96.
Because the Statement 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The
weighted average fair value of options granted under the Company's stock option
plans during fiscal years ending March 31, 1997 and 1996 were estimated at $4.27
and $4.37, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for grants
in 1997 and 1996, respectively: dividend yield of 0%, expected volatility of 78%
and expected lives of 6 years, for both years; and a risk free rate of return of
6.6% and 6.1%, and an assumed forfeiture rate of 2.3% and 7.9%, respectively.
The estimated fair value of options granted is subject to the assumptions made
and if the assumptions were to change, the estimated fair value amounts could be
significantly different. The weighted average fair value of the options
exercised during fiscal 1997 and 1996 was $4.33 for both years.
NOTE 8. INVESTMENT IN SUBSIDIARY
On June 30, 1995, the Company acquired 25% of the common shares of DNR
Sportsystem Ltd. ("DNR"), a Swiss Corporation, for approximately $5.4 million in
cash. On June 26, 1996, the Company acquired an additional 55% of the common
shares of DNR for approximately $19.8 million. In connection with the 55%
purchase, the Company acquired the following: assets at fair value of $24.1
million (including cash of $5.3 million) and assumed liabilities of $4.2
million. This acquisition has been accounted for using the purchase method. As a
F-24
<PAGE>
result of the acquisition, Marker's total ownership of DNR Sportsystem increased
to 80%. Prior to its 80% ownership, the Company accounted for its then 25%
investment in DNR using the equity method of accounting.
Prior to March 31, 1997, DNR Sportsystem had a calendar year end and as a
foreign entity did not have the same reporting requirements as the Company.
Consistent with prior reporting periods, the Company used a 90-day lag in
reporting DNR's financial information. As such, DNR's operating results for its
year ended December 31, 1996 were included in Marker's fiscal year ended March
31, 1997. On March 31, 1997, Marker elected to eliminate the 90-day reporting
lag and, as such, recorded a one time adjustment to retained earnings relating
to DNR's operating results for the period January 1, 1997 to March 31, 1997,
effectively making DNR's current reporting period the same as that of Marker
International and its other consolidated subsidiaries. For the period January 1,
1997 through March 31, 1997, Marker's adjustment to retained earnings was $2.45
million, which represented 80% of DNR's net loss for that same period. DNR had
net sales of $1.3 million for the period January 1, 1997 through March 31, 1997.
For the period January 1, 1996 through December 31, 1996, DNR reported net
sales of $49.7 million, operating income of $6.7 million and net income of $6.4
million. For the period January 1, 1995 through December 31, 1995, DNR reported
net sales of $44.0 million, operating income of $6.7 million and net income of
$5.6 million. However, the Company's actual benefit from the 1996 DNR operating
results was reduced by its proportional share of non-ownership (minority
interest) which varied throughout the reporting period, amortization expense
resulting from goodwill created by the purchase of DNR and significant interest
expense incurred by the Company relating to the purchase.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and DNR as if the Company had
owned 80% of DNR at the beginning of fiscal 1997 and 1996. Pro forma adjustments
have been made to give effect to amortization of goodwill, interest expense on
acquisition debt and certain other adjustments. The pro forma results have been
prepared for comparative purposes only. They do not purport to be indicative of
the results of operations which actually would have resulted had the Company
owned 80% of DNR for the entire fiscal years 1997 and 1996, or of future results
of operations of the consolidated entities.
(Unaudited and in thousands except
per share amounts) For the Year ended March 31,
1997 1996
Net Sales $ 131,354 $ 131,949
Operating income 9,497 11,653
Net income 3,531 5,186
Earnings per common share $ 0.32 $ 0.47
F-25
<PAGE>
NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments held by the Company are generally used to
manage well-defined foreign exchange and interest rate risks which occur in the
normal course of business.
Foreign Exchange Contracts
Forward foreign exchange contracts are used by the Company to reduce the
potential impact of unfavorable fluctuations in foreign exchange rates. The
Company has commitments to buy and sell foreign currencies relating to foreign
exchange contracts in order to hedge against future currency fluctuations. The
Company has available, through its credit arrangement with a German bank, the
ability to enter into forward foreign exchange contracts to purchase up to the
equivalent of DM 70.0 million. In addition, the Company has the ability to enter
into forward foreign exchange contracts with three United States banks to
purchase, in the aggregate, up to the equivalent of US$70.0 million.
The Company holds forward exchange contracts to purchase German marks with
U.S. dollars, Canadian Dollars and Japanese Yen, and to sell German marks for
U.S. dollars. The contracts mature at various dates through March 1998. The
outstanding forward exchange purchase and sale contracts at March 31, 1997 are
as follows:
Selling Buying Contracted
Amount Amount Forward Rate
(Y)440,906,230 DM 7,000,000 59.284 - 69.29
CND$ 2,179,316 DM 2,500,000 1.115 - 1.195
$ 28,978,882 DM 45,060,250 1.5295 - 1.6419
During fiscal years ended March 31, 1997 and 1996, the Company purchased
and sold options and forward foreign exchange contracts, respectively which were
not accounted for as hedges. As a result, the Company recorded in other income
net gains of approximately $.8 million and $1.0 million, respectively.
Counterparties to the foreign exchange contracts are typically major
international financial institutions. At March 31, 1997, the fair value of the
foreign exchange contracts indicates a potential loss of $1.1 million, which
represents the total deferred loss on such contracts. The Company's theoretical
risk in these transactions is the cost of replacing, at current market rates,
these contracts in the event of default by the counterparty. Management believes
the risk of incurring such losses is remote.
F-26
<PAGE>
Interest Rate Swap Agreement
The Company has entered into an interest rate swap agreement to reduce the
impact of changes in interest rates on its variable rate revolving credit
agreement (See Note 3). The differential to be paid or received on the interest
rate swap agreement is recognized over the term of the agreement as either an
increase or decrease of interest expense. As of March 31, 1997, the net
unrealized loss on this agreement was approximately $52,000 (DM 86,800) which is
the estimated amount that the financial institution would receive in order for
the Company to terminate the swap agreement as of March 31, 1997.
NOTE 10. RELATED PARTY TRANSACTIONS
During fiscal years 1997, 1996 and 1995, Marker Japan purchased ski
bindings and services totaling approximately $93,000, $13,000, and $0.6 million,
respectively, from Isomura Seisakusho KK ("Isomura Seisakusho"), a company of
which Mr. Isomura is the president, director, and owner of more than ten percent
of the outstanding stock. In fiscal year 1995, a customer of Marker Japan
returned snowmaking equipment of approximately $0.5 million to Marker Japan for
warranty purposes. Marker Japan returned this equipment to Isomura Seisakusho,
the supplier of such equipment, for reimbursement. At March 31, 1997, 1996 and
1995, the net account receivable from Isomura Seisakusho was approximately $0.4
million, $0.5 million and $0.6 million, respectively.
At March 31, 1997, the Company had outstanding credit arrangements in an
aggregate amount equal to approximately U.S. $9.4 million payable to Japanese
banks. Of these amounts, approximately $3.2 million was secured by assets of Mr.
Isomura, a shareholder and director of the Company.
Marker Japan leases office space in Tokyo, Japan and receives distribution
services from Isomura Sangyo. In connection therewith, for the fiscal years
1997, 1996 and 1995, Marker Japan made payments to Isomura Sangyo totaling
approximately $287,000, $428,000 and $272,000, respectively.
The Company purchased insurance through an insurance broker, Acordia
Northwest Inc. of which, Graham S. Anderson, a director of the Company, is also
a director. The Company incurred approximately $851,000, $746,000, and $821,000
of premiums for such insurance during fiscal 1997, 1996 and 1995, respectively.
During fiscal year 1997, DNR purchased substantially all of its snowboards
from an affiliated entity, of which Gregor Furrer & Partner Holding AG, a
minority shareholder of DNR, is a partner.
F-27
<PAGE>
NOTE 11. BENEFIT PLAN
The Company sponsors a qualified retirement plan under Section 401(k) of
the Internal Revenue Code which covers substantially all eligible domestic
employees. Under the terms of the plan, each participant may elect to defer up
to the annual statutory limit of eligible compensation. The Company matches 50
percent of each participant's contribution up to 4 percent of the participant's
eligible compensation. During the years ended March 31, 1997, 1996 and 1995,
employer contributions totaled approximately $47,000, $41,000 and $43,000,
respectively.
