SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 Identification No.)
incorporation or organization)
1070 West 2300 South
Salt Lake City, Utah 84119
(Address of principal executive offices)
(801) 972-2100
(Registrant's telephone number, including area code)
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 filings
requirements for the past 90 days.
Yes X No
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at November 13, 1998
--------------------- --------------------------------
Common Stock, $0.01 par value 11,130,577
<PAGE>
MARKER INTERNATIONAL
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I - Financial Information
<S> <C> <C>
Item 1. Financial Statements Page
----
Condensed Consolidated Balance Sheets
As of September 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended
September 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended
September 30, 1998 and 1997 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 6. Exhibits and Reports on Form 8-K 28
Signatures 29
</TABLE>
2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
MARKER INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
- -------------------------------------------------------------------------------------
ASSETS
September 30, March 31,
1998 1998
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,469 $ 4,241
Accounts receivable, net of allowance for doubtful
accounts of $1,849 and $1,697, respectively 42,462 31,710
Inventories 45,908 37,223
Prepaid and other current assets 3,543 4,440
--------- ---------
Total current assets 96,382 77,614
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 1,050 1,050
Building and improvements 8,339 7,581
Machinery and equipment 19,976 21,222
Furniture, fixtures and office equipment 6,528 4,582
--------- ---------
35,893 34,435
Less accumulated depreciation and amortization (19,184) (16,733)
--------- ---------
Net property, plant and equipment 16,709 17,702
--------- ---------
INTANGIBLE ASSETS, net of accumulated amortization -- 7,877
--------- ---------
OTHER ASSETS 1,215 1,927
--------- ---------
$ 114,306 $ 105,120
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.
3
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<TABLE>
<CAPTION>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
(Unaudited)
- --------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
September 30, March 31,
1998 1998
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks $ 71,120 $ 48,645
Current maturities of long-term debt 3,689 3,512
Current maturities of Series A Bonds, issued to a
related party -- 4,500
Accounts payable 15,163 6,381
Other current liabilities 10,380 7,830
--------- ---------
Total current liabilities 100,352 70,868
--------- ---------
LONG-TERM DEBT, net of current maturities 14,079 14,898
--------- ---------
SERIES A BONDS, net of current maturities, issued to a related party 10,000 5,500
--------- ---------
REDEEMABLE SERIES B PREFERRED STOCK 3,000 --
--------- ---------
MINORITY INTEREST -- 1,447
--------- ---------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock 111 111
Additional paid-in capital 36,299 36,299
Accumulated deficit (48,665) (16,471)
Cumulative foreign currency translation adjustments (870) (7,532)
--------- ---------
Total shareholders' equity (deficit) (13,125) 12,407
--------- ---------
$ 114,306 $ 105,120
========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.
4
<PAGE>
<TABLE>
<CAPTION>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
- -------------------------------------------------------------------------------------------------------------
For the Three Months For the Six Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 24,035 $ 24,681 $ 26,596 $ 25,128
COST OF SALES 15,830 16,359 17,408 16,339
-------- -------- -------- --------
GROSS PROFIT 8,205 8,322 9,188 8,789
-------- -------- -------- --------
OPERATING EXPENSES:
Selling 3,024 2,978 5,409 5,477
General and administrative 3,753 2,301 6,189 4,505
Research and development 650 761 1,258 1,399
Warehousing and shipping 414 395 784 699
-------- -------- -------- --------
7,841 6,435 13,640 12,080
-------- -------- -------- --------
OPERATING INCOME (LOSS) 364 1,887 (4,452) (3,291)
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (1,743) (1,312) (3,226) (2,570)
Other, net 1,921 (358) 2,158 498
-------- -------- -------- --------
178 (1,670) (1,068) (2,072)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES 542 217 (5,520) (5,363)
(PROVISION) BENEFIT FOR INCOME TAXES (329) 70 (329) 2,074
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 213 287 (5,849) (3,289)
-------- -------- -------- --------
DISCONTINUED OPERATIONS:
Loss from operations of discontinued
snowboard business, net of income taxes (1,191) (1,333) (1,484) (2,812)
Loss on disposal of snowboard business (24,861) -- (24,861) --
-------- -------- -------- --------
LOSS FROM DISCONTINUED OPERATIONS (26,052) (1,333) (26,345) (2,812)
-------- -------- -------- --------
NET LOSS $(25,839) $ (1,046) $(32,194) $ (6,101)
======== ======== ======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.