F-28
<PAGE>
NOTE 12. INTERNATIONAL OPERATIONS
The Company's operations involve a single industry segment. The Company's
three geographic regions are North America, Europe, and Asia. Net sales to
affiliates consist primarily of inventory transactions and are made at transfer
prices which approximate prices charged to unaffiliated customers. The following
is a summary of the Company's operations by geographic region for the years
ended March 31, 1997, 1996 and 1995 (in thousands):
1997 1996 1995
------- ------- ------
Net Sales to Unaffiliated
Customers:
North America $39,477 $40,702 $34,545
Europe 73,927 30,245 29,569
Asia 12,999 16,964 19,848
------- ------- -------
Total Consolidated $126,403 $87,911 $83,962
======== ======= =======
Export Sales From Europe to Asia: $ 1,677 $ 1,649 $ 848
======= ======= =======
Net Sales to Affiliates:
North America $ 375 $ 515 $ 658
Europe 36,426 42,905 34,141
Asia - 22 -
------- ------- ------
Total $36,801 $43,442 $34,799
======= ======= =======
Operating Income:
North America $ (96) $ 2,681 $ 2,177
Europe 11,711 4,064 5,462
Asia 308 (389) 1,036
Eliminations (33) (532) 242
-------- -------- -------
Total Consolidated $ 11,890 $ 5,824 $ 8,917
========= ======= =======
Identifiable Assets:
North America $52,742 $37,072 $35,111
Europe 70,020 50,339 40,764
Asia 13,653 14,814 15,666
Eliminations (19,275) (14,960) (8,543)
-------- -------- -------
Total Consolidated $117,140 $87,265 $82,998
======== ======= =======
F-29
<PAGE>
NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
For the fiscal years ended March 31, (in thousands except per share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997
Net Sales $1,624 $31,600 $60,305 $32,874
====== ======= ======= =======
Gross Profit 781 12,437 20,649 12,005
====== ====== ====== ======
Net Income (Loss) (3,960) 2,884 5,418 260
======= ====== ====== ======
Net Income (Loss)
Applicable to (3,960) 2,884 5,418 260
======= ====== ====== ======
Common Shares
Net Income (Loss) Per
Common Share (0.46) 0.28 0.49 0.02
======= ======= ======= =======
1996
Net Sales $2,244 $30,008 $33,965 $21,694
====== ======= ======= =======
Gross Profit 126 13,697 13,895 7,585
====== ====== ====== ======
Net Income (Loss) (4,271) 3,802 3,500 392
======= ====== ====== ======
Net Income (Loss)
Applicable to Common
Shares (4,271) 3,802 3,500 392
======= ====== ====== ======
Net Income (Loss) Per
Common Share (0.51) 0.45 0.40 0.05
======== ======= ======= =======
1995
Net Sales $1,052 $30,895 $34,726 $17,289
====== ======= ======= =======
Gross Profit 295 13,346 15,504 5,939
====== ====== ====== =======
Net Income (Loss) (4,299) 4,313 5,072 (979)
====== ====== ====== =======
Net Income (Loss)
Applicable to Common
Shares (4,583) 4,161 5,054 (979)
====== ====== ====== =======
Net Income (Loss) Per
Common Share (0.79) 0.61 0.60 (0.12)
======= ======= ======= ========
F-30
April 11, 1997
Mr. Eiichi Isomura
Chairman
Isomura Sangyo Kaisha Ltd.
Dear Mr. Isomura:
This letter will serve as a formal request to extend the payment of the Series
A-1, Series A-2 and Series A-3 Bond for a period of one year.
Accordingly, the payment of the Series A-1 bond scheduled for October 1, 1997
would be paid October 1, 1998 and the payment of the Series A-1 bond scheduled
for October 1, 1998 would be paid October 1, 1999.
The payment of the Series A-2 bond scheduled for December 16, 1997 would be paid
December 16, 1998 and the payment of the Series A-2 bond scheduled for December
16, 1998 would be paid December 16, 1999.
The payment of the Series A-3 bond scheduled for December 16, 1998 would be paid
December 16, 1999.
All other terms of the bonds, including interest would remain unchanged.
In the event that Marker International shall complete an additional equity
offering or preferred stock offering during the calendar year 1997 or 1998
proceeds from the offering would be used to repay the bonds according to the
original scheduled payment terms.
If you are in agreement to this extension please sign this letter in the space
provided below.
Sincerely,
/s/Brad L. Stewart
Brad L. Stewart
Executive Vice President
Chief Operating Officer
Marker International
Agreed to: /s/Eiichi Isomura Agreed to: /s/Brad L. Stewart
Eiichi Isomura Brad L. Stewart
Isomura Sangyo Kaisha Ltd Marker International
Date: April 11, 1997 Date: April 11, 1997
LOAN AGREEMENT
by and between
JACKSON NATIONAL LIFE INSURANCE COMPANY, as Lender
and
MARKER INTERNATIONAL, a Utah corporation, as Borrower
Date: As of May 1, 1997
<PAGE>
LOAN AGREEMENT
This Loan Agreement is made as of this lst day of May, 1997, by and
between MARKER INTERNATIONAL, a Utah corporation ("Borrower"), and JACKSON
NATIONAL LIFE INSURANCE COMPANY ("Lender").
RECITALS
A. Borrower is a Utah corporation which has its principal place of
business at 2305 South 1070 West, West Valley City, Utah. Borrower is the owner
of certain real estate located in West Valley City, Utah, consisting of
approximately 3.2 acres, and legally described in Exhibit A hereto (the "Land"),
which is improved with a six story building/office/manufacturing/distribution
facility containing 56,608 gross square feet and adjacent parking that will
park 165 vehicles, with construction consisting of load bearing walls with
supportive steel frame, decorative block and tempered glass exterior, and
landscaping (collectively the "Improvements").
B. Borrower has applied to Lender for a loan (the "Loan") in the
maximum amount of Two Million Two Hundred Fifty Thousand Dollars ($2,250,000.00)
and Lender has agreed to make the Loan on the terms and conditions contained
herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. The following terms as used herein shall have the following
meanings:
Affiliated Party: (i) if Borrower or any Affiliated Party is a general
or limited partnership, the general partners thereof; (ii) if Borrower or any
Affiliated Party is a joint venture, its joint venture partners; (iii) if
Borrower is a corporation, any person or entity controlling Borrower;
Agreement: This Loan Agreement, as originally executed or as may be
hereafter supplemented or amended from time to time in writing.
Application: The application to PPM Finance, Inc. for the Loan dated
December 9, 1996 and accepted January 21, 1997.
Appraisal: An appraisal prepared by a member of a national appraisal
organization that has adopted the Uniform Standards of Professional Appraisal
Practice (USPAP) established by the Appraisal Standards Board of the Appraisal
Foundation. The appraiser shall use assumptions and limiting conditions
established by Lender, and the appraisal shall be in conformity with Lender's
appraisal guidelines and the requirements of the Application.
1
<PAGE>
Building Laws: All federal, state and local laws, regulations,
ordinances and requirements applicable to the development and operation of the
Project, including without limitation all access, building, zoning, planning,
subdivision, fire, traffic, safety, health, labor, discrimination,
environmental, air quality, wetlands, shoreline, and flood plain laws,
regulations and ordinances, including, without limitation, all applicable
requirements of the Fair Housing Act of 1988 (as amended), the Americans with
Disabilities Act of 1990, and all orders or decrees of any court adopted or
enacted with respect thereto applicable to the Project.
Commitment: The commitment to make the Loan issued by PPM Finance, Inc.
on behalf of Lender, dated January 21, 1997, including the terms contained in
the Application.
Default: Any event which, if it were to continue uncured, would, with
notice or lapse of time or both, constitute an Event of Default (as such term is
defined in Section 7.1 of this Agreement).
Default Rate: The default interest rate specified in the Note.
ERISA: Employee Retirement Income Security Act of 1974, as amended, and
the regulations promulgated thereunder from time to time.
Governmental Approvals: The meaning set forth in Section 4.11 of this
Agreement.
Governmental Authoritv: Any federal, state, county or municipal
government, or political subdivision thereof, any governmental or
quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality, or public body, or any court, administrative tribunal, or
public utility.
Improvements: The meaning set forth in Recital A.
Indemnity Agreement: The indemnity agreement described in Section 2.2
of this Agreement, as originally executed or as may be hereafter supplemented or
amended from time to time in writing.
include or including: Including but not limited to.
Indemnitors: [None]
Internal Revenue Code: The Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder from time to time.
knowledge: When used to modify a representation or warranty, actual
knowledge or such knowledge as a reasonable person under the circumstances
should have after diligent inquiry and investigation.
2
<PAGE>
Land: The land legally described in Exhibit A hereto.
Laws: Collectively, all federal, state and local laws, statutes, codes,
ordinances orders, rules and regulations, including judicial opinions or
precedential authority in the applicable jurisdiction.
Loan Documents: This Agreement, the documents and instruments listed in
Section 2.2 of this Agreement, and all the documents given to Lender from time
to time to secure the Loan.
Loan Maturity: The Maturity Date (as defined in the Note).
Loan Opening Date: The date of the disbursement of the Loan.
Mortgage: The mortgage, deed of trust, security deed, deed to secure
debt or similar instrument described in Section 2.2 of this Agreement, as
originally executed or as may be hereafter supplemented or amended from time to
time in writing.
Note: The mortgage note described in Section 2.2 of this Agreement, as
originally executed or as may be hereafter supplemented or amended from time to
time in writing.
Permitted Exceptions: Those matters listed in Exhibit B hereto to which
the interest of Borrower in the Real Property may be subject and any such other
title exceptions or objections, if any, as Lender, or its counsel, may approve
in advance in writing.
Proiect or Property: The Land together with all buildings, structures
and other improvements located or to be located thereon and all rights,
privileges, easements, hereditaments and appurtenances, "hereunto relating or
appertaining, including parking for at least 165 vehicles, but in any event
parking in compliance with any applicable zoning ordinance and tenant leases,
and all personal property, fixtures and equipment required or used (or to be
used) for the operation thereof.
Real Property: That portion of the Project constituting real property.