5
<PAGE>
<TABLE>
<CAPTION>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
For the Three Months For the Six Months
Ended September 30, Ended September 30,
---------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
INCOME (LOSS) PER COMMON SHARE (Both Basic and
Diluted):
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ 0.02 $ 0.03 $ (0.53) $ (0.30)
-------------- -------------- -------------- --------------
Loss from operations of discontinued
snowboard business (0.11) (0.12) (0.13) (0.25)
Loss on disposal of snowboard business (2.23) -- (2.23) --
-------------- -------------- -------------- --------------
Loss from discontinued operations (2.34) (0.12) (2.36) (0.25)
-------------- -------------- -------------- --------------
Net loss $ (2.32) $ (0.09) $ (2.89) $ (0.55)
============== ============== ============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(Both Basic and Diluted) 11,130,577 11,129,372 11,130,577 11,129,250
============== ============== ============== ==============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.
6
<PAGE>
<TABLE>
<CAPTION>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
- ------------------------------------------------------------------------------------------------
For the Six Months
Ended September 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(32,194) $ (6,101)
Adjustments to reconcile net loss to net cash
used in operating activities:
Minority interest -- (414)
Loss (gain) on sale of property, plant and equipment 725 (85)
Depreciation and amortization 2,097 2,619
Loss from write off of goodwill and intangibles 8,487 --
Change in assets and liabilities:
Increase in accounts receivable, net (10,033) (12,257)
Increase in inventories (6,559) (14,889)
Decrease (increase) in prepaid and other assets 1,911 (3,516)
Increase in accounts payable 11,794 91
Increase in other current liabilities 8,053 341
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (15,719) (34,211)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,083) (4,252)
Proceeds from disposition of equipment -- 3,763
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (2,083) (489)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable to banks 19,413 29,407
Proceeds from issuance of preferred stock 3,000 --
Proceeds from issuance of common stock -- 6
Proceeds from issuance of long-term debt 360 2,084
Principal payments on long-term debt (1,473) (1,578)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,300 29,919
-------- --------
Effect of foreign exchange rate changes on cash and cash equivalents (3,270) (2,128)
-------- --------
Net increase (decrease) in cash and cash equivalents 228 (6,909)
Cash and cash equivalents at beginning of period 4,241 13,532
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,469 $ 6,623
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these condensed consolidated balance sheets.
7
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 1. Interim Financial Statements
The accompanying condensed consolidated financial statements include
the accounts of Marker International and its subsidiaries (the "Company"). The
condensed consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures normally required in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to fairly
present the financial position, results of operations and cash flows for the
periods presented.
The Company's financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and settlement of
liabilities and commitments in the normal course of business. The Company has
continued to experience financial difficulties through the second quarter of
fiscal 1999 and thereafter. As discussed in Note 2, the Company has renegotiated
certain bank credit agreements to increase the borrowing limits and extend the
maturity to March 31, 1999. However, significant risks exist that these credit
agreements will not provide the Company with the necessary working capital
beyond March 31, 1999 or that the Company is unable to borrow amounts under
these agreements sufficient to fund operations during the remaining terms of
these agreements. As a result, there is a substantial risk that the Company will
not be able to continue as a going concern.
The results of operations for the three and six months ended September
30, 1998 are not necessarily indicative of the results for the full fiscal year.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K as filed with the SEC.