Title Insurer: First American Title Company of Utah, or such other
title insurance company licensed in the State of Utah, as may be approved by
Lender in connection with the Loan.
Defined terms may be used in the singular or the plural. When used in
the singular preceded by "a", "an", or "any", such term shall be taken to
indicate one or more members of the relevant class When used in the plural, such
term shall be taken to indicate all members of the relevant class.
3
<PAGE>
2. TERMS OF LOAN AND DOCUMENTS.
2.1. Agreement to Borrow and Lend. Subject to all of the terms,
provisions and conditions set forth in this Agreement, Lender agrees to make and
Borrower agrees to accept the Loan described in the Recitals of this Agreement.
Borrower agrees to pay all indebtedness evidenced and secured by the Loan
Documents in accordance with the terms thereof.
2.2. Loan Documents. In consideration of Lender's entry into this
Agreement and Lender's agreement to make the Loan, Borrower agrees that it will,
in sufficient time for review by Lender and its counsel prior to the Loan
Opening Date, execute and deliver or cause to be executed and delivered to
Lender the following documents and instruments in form and substance acceptable
to Lender:
(a) A promissory note ("Note") from Borrower payable to the order of
Lender in the original principal amount of Two Million Two Hundred Fifty
Thousand Dollars ($2,250,000.00);
(b) A deed of trust, security agreement, and financing statement
("Mortgage") on Borrower's fee simple estate in the Project securing the
Note, subject only to the Permitted Exceptions;
(c) An assignment to Lender of all rents and all leases, licenses,
concessions and other similar agreements relating to or connected with the
Project which shall be a present first priority absolute assignment of all
present and future leases of all or any part of the Project, all guarantees
and all rents and other sums payable thereunder;
(d) A security agreement granting Lender a security interest in all
personal property, tangible and intangible, owned or hereafter acquired by
Borrower including bank accounts, accounts receivable, all impound or
reserve accounts required in the Loan Documents, and other intangible
property, which agreement may be combined with the Mortgage;
(e) Uniform Commercial Code financing statements, in duplicate,
executed by Borrower as debtor with respect to all of the personal
property;
(f) An assignment to Lender of all of Borrower's right, title and
interest in and to all agreements and other documents relating to the
ownership, development, operation, construction, or use of the Project,
including any management agreements, contracts, leases, licenses,
warranties and guaranties relating to the Project, together with consents
thereto by any third parties to such agreements as Lender may require
thereof;
(g) An indemnity agreement with respect to certain matters including
environmental covenants (the "Environmental Indemnity");
(h) A subordination agreement between Lender, Borrower and the tenant
of the Property;
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(I) Any other documents required by the Commitment; and
(j) Such other papers and documents as may be required by this
Agreement or as Lender may reasonably require.
2.3. Terms of the Loan. The Loan will bear interest for the period and
at the rate set forth in the Note. The unpaid principal balance, all accrued and
unpaid interest and all other sums due and payable under the Note or other Loan
Documents, if not sooner paid, shall be paid in full at Loan Maturity.
2.4. Prepayments. Borrower shall have no right to make prepayments of
the Loan in whole or in part except in accordance with the terms of the Note.
2.5. Conditions to Disbursement. Borrower agrees to perform and
satisfy all conditions precedent to the disbursement of the Loan set forth in
the Application, including those set forth in sections 2.4 (Third Party Reports)
and 3 (The Closing) thereof.
2.6. Sources and Uses. Borrower shall use the proceeds of the Loan
solely for the purposes set forth in Exhibit C.
3. BORROWER'S COVENANTS. Borrower further covenants and agrees with lender as
follows:
3.1. Escrow Deposits.
(a) Borrower shall deposit monthly with Lender a sum equal to one
twelfth (1/12) of the amount estimated by Lender to be required to pay, at
least thirty (30) days prior to their respective due dates, annual taxes,
assessments, and insurance premiums for the Project (the "Escrow Account").
Lender shall not pay interest on or segregate the Escrow Account unless
required to do so under applicable law. If Lender is required to segregate
the Escrow Account, Borrower shall execute such documents as Lender, in its
sole discretion, deems necessary to perfect its security interest in the
Escrow Account. On the Loan Opening Date, Borrower shall make an initial
deposit with Lender of a sum equal to one-twelfth (l/12) of the estimated
yearly property taxes and assessments plus a sum equal to one-twelfth
(1/12) of the annual insurance premiums, multiplied by the number of months
elapsed in the respective billing periods. For example, if taxes are paid
every six (6) months (in June and December) and the Loan Opening Date
occurs in March, the initial real estate tax impound would be four-twelfths
(4/12) of the estimated yearly property tax.
(b) The Escrow Account is hereby pledged as additional security for
the Loan and shall be held to be irrevocably applied for the purposes for
which made hereunder and shall not be subject to the direction or control
of Borrower; provided, however, that neither Lender nor any depositary
holding such funds shall be liable for any failure to apply to the payment
of taxes and assessments or insurance premiums any amount so deposited
unless (i) Borrower shall have requested Lender or said depositary in
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writing to make application of such funds to the payment of the
particular taxes or assessments or the payment of the particular insurance
premiums as the case may be, accompanied by the bills for such taxes and
assessments or insurance premiums, (ii) there shall exist no Default or
Event of Default hereunder or under any of the Loan Documents, (iii) there
are sufficient funds in the Escrow Account to pay the particular taxes,
assessments or insurance premiums and (iv) following payment of such taxes,
assessments or insurance premiums, the Escrow Account will be "in balance"
in the reasonable opinion of Lender.
3.2. Payment of Taxes. Borrower shall pay all special assessments and
all real estate taxes, assessments and charges of every kind upon the
Project before the same become delinquent; provided, however, that Borrower
shall have the right to pay any such tax under protest or to otherwise
contest any such tax, assessment or charge but only if (i) such contest has
the effect of preventing the collection of such taxes so contested and also
prevent the sale or forfeiture of the Project or any part thereof or any
interest therein, (ii) Borrower has notified Lender in writing in advance
of its intent to contest such taxes, and (iii) Borrower has deposited
security in form and amount satisfactory to Lender, in its sole judgment,
and increases the amount of such security so deposited promptly after
Lender's request therefor. If Borrower fails to commence such contest or,
having commenced to contest the same, and having deposited such security
required by Lender for its full amount, shall thereafter fail to prosecute
such contest in good faith or with due diligence, or, upon adverse
conclusion of any such contest, shall fail to pay such tax, assessment or
charge, Lender may at its election (but shall not be required to), pay and
discharge any such tax, assessment or charge, and any interest or penalty
thereon, and any amounts so expended by Lender shall be deemed to
constitute disbursements of the Loan proceeds hereunder (even if the total
amount of disbursements would exceed the face amount of the Note). Lender
in making any payment hereby authorized relating to taxes and assessments,
may do so according to any bill, statement or estimate procured from the
appropriate public office without inquiry into the accuracy of such bill,
statement or estimate or into the validity of any tax, assessment, sale,
forfeiture, tax lien or title or claim thereof.
3.3. Maintenance of Insurance.
(a) Insurance Coverage Requirements: Borrower shall maintain the
following insurance coverages, all in forms, with companies and in amounts
satisfactory to Lender:
i. All risk/open perils special form property insurance must
be in force with limits of 100% replacement cost. Borrower agrees to
furnish upon Lender's request evidence of replacement costs, without cost
to Lender, such as are regularly and ordinarily made by insurance companies
to determine such replacement cost. If a coinsurance clause is in effect,
an agreed amount endorsement is required. Blanket policies must include
limits by property location. The coverage shall insure the Real Property
and all tangible personal property.
ii. Broad form boiler and machinery coverage, including a
form of business income, must be in force if any such item is located on or
about the Real Property.
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iii. If available, flood insurance must be in force if the
Real Property is located in a special flood hazard area according to the
most current flood insurance rate map issued by the Federal Emergency
Management Agency. The coverage shall include the Real Property and the
tangible personal property.
iv. A form of business income coverage must be in force in the
amount of 80% of one year's business income from the Property. Blanket
policies must include limits by property location.
v. Comprehensive/general liability coverage must be in force
with a $3,000,000 combined single limit per occurrence with a minimum
aggregate limit of $5,000,000. Umbrella/excess liability insurance may be
used to satisfy this requirement. Liquor liability coverage must be in
force if applicable law may impose liability on those selling, serving, or
giving alcoholic beverages to others and if such beverages will be sold,
served or given on the Real Property.
vi. Such additional coverages appropriate to the property type
and site location as Lender may require. Additional coverages may include
earthquake, mine subsidence, sinkhole, personal property, supplemental
liability, or coverages of other property-specific risks.
(b) Insurance Procedures:
i. How Lender Should Be Named. On all property policies and
coverages (including coverage against loss of business income), Lender must
be named as "first mortgagee" under a standard mortgage clause. On all
liability policies and coverages, Lender must be named as an "additional
insured." Lender should be referred to verbatim as follows: Jackson
National Life Insurance Company and its successors, assigns and affiliates,
as their interest may appear; c/o PPM Finance, Inc., 225 W. Wacker Drive,
Suite 1200, Chicago, Illinois 60606.
ii. Rating. The insurance carrier must be rated A, Class VIII,
or better by Best's Rating Service, without regard to its parent's or any
reinsurer's rating.
iii. Deductible. The maximum deductible on all coverages and
policies is $25,000.
iv. Notices. Changes and Renewals. All policies must require
the insurance carrier to give Lender a minimum of thirty (30) days notice
in the event of modification, cancellation or non-renewal. Any vacancy,
change of title, tenant occupancy or use, physical damage, additional
improvements or other factors affecting any insurance contract must be
reported to the Lender immediately. Borrower must provide Lender with a
paid insurance agent's receipt for all current coverages unless such bills
are paid by Lender from proceeds on deposit in the Escrow Account
established pursuant to Section 3.1 An original or certified copy of each
policy is required at Loan Opening and upon renewal. If no such copy is
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available, Lender will accept a binder for a period not to exceed 90 days.
All binders, certificates of insurance, and original or certified copies of
policies must name Borrower as a named insured, or as an additional
insured, must include the complete and accurate property address and must
bear the original signature of the issuing insurance agent.
v. No Other Insurance. Borrower shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required to be maintained hereunder unless Lender is included thereon under
a standard, noncontributory Lender clause acceptable to Lender. Borrower
shall immediately notify Lender whenever any such separate insurance is
taken out and shall promptly deliver to Lender the original policy or
policies of such insurance.
(c) Lender's Right to Obtain Insurance: Notwithstanding this Section
3.3, in the event of Borrower's Default under this Agreement or a default
under any of the Loan Documents, Lender shall have the right (but not the
obligation) to place and maintain insurance required to be placed and
maintained by Borrower hereunder, and use funds on deposit in the Escrow
Account for the payment of insurance to pay for same. Any additional
amounts expended therefor shall constitute additional disbursements of Loan
proceeds (even if the total amount of disbursements would exceed the face
amount of the Note).
3.4. Mechanics' Liens and Contest Thereof. Borrower will not suffer or
permit any mechanics' lien claims to be filed or otherwise asserted against the
Project and will promptly discharge the same if any claims for lien or any
proceedings for the enforcement thereof are filed or commenced; provided,
however, that Borrower shall have the right to contest in good faith and with
due diligence the validity of any such lien or claim upon furnishing to the
Title Insurer such security or indemnity as it may require to induce the Title
Insurer to insure against all such claims, liens or proceedings; and provided
further that Lender will not be required to make any further disbursements of
the Loan proceeds unless (x) any mechanics' lien claims shown by any title
insurance commitments or interim binders or certifications have been released or
insured against by the Title Insurer or (y) Borrower shall have provided Lender
with such other security with respect to such claim as may be acceptable to
Lender, in its sole discretion.
3.5. Settlement of Mechanics' Lien Claims. If Borrower shall fail
promptly to discharge any mechanics' lien claim filed or otherwise asserted or
to contest any such claims and give security or indemnity in the manner provided
in Section 3.4 hereof, or, having commenced to contest the same, and having
given such security or indemnity, shall thereafter fail to prosecute such
contest in good faith or with due diligence, or fail to maintain such indemnity
or security so required by the Title Insurer for its full amount, or, upon
adverse conclusion of any such contest, shall fail to cause any judgment or
decree to be satisfied and lien to be promptly released, then, and in any such
event, Lender may, at its election (but shall not be required to) (i) procure
the release and discharge of any such claim and any judgment or decree thereon,
without inquiring into or investigating the amount, validity or enforceability
of such lien or claim and (ii) effect any settlement or compromise of the same,
or may furnish such security or indemnity to the Title insurer, and any amounts
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so expended by Lender, including premiums paid or security furnished in
connection with the issuance of any surety company bonds, shall be deemed to
constitute disbursements of the Loan proceeds hereunder (even if the total
amount of disbursements would exceed the face amount of the Note).
3.6. Maintenance. Repair and Restoration of Improvements. Borrower
shall (i) promptly repair, restore or rebuild any improvements which may become
damaged or be destroyed; and (ii) keep the Improvements in good condition and
repair, without waste.
3.7. Leases and Lease Reports. (i) Borrower shall not enter into,
modify, amend, waive any material provision of, terminate or cancel any leases
of space in the Project without the prior written consent of Lender and all
lessees shall be required at Lender's election to execute estoppel certificates
and subordination, non-disturbance and attornment agreements in form and
substance satisfactory to Lender; and (ii) within fifteen (15) days following
the end of each month, Borrower shall deliver to Lender a report showing the
status of the leasing of space in the Project certified by Borrower. Such report
shall include information on the amount of space covered by any letters of
intent, leases out for execution, and fully executed leases; the rental under
each lease agreement or proposed lease agreement; the term of each lease
agreement; and a summary of any terms which vary from the standard form of lease
previously approved by Lender.
3.8. Compliance With Laws. Borrower shall promptly comply with all
applicable Laws of any Governmental Authority having jurisdiction over Borrower
or the Project, and shall take all actions necessary to bring the Project into
compliance with all applicable Laws, including without limitation all Building
Laws (whether now existing or hereafter enacted).
3.9. Alterations. Without the prior written consent of Lender,
Borrower shall not make any material alterations to the Project (other than
completion of tenant world required in accordance with leases entered into in
accordance with the terms of this Agreement).
3.10. Personal Property. (i) All of Borrower's personal property,
fixtures, furnishings, furniture, attachments and equipment located on or used
in connection with the Project, shall always be located at the Project and shall
also be kept free and clear of all chattel mortgages, conditional vendors liens
and all other liens, encumbrances and security interests of any kind whatever,
(ii) Borrower will be the absolute owner of said personal property, fixtures,
attachments and equipment, and (iii) Borrower shall, from time to time, furnish
Lender with evidence of such ownership satisfactory to Lender, including
searches of applicable public records.
3.11. Prohibition Against Cash Distributions and Application of Cash
Flow.
Borrower shall first apply all cash flow from the Project to pay Project
expenses, including amounts due to Lender pursuant to the Loan Documents. No
cash flow from the Project shall be distributed to any partners of Borrower or
applied to the payment of any obligations, debts or expenses not related to the
Project if an Event of Default has occurred or if there is a reasonable
likelihood that such money will be necessary for the operation of the Project or
the payment of principal and interest due in connection with the Loan Borrower
shall not make any loans to any party without the prior written consent of
Lender.
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3.12. Inspection by. Borrower will cooperate (and will cause the
managing agent to cooperate) with Lender in arranging for inspections of the
Project from time to time by Lender and its agents and representatives.
3.13. Furnishing Information. Borrower shall deliver or cause to be
delivered to Lender annual (and at any time requested by Lender in its sole
discretion, quarterly) financial statements for Borrower and annual financial
statements for Indemnitor as soon as available and in all events no later than
one hundred twenty (120) days after the close of each fiscal year for annual
statements and thirty (30) days after the close of each quarter for quarterly
statements. The annual and quarterly statements shall be certified as true and
correct by an authorized financial officer of Borrower or Indemnitor, as the
case may be. If a Default has occurred or Lender reasonably believes that
previously provided financial statements are inaccurate, the annual statements
shall be audited by certified public accountants acceptable to Lender. If
Borrower has leased any portion of the Project, Borrower shall also furnish a
current rent roll for the Project at the time it delivers its financial
statements. Additionally, Borrower will:
i. promptly supply Lender with such information concerning
their respective affairs and property relating to the development and
operation of the Project as Lender may hereafter request from time to
time;
ii. at any time during regular business hours permit Lender
or any of its agents or representatives to have access to and examine
all of its books and records regarding the development and operation
of the Project;
iii. permit Lender to copy and make abstracts from any and
all of such books and records;
iv. immediately notify Lender if Borrower receives any actual
notice, action or lien notice or otherwise becomes aware that the
Project violates or is alleged to violate any Building Law, or of a
condition or situation on the Property which will constitute violation
of a Building Law (whether now existing or hereafter enacted). The
notice to Lender shall describe with particularity the Building Law
violation and the Borrower's plan to promptly correct the violation;
and
v. provide any information requested by Lender at any time
with respect to the "Sims (R)" lawsuit; and
vi. promptly furnish to Lender other information concerning
the Borrower as is reasonably requested from time to time by Lender.
3.14. Documents of Further Assurance. Borrower shall, from time to
time, upon Lender's request, execute, deliver, record and furnish such documents
as Lender may reasonably deem necessary or desirable to (i) perfect and maintain
perfected as valid liens upon the Project, the liens granted by Borrower to
Lender under the Mortgage and the collateral assignments and other security
interests under the other Loan Documents as contemplated by this Agreement, (ii)
correct any errors of a typographical nature or inconsistencies which may
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be contained in any of the Loan Documents, and (iii) consummate fully the
transaction contemplated under this Agreement.
3. 15. Furnishing Reports. Borrower shall provide Lender promptly after
receipt with copies of all inspections, reports, test results and other
information received by Borrower from time to time from its employees, agents,
representatives, architects and engineers, which in any way relate to the
Project, or any part thereof.
3.16. Operation of Project and Zoning. As long as any portion of the
Loan remains outstanding, the Project shall be operated in a first class manner
as a commercial office building and manufacturing and distribution facility.
Borrower shall fully and faithfully perform all of its covenants, agreements and
obligations under each of the leases of space in the Project. Borrower shall not
initiate or acquiesce in a zoning variation or reclassification without Lender's
consent.