Note 2. Recent Events
Credit Agreements
- -----------------
In August, 1998, the Company's maximum borrowing limit on its line of
credit with a U.S. bank (the "U.S. Credit Line") was increased by approximately
$4.0 million to $33.6 million. On November 12, 1998, the Company entered into a
restated credit agreement with the U.S. bank which, among other things, extended
8
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
the maturity of the credit facility until March 31, 1999, increased the interest
rate there on to the bank's prime rate plus 0.5 percent and waived the Company's
non compliance with certain covenants.
Under the restated credit agreement, the Company agreed to pledge
additional collateral, including certain real property owned by the Company. In
addition, the Company entered into a lockbox agreement with the bank which
requires that all payments from debtors be remitted to a lock box account. The
bank will apply the amounts in the lockbox account to reduce amounts outstanding
under the credit agreement. The bank advances funds under the agreement to the
Company on a daily basis in accordance with the borrowing base limits
established under the agreement.
On August 1, 1998, the Company's DM 80.0 million (U.S. $47.9 million)
line of credit agreement with HypoVereinsbank, Deutsche Bank AG and BFG Bank
(together, the "German banks") expired (the "German Credit Line"). As a result
of such expiration, the German banks had the right to declare all obligations of
the Company under the German Credit Line immediately due and payable. On August
6, 1998, the German banks had notified the Company that they would cancel the
German Credit Line and would not extend any further borrowings under such lines.
However, after further negotiations, on August 19, 1998, HypoVereinsbank and
Deutsche Bank AG agreed in principle to extend their existing lines of credit
through March 31, 1999 and to provide a temporary increase in available credit
by DM 10 million through November 30, 1998. On October 13, 1998, the Company
entered into a final agreement with HypoVereinsbank providing a credit line of
DM 56.4 million (U.S. $33.7 million) through March 31, 1999. On November 5,
1998, the Company entered into a final agreement with Deutsche Bank AG providing
a credit line of DM 14.8 million (U.S. $8.9 million) through March 31, 1999.
Marker Germany agreed to pledge additional collateral to HypoVereinsbank and
Deutsche Bank AG consisting of certain intellectual property rights owned by
Marker Germany. BFG Bank has not agreed to extend its DM 5.0 million (U.S. $3.0
million) line of credit beyond November 30, 1998. The Company is currently in
negotiations with BFG Bank, in an effort to seek extension of this line through
March 31, 1999. In the event that the banks do not extend the terms of the
Company's U.S. Credit Line and German Credit Line to provide the Company with
necessary working capital beyond March 31, 1999, or the Company is unable to
borrow amounts under existing credit lines sufficient to fund operations, there
is a substantial risk that the Company will not be able to continue as a going
concern.
As part of the overall restructuring of the Company's capital
structure, the Company and its banks are continuing to discuss alternatives to
mitigate the Company's financial difficulties and the reinstatement or renewal
9
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
of the credit lines after March 31, 1999. There can be no assurance that
satisfactory agreements will be reached between the Company and current or
prospective providers of long term debt or equity financing.
Discontinued Operations
- -----------------------
The Company is in the process of exiting the snowboard business through
dissolution and sale of its snowboard subsidiaries and related assets. On
September 10, 1998, the Board of Directors authorized the disposition of the
entire snowboard operations of the Company. The manufacturing operations ceased
on July 30, 1998. In September 1998, the Company entered into an agreement to
sell its 80% ownership interest in DNR Sportsystem Ltd. Under the agreement, the
Company will sell its shares of DNR Sportsystem Ltd. for nominal consideration
and will eliminate all outstanding intercompany balances. All conditions
precedent to the closing of the sale have been satisfied and the Company
anticipates that the closing will be consummated prior to November 25, 1998. The
Company is currently in the process of winding down its remaining snowboard
distribution operations and disposing of its snowboard manufacturing facility
and related equipment.
The components of net assets of discontinued operations included in the
condensed consolidated balance sheets at September 30, and March 31, 1998 were
as follows:
September 30, March 31,
1998 1998
--------- ---------
(in thousands)
Accounts receivable, net 1,228 3,468
Inventories 1,315 4,995
Prepaid and other current assets 27 1,611
Current portion of long-term debt (741) (751)
Accounts payable (237) (2,276)
Other current liabilities (4,214) (1,650)
--------- ---------
Net current assets $ (2,622) $ 5,397
======== ========
Net property, plant and equipment $ 2,862 4,538
Intangible assets, net -- 7,909
Other assets -- 273
Long-term liabilities (2,141) (2,320)
Minority interest -- (1,447)
--------- ---------
Net long-term assets $ 721 $ 8,953
========= ========
10
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
As of September 30, 1998, the liabilities of the discontinued
operations exceeded the assets by approximately $1.9 million. The net losses of
these operations prior to September 1998 are included in the condensed
consolidated statements of operations under "loss from operations of
discontinued snowboard operations." Revenues from the discontinued operations
were approximately $2.2 million and $4.3 million for the three months ended
September 30, 1998 and 1997, respectively, and $2.6 million and $6.2 million for
the six months ended September 30, 1998 and 1997, respectively. The loss from
operations of discontinued snowboard operations for the three and six months
ended September 30, 1997 is net of a benefit for income taxes of approximately
$0.7 million and $1.6 million, respectively. The loss on disposal of the
snowboard business reflected in the condensed consolidated statements of
operations includes the write-down of assets and the estimated costs of
disposing of these operations. The significant components of this loss include,
the write-off of intangible assets, write-down of the Company's investment in
DNR Sportsystem Ltd., realization of foreign currency translation losses,
write-down of inventories and receivables, reserves for losses on terminating
noncancelable operating leases and write-down of property and equipment. The
disposal estimates represent management's best estimates of the potential loss
based upon available information. However, actual results could differ from
those estimates.
Series B Preferred Stock
- ------------------------
On August 24, 1998, the Company issued and sold 1,000,000 shares of its
Series B Preferred Stock, $0.01 par value (the "Series B Preferred Stock"), for
an aggregate purchase price of $3,000,000 to Henry E. Tauber, the then President
of Marker International.
Each share of Series B Preferred Stock is convertible, at the option of
the holder, at any time, into shares of Common Stock of the Company at a rate of
one and one-third shares of Common Stock for each share of Series B Preferred
Stock. Holders of the Series B Preferred Stock have the right to one vote for
each share of Common Stock into which such Series B Preferred Stock is
convertible. Holders of the Series B Preferred Stock are entitled to receive
annual dividends payable either in cash, at the rate of $0.27 per share, or by
the issuance of 9/100 of a share of Series B Preferred Stock, at the election of
the Company. Such dividends are cumulative; however, accrued and unpaid
dividends do not bear interest.
At the election of a majority of the holders of the Series B Preferred
Stock, the Company shall be required to redeem each year, beginning September 1,
2003, and on each September 1 thereafter, 25% of the total number of outstanding
shares at a price per share equal to $3.00 (subject to certain adjustments) plus
11
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
all accrued and unpaid cumulative dividends. Election of the holder to have such
stock redeemed shall be made by giving the Company written notice not less than
45 days prior to the first redemption date and each redemption date thereafter.
12
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Series A Bonds - Issued to a Related Party
- ------------------------------------------
Pursuant to an extension agreement dated September 3, 1998, between the
Company and the holder of the Series A Bonds, payment terms of the Series A
Bonds issued by the Company were extended as follows:
<TABLE>
<CAPTION>
Bonds Bonds
Payable Payable Bond Payment Date Bond Payment Date
Japanese Yen U.S. Dollars Prior to Extension As Extended
------------ ------------ ------------------ -----------
(In 000's) (In 000's)
<S> <C> <C> <C> <C>
Series A-1 Bonds
Certificate #5 270,947 $2,000 October 1, 1998 October 1, 1999
Certificate #6 270,947 2,000 October 1, 1999 October 1, 2000
------- -----
Total Series A-1 Bonds 541,894 4,000
------- -----
Series A-2 Bonds
Certificate #3 338,683 2,500 December 16, 1998 December 15, 1999
Certificate #4 338,683 2,500 December 16, 1999 December 15, 2000
------- -----
Total Series A-2 Bonds 677,366 5,000
------- -----
Series A-3 Bonds
Certificate #1 135,473 1,000 December 16, 1999 December 16, 2001
------- -----
Total Series A Bonds 1,354,733 $10,000
========= =======
</TABLE>
The holder of the Series A Bonds elected, under the terms of the
extension agreement, to convert the bonds from United States dollar denominated
bonds to Japanese yen denominated bonds. The conversion to 1,354,733,330
Japanese Yen was made effective on September 30, 1998. This Yen denominated
obligation currently remains unhedged and any gains or losses resulting from
fluctuations in exchange rates will be recorded in income. As of November 16,
1998, based upon current exchange rates, the Company would record an unrealized
loss of approximately $1.1 million.