3.17. Management Agents' and Brokers' Contracts. Borrower shall not
enter into, modify, amend, waive any material provision of, terminate or cancel
any management contracts for the Project or agreements with agents or brokers,
without the prior written approval of Lender.
3.18. Furnishing Notices. Borrower shall deliver to Lender copies of
all material notices received or given by Borrower (or its agents or
representatives) in connection with the Project.
3.19. Indemnification. Borrower shall indemnify, defend and hold
Lender, and its officers, directors, employees, shareholders, advisers, and
agents (collectively, "Indemnified Parties") harmless from and against all
claims, injury, damage, loss, costs (including attorneys' fees and costs) and
liability of any and every kind incurred by Indemnified Parties by reason of (i)
the operation or maintenance of the Project or any construction at the Project;
(ii) the payment of any brokerage commissions or fees of any kind with respect
to the Commitment or the Loan, and for any legal fees or expenses incurred by
Lender in connection with any claims for such commissions or fees; (iii) any
other action or inaction by, or matter which is the responsibility of, Borrower;
and (iv) the breach of any representation or warranty or failure to fulfill any
of Borrower's obligations under this Agreement or any other Loan Document. The
foregoing indemnity shall include the cost of all alterations, repairs and
replacements to the Project (including without limitation architectural,
engineering, legal and accounting costs), all fines, fees and penalties, and all
legal and other expenses (including attorneys' fees), incurred in connection
with the Project being in violation of the Building Laws and for the cost of
collection of the sums due under this indemnity, whether or not Borrower is in
possession of the Property. If Lender shall become the owner of or acquire an
interest in or rights to the Project by foreclosure or deed in lieu of
foreclosure of the deed of trust securing payment of the Loan, or by other
means, the foregoing indemnification obligation shall survive such foreclosure
or deed in lieu of foreclosure or other acquisition of the Project
3.20. Partnership Agreement. Without the prior written consent of
Lender, Borrower shall not permit or suffer any amendment or modification of its
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partnership agreement, and shall not permit or suffer the admission of any new
partner, except as permitted pursuant to Section 6.3.
3.21. Lost Note. Borrower shall, if the Note is mutilated, destroyed,
lost, or stolen, promptly deliver to Lender, in substitution therefor, a new
promissory note containing the same terms and conditions as the Note with a
notation thereon of the unpaid principal accrued and unpaid interest.
3.22. Publicity. During the term of the Loan, Lender may issue or
publish releases or announcements stating that the financing for the Project is
being provided by Lender to Borrower, and Borrower hereby consents thereto.
3.23. [Intentionally left blank]
3.24. Lender's Attornevs' Fees and Expenses. If at any time hereafter
prior to repayment of the Loan in full, Lender employs counsel for advice or
other representation (whether or not any suit has been or shall be filed and
whether or not other legal proceedings have been or shall be instituted and, if
such suit is filed or legal proceedings instituted, through all administrative,
trial, and appellate levels) with respect to the Loan, the Project or any part
thereof, this Agreement or any of the Loan Documents, including any proposed or
actual restructuring of the Loan, or to protect, collect, lease, sell, take
possession of, or liquidate any of the Project, or to attempt to enforce any
security interest or lien on any of the Project, or to enforce any rights of
Lender or any of Borrower's obligations hereunder or those of any other person,
firm or corporation which may be obligated to Lender by virtue of this Agreement
or any other agreement, instrument or document heretofore or hereafter delivered
to Lender by or for the benefit of Borrower, or to analyze and respond to any
request for consent or approval made by Borrower, then, in any such event, all
of the attomeys' fees and expenses arising from such services, and all expenses,
costs and charges relating thereto, shall be paid by Borrower on demand and if
Borrower fails to pay such fees, costs and expenses payment thereof by Lender
shall be deemed to constitute disbursement of the Loan proceeds hereunder (even
if the total amount of disbursements would exceed the face amount of the Note)
and shall constitute additional indebtedness of Borrower to Lender, payable on
demand and secured by the Mortgage and other Loan Documents.
3.25. Loan Expenses. Borrower agrees to pay all expenses of the Loan,
including all amounts payable pursuant to Section 3.26 of this Agreement, and
also including all recording charges, title insurance charges, costs of surveys,
costs for certified copies of instruments, escrow charges, fees, expenses and
charges of architectural/engineering consultants of Lender, fees and expenses
(including word processing and photocopying expenses) of Lender's attorneys, and
all costs and expenses incurred by Lender in connection with the determination
of whether Borrower has performed the obligations undertaken by Borrower under
this Agreement or has satisfied any conditions precedent to the obligations of
Lender under this Agreement. All such expenses, charges, costs and fees shall be
the Borrower's obligation regardless of whether the Loan is disbursed in whole
or in part unless such failure to disburse is due to Lender's wrongful failure
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to disburse hereunder. Any and all advances or payments made by Lender under
this Agreement from time to time, or for fees of architectural and engineering
consultants and attorneys' fees and expenses, if any, and all other Loan
expenses shall, as and when advanced or incurred by Lender, constitute
additional indebtedness evidenced by the Note and secured by the Mortgage and
the other Loan Documents to the same extent and effect as if the terms and
provisions of this Agreement were set forth therein, whether or not the
aggregate of such indebtedness shall exceed the aggregate face amount of the
Note.
3.26. Loan Fees. Borrower agrees to pay the loan fees ("Loan Fees") as
are set forth in the Commitment, subject to the terms and conditions set forth
therein. Borrower shall pay all Loan Fees at the times set forth in the
Commitment and shall pay all expenses incurred by Lender at the Loan Opening
Date and on demand at such subsequent times as Lender may determine. Lender may
require the payment of such fees and expenses as a condition to the disbursement
of the Loan.
4. REPRESENTATIONS AND WARRANTIES. To induce Lender to execute this agreement
and perform the obligations of Lender hereunder, Borrower hereby represents and
warrants to lender as follows:
4.1. Title. On the Loan Opening Date and thereafter, Borrower will have
good and marketable fee simple title to the Real Property, subject only to the
Permitted Exceptions.
4.2. No Litigation. Except for claims fully covered by insurance, where
the insurance company is defending such claims and such defense is not being
provided under a reservation of rights, and except as disclosed in writing to
Lender prior to the date hereof, there is no pending litigation or unsatisfied
judgment entered of record against the Borrower or Project. No litigation or
proceedings are pending, or to Borrower's knowledge are threatened, against any
Affiliated Party (i) which might affect the validity or priority of the lien of
the Mortgage, (ii) which might affect the ability of Borrower or any Indemnitor
to perform their respective obligations pursuant to and as contemplated by the
terms and provisions of this Agreement and the other Loan Documents, or (iii)
which could materially affect the operations or financial condition of the
Project, the Borrower, or any Affiliated Party.
4.3. Due Authorization. The execution and delivery of the Loan
Documents and all other documents executed or delivered by or on behalf of
Borrower and pertaining to the Loan have been duly authorized or approved by
Borrower and, when executed and delivered by Borrower or when caused to be
executed and delivered on behalf of Borrower, will constitute the legal, valid
and binding obligations of the obliger thereon, enforceable in accordance with
their respective terms except as limited by bankruptcy, insolvency, or other
laws of general application relating to the enforcement of creditor's rights,
and the payment or performance thereof will be subject to no offsets, claims or
defenses of any kind or nature whatsoever.
4.4. Breach of Laws or Agreements. The execution, delivery and
performance of this Agreement and the other Loan Documents have not constituted
(and will not, upon the giving of notice or lapse of time or both, constitute) a
breach or default under any other agreement to which Borrower or any Indemnitor
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is a party or may be bound or affected, or a violation of any Law which may
affect the Project, any part thereof, any interest therein, or the use thereof.
4.5. Leases. Borrower and its agents have not entered into any leases
or other arrangements for occupancy of space within the Project except for a
lease with DNR USA, Inc., a Delaware corporation, as shown on the most recent
rent roll furnished to Lender (the "Rent Roll") or entered into in accordance
with the requirements of this Agreement. All leases disclosed on the Rent Roll
are in full force and effect and to Borrower's knowledge, there are no existing
defaults thereunder other than as disclosed in writing to Lender.
4.6. Condemnation. (i)No condemnation of any portion of the Project,
(ii)no condemnation or relocation of any roadways abutting the Project, and
(iii) no denial of access to the Project from any point of access to the
Project, has commenced or, to Borrower's knowledge, is contemplated by any
Governmental Authority.
4.7. Condition of Improvements. To the best of Borrower's knowledge,
the foundations and structure of the Improvements are structurally sound and the
various mechanical systems have adequate capacities and are in good working
condition. The Improvements were built in substantial compliance with applicable
plans and specifications furnished to the Lender's engineering consultant, and
the Improvements are in full compliance with all applicable Building Laws.
Certificates of occupancy with respect to the Improvements, and any other
certificates which may be required to evidence compliance with building codes
and permits and approval for full occupancy of the Improvements and all
installations therein have been issued by all appropriate authorities. Borrower
has no knowledge of required capital expenditures or deferred maintenance other
than those that would be normally expected for a building of similar age and
type. No notice of violation of any Building Law has been received.