Appointment of Peter C. Weaver
- ------------------------------
In October 1998, Peter Weaver was appointed President and Chief
Executive Officer of Marker International. In this position, Mr. Weaver will be
responsible for the Company's world-wide operations. At the time of Mr. Weaver's
appointment, Robert Sind, the Company's then acting Chief Operating Officer
since June 23, 1998, completed his service with the Company.
13
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
The Company has entered into a five year employment agreement, dated as
of October 8, 1998, with Mr. Weaver providing for an annual base salary of
$300,000. In addition, on October 23, 1998, Mr. Weaver received options to
purchase 900,000 shares of common stock of the Company at an exercise price of
$0.50 per share, the per share fair market value of the Company's common stock
on that date. Options to purchase 600,000 shares become exercisable on April 23,
1999. Of the remaining 300,000 options, 200,000 shares become exercisable after
one year of service and 100,000 shares after two years of service.
Note 3. Cash and Cash Equivalents
Cash and cash equivalents include investments in certificates of
deposit with original maturities of less than 30 days and restricted cash. 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.
Note 4. 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, including
inventories of the discontinued operations, are as follows (in thousands):
September 30, 1998 March 31, 1998
-------------------- --------------
Raw materials $ 1,339 $ 1,411
Work in process 1,975 2,306
Finished goods 42,594 33,506
---------- ----------
$ 45,908 $ 37,223
========== ==========
Note 5. Earnings per Share
For the three and six months ended September 30, 1998, options and
warrants to purchase 893,300 shares of common stock were not included in the
computation of diluted net income (loss) per common share because the exercise
prices of such options and warrants were greater than the average market price
of common shares or because the Company incurred a net loss.
14
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 6. Recent Accounting Pronouncements
Comprehensive Income
- --------------------
As of April 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." The following table displays components of the Company's
comprehensive income for the three and six month periods ended September 30,
1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------- -----------------------
(In Thousands) (In Thousands)
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Loss $(25,839) $ (1,046) $(32,194) $ (6,101)
Other Comprehensive Income Items:
Foreign Currency Translation Adjustments 924 219 1,104 (475)
--------- --------- --------- ---------
Comprehensive Loss $(24,915) $ (827) $(31,090) $ (6,576)
========= ========= ========= =========
</TABLE>
Segment Reporting
- -----------------
Effective for fiscal year 1999, the Company has adopted SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
establishes new standards for public companies to report information about their
operating segments, products and services, geographic areas and major customers.
SFAS 131, though effective for the Company in fiscal 1999, is not applied to
interim financial statements in the initial year of its application. The
adoption of SFAS 131 will have no effect on the Company's consolidated results
of operations, financial positions or cash flows.
Derivative Instruments and Hedging Activities
- ---------------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that derivative
instruments be recorded on the balance sheet as either an asset or liability
measured at its fair market value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999, which in the case of the Company shall be its fiscal year 2001.
The effect of SFAS No. 133 on the Company's consolidated financial statements is
uncertain.
15
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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. From time to time the Company has entered into
transactions involving derivative instruments that require speculative
accounting treatment. Forward foreign exchange contracts are used by the Company
to reduce the potential impact of unfavorable fluctuations in foreign exchange
rates. The Company has off balance sheet commitments to buy and sell foreign
currencies relating to foreign exchange contracts in order to hedge against
future currency fluctuations.
Gains and losses on foreign currency contracts not intended to be used
to hedge operating requirements are reported currently in other income. Gains
and losses on foreign currency contracts intended to meet firm commitments are
deferred and recognized as part of the cost of the underlying transaction being
hedged. As of September 30, 1998, the Company held foreign currency contracts
that were not being used to hedge operating requirements. In addition, during
the period ended September 30, 1998, the Company sold contracts that were
previously designated as hedges. For the six months ended September 30, 1998,
the Company recorded aggregate net gains (including realized and unrealized) of
approximately $2.0 million.
Counterparties to the foreign exchange contracts are typically major
international financial institutions. 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.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
General
The Company has experienced financial difficulties through the second
quarter of fiscal 1999 and thereafter. As a result of such difficulties, there
is a substantial risk that the Company will not be able to continue as a going
concern. See "Liquidity and Capital Resources."
Marker International is a designer, developer, manufacturer and
marketer of alpine ski bindings in the United States, Europe and Asia. 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 clothing, gloves and luggage products are North America, Europe
and Asia.
The Company is in the process of exiting the snowboard business through
dissolution and sale of its snowboard subsidiaries and related assets. On July
30, 1998, the Company ceased its snowboard manufacturing operations. On
September 10, 1998, the Board of Directors authorized the sale of the snowboard
operations of the Company. The Company subsequently entered into a conditional
agreement to sell its 80% ownership interest in DNR Sportsystem Ltd. Under the
agreement, the Company will sell its shares of DNR Sportsystem Ltd. for nominal
consideration and will eliminate all outstanding intercompany balances. All
conditions precedent to the closing of the sale have been satisfied and the
Company anticipates that the closing will be consummated prior to November 25,
1998. The Company is currently in the process of winding down its remaining
snowboard distribution operations and disposing of its snowboard manufacturing
facility and related equipment. For the six months ended September 30, 1998, the
Company recorded a loss from discontinued operations of approximately $26.3
million. This loss is based upon management's current estimates regarding the
ultimate realization of assets and settlement of liabilities on disposal of the
snowboard operations. However, actual results could differ from those estimates.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The Company plans to temporarily cease binding production at its ski
binding manufacturing facility from November 16, 1998 through February 19, 1999
in order to decrease inventory levels. The Company's manufacturing facility,
which is located in Germany, will receive financial assistance from the German
government which will partially offset expenses that will be incurred during the
period that the production assembly line is closed. In connection with a German
government program, the German government will compensate employees who are
affected by the shutdown of the assembly line while the Company will pay
employee taxes and all other fixed costs associated with the factory during this
time period.
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. As of September 30, 1998, the
Company believes it has sufficient forward foreign currency contracts in place
to hedge obligations between Marker USA and Marker Germany for fiscal 1999.
However, at September 30, 1998, the Company did not have sufficient contracts in
place to hedge Marker Japan's and Marker Canada's obligations to Marker Germany.
Although such hedging contracts were previously in place the Company decided to
sell those contracts and realize a net cash gain. The Company is currently in
the process of securing new hedging contracts. There can be no assurance that
the Company will be successful in securing hedging contracts in amounts and at
rates at least as favorable as the previous contracts. In addition, in the event
the Company cannot secure such contracts the Company's earnings will include
unrealized gains or losses from remeasuring the foreign currency obligations
each period at spot rates.
Each of the Company's distribution subsidiaries operates and maintains
its accounting records in the functional currency of the country in which it
operates. In accordance with United States generally accepted accounting
principles, upon consolidation of the Company's consolidated financial
statements, the assets, liabilities, revenues and expenses of each of the
Company's foreign subsidiaries are translated at the appropriate exchange rate
prevailing during the period. Therefore, the Company's assets, liabilities and
results of operations are subject to fluctuations in forward foreign exchange
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
contract rates and translation effects which can vary as a result of
fluctuations in the exchange rates between the functional currencies of such
foreign subsidiaries and the United States dollar ("Dollar").