4.8. Information Correct. All financial statements furnished to Lender
by Borrower or any Affiliated Party fairly present the financial condition of
such persons or entities and were prepared in accordance with a method of
preparation approved by Lender, consistently applied, and all other information
previously furnished by Borrower or any Affiliated Party to Lender in connection
with the Loan are true, complete and correct in all respects except as otherwise
disclosed to Lender in writing and do not fail to state any material fact
necessary to make the statements made not misleading. Neither Borrower nor
Inderunitor has misstated or failed to disclose to Lender any material fact
relating to: (i) the condition, use or operation of the Project, (ii) the status
or any material condition of any tenant or lease at the Project known to it,
(iii) the Borrower, (iv) any Indemnitor; or (v) the litigation disclosure
provided by Borrower and each Indemnitor, except as disclosed in writing to
Lender prior to the date hereof.
4.9. Material Adverse Change. No material adverse change in the
operations or financial condition of Borrower has occurred since the respective
effective dates of their financial statements previously submitted to Lender,
and no material adverse change in the condition (physical or otherwise) of the
Project has occurred since the date of the Application.
4 10. Solvency. Neither Borrower, any general partner of Borrower nor
any Indemnitor is (a) currently insolvent on a balance sheet basis, or (b)
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currently unable to pay its debts as they come due; and no bankruptcy or
receivership proceedings are contemplated or pending as to any of them.
4.11. Zoning. The use of the Project (including contemplated accessory
uses) does not violate (i) any Law (including subdivision, zoning, building,
environmental protection and wetlands protection Laws), or (ii) any restrictions
of record, or any agreement affecting the Project or any part thereof. Without
limiting the generality of the foregoing, all consents, licenses and permits and
all other authorizations or approvals (collectively, "Governmental Approvals")
relating to the operation of the Project have been complied with.
4.12. Utilities. The Project has adequate water, gas and electrical
supply, storm and sanitary sewerage facilities, other required public utilities,
fire and police protection, and means of appropriate access between the Project
and public highways.
4.13. Brokerage Fees. No brokerage fees or commissions are payable by
or to any person in connection with this Agreement or the Loan to be disbursed
hereunder other than fees payable to Bonneville Mortgage Company, which fees
shall be paid by Borrower.
4.14. Encroachments. No building or other improvement in the Project
encroaches upon any building line, setback line, side yard line, or any recorded
or visible easement (or other easement of which Borrower has knowledge of with
respect to the Project).
4.15. Separate Parcel. The Project is taxed separately without regard
to any other property and for all purposes the Project may be mortgaged,
conveyed, and otherwise dealt with as an independent parcel.
4.16. ERISA. The assets of Borrower are not "plan assets" of any
employee benefit plan covered by ERISA or Section 4975 of the Internal Revenue
Code. The transactions contemplated by this Loan Agreement by or with Borrower
are not in violation of state statutes regulating investments of and fiduciary
obligations with respect to "governmental plans, "as defined in Section 3(32) of
ERISA.
4. 17. No Default. No Default or Event of Default has occurred and is
continuing.
4.18. Trade Name; Principal Place of Business. Borrower uses no trade
name other than its actual name set forth herein. The principal place of
business of Borrower is as stated on page 1 hereof.
4. 19. FIRPTA. Borrower is not a "foreign person" within the meaning
of Sections 1445 or 7701 of the Internal Revenue Code.
4.20. RICO. Borrower has not been charged with nor, to its knowledge,
is it under investigation for, possible violations of the Racketeer Influenced
and Corrupt Organizations Act ("RICO"), the Continuing Criminal Enterprise Act
("CCE"), the Controlled Substance Act of 1978, or similar laws providing for the
possible forfeiture of any of its respective assets or properties.
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4.21. No Casualty. No part of the Project has been damaged by fire or
other casualty except as disclosed in writing to Lender.
4.22. Truth of Recitals. All statements set forth in the Recitals are
true and correct.
5. CASUALTY AND CONDEMNATION.
5.1. Lender's Election to Apply Insurance and Condemnation Proceeds to
Indebtedness. In the event of any loss or damage to any portion of the Project
due to fire or other casualty, Lender shall have the right, but not the
obligation, to settle insurance claims for more than $50,000.00 and if Lender
elects not to settle such claim then Borrower shall settle such claim and such
settlement shall be subject to Lender's prior written approval. Borrower shall
have the right to settle claims for less than such amount, provided that Lender
shall have the right to settle any claim that Borrower has not settled on or
before one hundred twenty (120) days after the date of such loss. If (i) no
Default exists hereunder at the time of such casualty or condemnation and at the
time such proceeds would be disbursed; (ii) no payment default has occurred
during the preceding twelve months; (iii) the Loan-to-value ratio of the Project
on completion of the restoration will be 75% or less, as determined by an
Appraisal obtained in the manner described in Section 2.4.1 of the Application
(unless the amount of proceeds is less than 3% of the original Loan amount);
(iv) the proceeds received by Lender, together with any additional funds
deposited with Lender by Borrower, are sufficient, in Lender's discretion,
either to restore the Project to its condition before the casualty or to remedy
the condemnation; (v) a loss of no more than 5% of the commercial tenant rental
income will occur as a result of the casualty or condemnation; and (vi) Borrower
complies with all conditions set forth in Section 5.2 of this Agreement, the
Borrower shall be entitled to use the insurance or condemnation proceeds to
rebuild the Project or to remedy the effect of the condemnation, as the case may
be. The Appraisal required pursuant to the foregoing provision shall be at
Borrower's expense and Lender may require that Borrower deposit $10,000 with
Lender as security for the expense or may pay the appraiser from the insurance
proceeds at its sole discretion. In all other cases, Lender shall have the right
(but not the obligation) to collect, retain and apply to the indebtedness of
Borrower under this Agreement all insurance proceeds (after deduction of all
expense of collection and settlement, including attorneys' and adjusters' fees
and expenses, but without any prepayment premium), and if such proceeds are
insufficient to pay such amount in full, to declare the balance remaining unpaid
on the Note and Mortgage to be due and payable forthwith and to avail itself of
any of the remedies afforded thereby as in the case of any default beyond
applicable cure periods thereunder. Any proceeds remaining after application to
the indebtedness of Borrower under this Agreement shall be paid by Lender to
Borrower or the party then entitled thereto.
5.2. Borrower's Obligation to Rebuild and Use of Proceeds Therefor. If
Lender does not elect to or is not entitled to apply fire or casualty insurance
proceeds to the indebtedness, as provided under Section 5.1 of this Agreement,
Lender shall have the right (but not the obligation) to settle, collect and
retain such proceeds, and after deduction of all expenses of collection and
settlement, including attorneys' and adjusters' fees and expenses, to release
the same to Borrower periodically provided that Borrower shall:
16
<PAGE>
(a) Expeditiously repair and restore all damage to the portion of
the Project in question resulting from such fire or other casualty,
including completion of the Construction if such fire or other
casualty shall have occurred prior to completion, so that the Project
will be completed in accordance with the Plans and Specifications; and
(b) If the proceeds of fire or casualty insurance (and the
undisbursed available Loan proceeds for Construction) are, in Lender's
sole judgment, insufficient to complete the repair and restoration of
the buildings, structures and other improvements constituting the
Project, then Borrower shall promptly deposit with Lender the amount
of such deficiency.
Any request by Borrower for a disbursement by Lender of fire or
casualty insurance proceeds and funds deposited by Borrower pursuant to this
Section 5.2 and the disbursement thereof shall be conditioned upon Borrower's
compliance with and satisfaction of the same conditions precedent as would be
applicable in connection with construction loans made by institutional lenders
for projects similar to the Project, including approval of plans and
specifications submittal of evidence of completion, updated title insurance,
lien waivers, and other customary safeguards.
6. ASSIGNMENTS.
6.1. Lender's Right to Assign. Lender shall have the right to assign,
transfer, sell, negotiate, pledge or otherwise hypothecate this Agreement and
any of its rights and security hereunder, including the Note, Mortgage, and any
other Loan Documents. Borrower hereby agrees that all of the rights and remedies
of Lender in connection with the interest so assigned shall be enforceable
against Borrower by such assignee with the same force and effect and to the same
extent as the same would have been enforceable by Lender but for such
assignment. Borrower agrees that Lender shall have the right to sell
participations in the Loan or to include the Note in a securitized pool of
indebtedness without the consent of Borrower.
6.2. Prohibition of Assignments by Borrower. Borrower shall not assign
or attempt to assign its rights under this Agreement. Borrower will not suffer
or permit any of its interest or rights in the Project to be assigned, sold,
pledged, encumbered, transferred, hypothecated or otherwise disposed of until
the provisions of this Agreement have been fully complied with and the Loan and
all other sums evidenced by the Note and/or secured by the Mortgage and other
Loan Documents, have been repaid in full.
6.3. Prohibition of Transfers of Interests in Borrower. No party
directly or indirectly owning an interest in Borrower shall suffer or permit any
of such interest to be assigned, sold, pledged, encumbered, transferred,
hypothecated or otherwise disposed of without Lender's written consent (which
Lender may withhold in its sole discretion) until the provisions of this
Agreement have been fully complied with and the Loan and all other sums
evidenced by the Note and/or secured by the Mortgage and other Loan Documents
have been repaid in full. Borrower shall pay Lender's out-of-pocket expenses
incurred in connection with the review of any transfer for which Borrower
requests consent pursuant to Section 6.2 or this Section 6.3. In the event that
Lender consents to any such transfer, assignment, sale, encumbrance or other
17
<PAGE>
disposal, Borrower shall pay to Lender a transfer fee in the amount of one
percent (1%) of the outstanding balance of the Loan.
6.4. Successors and Assigns. Subject to the foregoing restrictions on
transfer and assignment contained in this Article 6. this Agreement shall inure
to the benefit of and shall be binding on the parties hereto and their
respective successors and assigns.
7. EVENTS OF DEFAULT.
7.1. The occurrence of any one or more of the following shall
constitute an "Event of Default," as such term is used herein:
(a) If Borrower fails to pay principal or interest under the Note
when due;
(b) If Borrower defaults in the performance of any of its other
covenants, agreements and obligations under this Agreement involving
the payment of money;
(c) If Borrower defaults in the performance of any of its
non-monetary covenants, agreements and obligations under this
Agreement and fails to cure such default within thirty (30) days after
written notice thereof from Lender provided, however, that if such
default is reasonably susceptible of cure, but cannot be cured within
such thirty (30) day period, then so long as Borrower promptly
commences cure and thereafter diligently pursues such cure to
completion, the cure period shall be extended for an additional thirty
(30) days, within which Borrower may complete such cure;
(d) If at any time or times hereafter any representation or
warranty (including the representations and warranties of Borrower set
forth in any Loan Document), statement, report or certificate
furnished to Lender in connection with the Loan is not true and
correct in any material respect;
(e) If any petition is filed by or against Borrower or any
Affiliated Party under the Federal Bankruptcy Code or any similar
state or federal Law, whether now or hereafter existing (and, in the
case of involuntary proceedings, failure to cause the same to be
vacated, stayed or set aside within sixty (60) days after filing);
(f) If any assignment, pledge, encumbrance, transfer,
hypothecation or other disposition is made in violation of Section 6.2
or, Section 6.3 of this Agreement;
(g) If Borrower or any general partner of Borrower shall fail to
pay any debt owed by it or is in default under any agreement with
Lender or any other party and such failure or default continues after
any applicable grace period specified in the instrument or agreement
relating thereto; or
(h) If a default occurs under any of the Loan Documents and
continues beyond the applicable grace period, if any, contained
therein.
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8. REMEDIES.
8.1. Remedies Conferred Upon Lender. Upon the occurrence of any Event
of Default, Lender shall, have the right (but not the obligation) to pursue any
one or more of the following remedies concurrently or successively, it being the
intent hereof that all such remedies shall be cumulative and that no such remedy
shall be to the exclusion of any other:
(a) Declare the Note to be immediately due and payable;
(b) Use and apply any monies deposited by Borrower with Lender,
including amounts in the Escrow Account, regardless of the purpose for
which the same was deposited, to cure any such default or to apply on
account of any indebtedness under this Agreement which is due and
owing to Lender; and
(c) Exercise or pursue any other right or remedy permitted under
this Agreement or any of the Loan Documents or conferred upon Lender
by operation of Law.
8.2. Non-Waiver of Remedies. No waiver of any breach or default
hereunder shall constitute or be construed as a waiver by Lender of any
subsequent breach or default or of any breach or default of any other provision
of this Agreement.
8.3. Cash Collateral Account. Upon the occurrence of an Event of
Default, Borrower shall deposit all revenues from the operation of the Project
into an account held by and pledged to Lender ("Cash Collateral Account").
Lender shall not pay interest on any amounts held on deposit in the Cash
Collateral Account, unless required to do so under applicable law. Borrower
shall execute such documents as Lender, in its sole discretion, deems necessary
to perfect its interest in the Cash Collateral Account.
9. GENERAL PROVISIONS.
9.1. Captions. The captions and headings of various Articles and
Sections of this Agreement and Exhibits pertaining hereto are for convenience
only and are not to be considered as defining or limiting in any way, the scope
or intent of the provisions hereof.
9.2. Merger. This Agreement, the Application, the Commitment and the
Loan Documents and instruments delivered in connection herewith, as may be
amended from time to time in writing, constitute the entire agreement of the
parties with respect to the Project and the Loan, and all prior discussions,
negotiations and document drafts are merged herein and therein. If there are any
inconsistencies between the Commitment and this Agreement or the Loan Document,
the terms contained in this Agreement and the other Loan Documents shall
prevail. Neither Lender nor any employee of Lender has made or is authorized to
make any representation or agreement upon which Borrower may rely unless such
matter is made for the benefit of Borrower and is in writing signed by an
authorized officer of Lender. Borrower agrees that it has not and will not rely
on any custom or practice of Lender, or on any course of dealing with Lender, in
connection with the Loan unless such matters are set forth in this Agreement or
19
<PAGE>
the Loan Documents or in an instrument made for the benefit of Borrower and in a
writing signed by an authorized of fleer of Lender.
9.3. Notices. Any notice, demand, request or other communication which
any party hereto may be required or may desire to give hereunder shall be in
writing, addressed as follows and shall be deemed to have been properly given if
hand delivered, if sent by reputable overnight courier (effective the business
day following delivery to such courier) or if mailed (effective two business
days after mailing) by United States registered or certified mail, postage
prepaid, return receipt requested:
If to Borrower: Marker International
2305 South 1070 West
West Valley City, Utah 84119
Attn: President
If to Lender: Jackson National Life Insurance Company
c/o PPM Finance, Inc.
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606
Attn: Lillian Meyersburg
or at such other address as the party to be served with notice may have
furnished in writing to the party seeking or desiring to serve notice as a place
for the service of notice. Notices given in any other fashion shall be deemed
effective only upon receipt.
9.4. Modification: Waiver. No modification, waiver, amendment,
discharge or change of this Agreement shall be valid unless the same is in
writing and signed by the party against which the enforcement of such
modification, waiver, amendment, discharge or change is sought.
9.5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE INTERNAL LAWS (AS OPPOSED TO THE LAWS OF
CONFLICTS) OF THE STATE OF UTAH.
9.6. Acquiescence Not to Constitute Waiver of Lender's Requirements.
Each and every covenant and condition for the benefit of Lender contained in
this Agreement may be waived by Lender.
9.7. Disclaimer by Lender.
(a) This Agreement is made for the sole benefit of Borrower and
Lender (and Lender's successors and assigns and participants, if any),
and no other person or persons shall have any benefits, rights or
remedies under or by reason of this Agreement, or by reason of any
actions taken by Lender pursuant to this Agreement. Lender shall not
be liable for any debts or claims accruing in favor of any third
parties against Borrower or
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<PAGE>
others or against the Project. Borrower is not and shall not be
an agent of Lender for any purposes. Except as expressly set forth in
the Loan Documents, Lender is not and shall not be an agent of
Borrower for any purposes. Lender, by making the Loan or taking any
action pursuant to any of the Loan Documents, shall not be deemed a
partner or a joint venturer with Borrower or fiduciary of Borrower.
(b) Any review, investigation or inspection conducted by Lender,
any architectural or engineering consultants retained by Lender or any
agent or representative of Lender in order to verify independently
Borrower's satisfaction of any conditions precedent to the
disbursement of the Loan, Borrower's performance of any of the
covenants, agreements and obligations of Borrower under this
Agreement, or the truth of any representations and warranties made by
Borrower hereunder (regardless of whether or not the party conducting
such review, investigation or inspection should have discovered that
any of such conditions precedent were not satisfied or that any such
covenants, agreements or obligations were not performed or that any
such representations or warranties were not true), shall not affect
(or constitute a waiver by Lender of) (i) any of Borrower's
representations and warranties under this Agreement or Lender's
reliance thereon, or (ii) Lender's reliance upon any certifications
required under this Agreement or any other facts, information or
reports furnished Lender by Borrower hereunder.
(c) By accepting or approving anything required to be observed,
performed, fulfilled or given to Lender pursuant to the Loan
Documents, including any certificate, statement of profit and loss or
other financial statement, survey, appraisal, lease or insurance
policy, Lender shall not be deemed to have warranted or represented
the sufficiency, legality, effectiveness or legal effect of the same,
or of any term provision or condition thereof, and such acceptance or
approval thereof shall not constitute a warranty or representation to
anyone with respect thereto by Lender.
9.8. Right of Lender to Make Advances to Cure Borrower's Defaults. If
Borrower shall fail to perform in a timely fashion any of Borrower's covenants,
agreements or obligations contained in this Agreement or the Loan Documents,
Lender may (but shall not be required to) perform any of such covenants,
agreements and obligations. Any funds advanced by Lender in the exercise of its
judgment that the same are needed to protect its security for the Loan are
deemed to be obligatory advances hereunder and any amounts expended (whether by
disbursement of undisbursed Loan proceeds or otherwise) by Lender in so doing,
shall constitute additional indebtedness evidenced and secured by the Note, the
Mortgage and the other Loan Documents.
9.9. Definitions Include Amendments. Definitions contained in this
Agreement which identify documents, including the Loan Documents, shall be
deemed to include all amendments and supplements to such documents from the date
hereof, and all future amendments and supplements thereto entered into from time
to time to satisfy the requirements of this Agreement or otherwise with the
consent of the Lender. Reference to this Agreement contained in any of the
foregoing documents shall be deemed to include all amendments and supplements to
this Agreement
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9.10. Time Is of the Essence. Time is hereby declared to be of the
essence of this Agreement and of every part hereof.
9.11. Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
9.12. Waiver of Consequential Damages. In no event shall Lender be
liable to Borrower for consequential damages, whatever the nature of a breach by
Lender of its obligations under this Loan Agreement, or any of the Loan
Documents, and Borrower for itself and all Affiliated hereby waives all claims
for consequential damages.
9.13. Claims Against Lender. Lender shall not be in default under this
Agreement, or under any other Loan Documents, unless a written notice
specifically setting forth the claim of Borrower shall have been given to Lender
within 30 days after Borrower first had knowledge of, or reasonably should have
had knowledge of, the occurrence of the event which Borrower alleges gave rise
to such claim and Lender does not remedy or cure the default, if any there be,
promptly thereafter. If it is determined in any proceedings that Lender has
improperly failed to grant its consent or approval, where such consent or
approval is required by this Loan Agreement or any other Loan Documents,
Borrower's sole remedy shall be to obtain declaratory relief determining such
withholding to have been improper, and for itself and all Affiliated Parties
Borrower hereby waives all claims for damages or set-off against Lender
resulting from any withholding of consent or approval by Lender.
9.14. Jurisdiction and Venue. With respect to any suit, action or
proceedings relating to this agreement, the Project, or any of the Loan
Documents ("Proceedings") each party irrevocably (i) submits to the
non-exclusive jurisdiction of (A) the state and federal courts located in the
State where the Project is located, (B) the federal court for the Northern
District of Illinois and (C) the Circuit Court of Cook County and (ii) waives
any objection which it may have at any time to the laying of venue of any
proceedings brought in any such court, waives any claim that such Proceedings
have been brought in an inconvenient forum and further waives the right to
object, with respect to such Proceedings, that such court does not have
jurisdiction over such party. Nothing in this agreement shall preclude either
party from bringing Proceedings in any other jurisdiction nor will the bringing
of Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
9.15. Severability. The parties hereto intend and believe that each
provision in this Agreement comports with all applicable local, state and
federal laws and judicial decisions. However, if any provision or provisions, or
if any portion of any provision or provisions, in this Agreement is found by a
court of law to be in violation of any applicable local, state, or federal law,
statute, ordinance, administrative or judicial decision, or public policy, and
if such courts declare such portion, provision, or provisions of this Agreement
to be illegal, invalid, unlawful, void or unenforceable as written, then it is
the intent of all parties hereto that such portion, provision, or provisions
shall be given force to the fullest possible extent that they are legal, valid
22
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and enforceable, and that the remainder of this Agreement shall be construed as
if such illegal, invalid, unlawful, void, or unenforceable portion, provision,
or provisions were not contained therein, and that the rights, obligations, and
interests of Borrower and Lender under the remainder of this Agreement shall
continue in full force and effect.
9.16. Incorporation of Recitals. The Recitals set forth herein and the
Exhibits attached hereto are incorporated herein and expressly made a part
hereof.
9.17. WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH HEREBY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR RELATING THERETO OR
ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS AGREEMENT AND
AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement
as of the day and year first set forth above.
BORROWER
MARKER INTERNATIONAL, a Utah corporation
By: /s/ Brad L. Stewart
Its: Executive Vice President/ COO
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LENDER:
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM Finance, Inc. Its authorized agent
By: /s/ David M. Zachar
Its:
David M. Zachar, Senior Vice President
24
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EXHIBIT A
LEGAL DESCRIPTION
A parcel of land located in the Northwest quarter of Section 23, Township 1
South, Range 1 West, Salt Lake Base and Meridian, being more particularly
described as follows:
BEGINNING at a point on the East line of 1070 West Street (a private roadway),
said point being South 0(degree)02'35" West 1460.82 feet along the quarter
Section line and East 4222.64 feet from the North quarter corner of Section 22,
Township 1 South, Range 1 West, Salt Lake Base and Meridian, and running thence
East 464.86 feet to the West right-of-way line of the Jordan River, thence South
41(degree)54'55" East 469.88 feet along the West right-of-way line of the Jordan
River to the North line of 2320 South Street; thence South 89(degree)55'00" West
771.74 feet along the North line of 2320 South Street; thence Northwesterly
20.26 feet along the arc of a 28.00 foot radius curve to the right, (center
bears North 48(degree)32'35" East and long chord bears North 20(degree)43'43"
West 19.82 feet, with a central angle of 41(degree)27'25") along the North line
of 2320 South Street, to the East line of 1070 West Street; thence North 332.24
feet along the East line of 1070 West Street to the point of beginning.
<PAGE>
EXHIBIT B
PERMITTED EXCEPTIONS
1. Taxes for the year 1997 now a lien, not yet due.
2. Said property is included within the boundaries of Granger-Hunter
Improvement District, for the purpose of supplying water and sewage
facilities to said District.
3. Said property is included within the incorporated city limits of West
Valley City, a municipal corporation of the State of Utah, and is
subject to any special assessments for improvements or services as may
be therein provided.
4. An easement granted to Utah Power & Light Company, for the erection
and continued maintenance of electric transmission, distribution,
telephone and telegraph circuits, including steel and/or wood
structures, and the necessary appurtenances, together with rights of
ingress and egress; in the document recorded January 13, 1959 as Entry
No. 1631353 in Book 1577 at page 179 of Official Records; affecting a
strip of land, fifty (50) feet in width, being more particularly
described as:
Beginning at a point on the North line of a road known as Main
Street in the Western Pacific Addition, which point is 3543 feet
North and 1617 feet East, more or less, from the Southwest corner
of Section 23, Township 1 South, Range 1 West, Salt Lake Base and
Meridian; thence North 0(degree)28' East 181.4 feet; thence North
47(degree)25' East 893.6 feet to the West bank of the Jordan
River; thence North 05(degree)40'40" 13.6 feet along said West
bank to the North boundary line of Grantor's land; thence West
134.4 feet along the North boundary line; thence South
47(degree)25' West 842.8 feet, being parallel to and 100 feet
perpendicularly distant Northwesterly from the above described
Southeasterly boundary line; thence North 66(degree)03'30" West
42.2 feet; thence South 23(degree)56'30" West 10 feet; thence
South 66(degree)03'30" East 42.2 feet; thence South 0(degree)28'
West 220.2 feet, being parallel to and 100 feet perpendicularly
distant Westerly from the above described Easterly boundary lie
to the North boundary line of said road; thence East 100 feet
along said North boundary line to the point of beginning.
Said easement was modified by the terms and conditions contained within that
certain Agreement dated July 29, 1996 and recorded July 30, 1996 as Entry No.
6417100 in Book 7454 at page 742 of Official Records; by and between Utah Power
& Light Company, now known as PacifiCorp, an Oregon Corporation and Marker
International, Inc., a Utah corporation. Said Agreement also discloses that a
certain building and other improvements have been constructed within the
easement granted to Utah Power & Light Company.
5. The limitations, covenants, restrictions, conditions, reservations,
exceptions, easements, terms and liens contained in the Declaration of
Easements, Covenants and Restrictions (Metro Business Park - Phase II), recorded
November 12, 1986 as Entry No. 4347986 in
<PAGE>
Book 5839 at pages 682 through 713 of Official Records, which provided, among
other things, that a violation thereof shall not defeat or render invalid the
lien of any mortgage or deed of trust made in good faith and for value.
First Amendment to Declaration of Easements, Covenants and Restrictions recorded
February 17, 1988 as Entry No. 4586959 in Book 6004 at page 1759 of Official
Records.
Second Amendment to Declaration of Easements, Covenants and Restrictions
recorded February 11, 1992 as Entry No. 5196953 in Book 6409 et page 1023 of
Official Records.
Third Amendment to Declaration of Easements, Covenants and Restrictions recorded
July 27, 1993 as Entry No.5562935 in Book 6716 at page 1770 of Official Records.
Fourth Amendment to Declaration of Easements, Covenants and Restrictions
recorded September 23, 1994 as Entry No. 5928513 in Book 7024 at page 1476 of
Official Records.
Fifth Amendment to Declaration of Easements, Covenants and Restrictions recorded
January 25, 1996 as Entry No. 6417101 in Book 7454 at page 754 of Official
Records.
<PAGE>
EXHIBIT C
SOURCES AND USES OF FUNDS
SOURCES:
PPM Finance, Inc. Loan 2,250,000.00
USES:
Payoffexisting loan with First Security Bank ($2,250,000.00)
Closing costs ($50,000.00)
TOTAL USES ($2,300,000.00)
Amount by which USES exceeds SOURCES ($50,000.00)
SUBSIDIARIES OF THE REGISTRANT
Company: Jurisdiction:
-------- -------------
Marker Deutschland GmbH Germany
Marker USA Utah
Marker Japan Co. Ltd. Japan
Marker Austria GmbH Austria
Marker Canada, Ltd. Canada
Marker Ltd. Utah
Marker AG Switzerland
DNR USA, Inc. Delaware
DNR North America, Inc. Delaware
DNR Japan Co. Ltd. Japan
DNR Sportsystem, Ltd.1 Switzerland
1 An 80% owned Subsidiary of Marker AG
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statement File No.
33-80407.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
June 26, 1997
<TABLE> <S> <C>
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0
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