For the three months ended September 30, 1998, average exchange rates
between the Dollar and the Mark, the Dollar and the Japanese yen ("Yen") and the
Dollar and the Canadian dollar ("Canadian") resulted in an effective increase in
the value of the Mark against the Dollar of approximately 3%, and a decrease in
the value of the Yen against the Dollar and the Canadian against the Dollar of
approximately 19% and 9%, respectively, compared to the corresponding period of
the prior year. Such currency exchange activity resulted in corresponding
fluctuations in the value of the revenues and expenses of Marker Germany, Marker
Japan and Marker Canada, when converted to Dollars, compared to the
corresponding period of the prior fiscal year.
For the six months ended September 30, 1998, average exchange rates
between the Dollar and the Mark, the Dollar and the Yen, and the Dollar and the
Canadian, resulted in an effective decrease in the value of the Mark against the
Dollar, the Yen against the Dollar and the Canadian against the Dollar of
approximately 1%, 16% and 7%, respectively, compared to the corresponding period
of the prior year. Such currency exchange activity resulted in corresponding
fluctuations in the value of the revenues and expenses of Marker Germany, Marker
Japan and Marker Canada, when converted to Dollars, compared to the
corresponding period of the prior fiscal year.
The Company's business is seasonal in nature. Consistent with this
seasonal nature and the ski industry in general, the Company has historically
recorded a relatively small percentage of its annual net sales during its first
fiscal quarter. The Company historically recorded a majority of its sales during
its second and third fiscal quarters and to a lesser extent during its fourth
fiscal quarter.
Results of Operations
Comparison of the three months ended September 30, 1998 with the three months
- --------------------------------------------------------------------------------
ended September 30, 1997 (continuing operations)
- ------------------------------------------------
Net sales for the quarter ended September 30, 1998 decreased to $24.0
million, compared to $24.7 million for the corresponding quarter of the prior
fiscal year. The decrease in sales is primarily attributable to late deliveries
of bindings from Germany to the Company's distribution subsidiaries.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Gross profit for the quarter ended September 30, 1998 was $8.2 million,
or 34.1% of net sales, compared to $8.3 million, or 33.7% of net sales, for the
corresponding period of the prior fiscal year. The slight increase in gross
profit percentages resulted from increased ski binding margins offset by lower
clothing and soft goods margins. The decrease in clothing and soft goods margins
resulted from an increase in close-out product sales, which typically are at
lower margins.
Operating expenses for the three months ended September 30, 1998
increased to $7.8 million, compared to $6.4 million for the same period of the
prior fiscal year. The increase relates primarily to legal and advisory fees
paid to assist the Company in developing and implementing restructuring plans
and negotiating with lenders.
Interest expense for the three months ended September 30, 1998
increased to $1.7 million, compared to $1.3 million for the corresponding period
of the prior fiscal year. This increase was attributable to increased borrowing
levels required to satisfy higher working capital requirements due to losses in
the snowboard business.
Other income for the quarter ended September 30, 1998 increased to $1.9
million, compared to expense of $0.3 million for the corresponding period of the
prior fiscal year. The increase in other income is primarily the result of
realized and unrealized net gains on forward foreign currency contracts.
Comparison of the six months ended September 30, 1998 with the six months ended
- -------------------------------------------------------------------------------
September 30, 1997 (continuing operations)
- -------------------------------------------
Net sales for the six months ended September 30, 1998 increased to
$26.6 million, compared to $25.1 million for the corresponding period of the
prior fiscal year. The increase in sales is primarily attributable to the
operations of a new distribution subsidiary in Canada which began operations in
January 1998.
Gross profit for the six months ended September 30, 1998 was $9.2
million, or 34.5% of net sales compared to $8.8 million, or 35.0% of net sales
for the corresponding period of the prior fiscal year. The decrease in gross
profit was the result of lower clothing and soft goods margins. The decrease in
clothing and soft goods margins resulted from an increase in close-out product
sales, which typically are at lower margins.
Operating expenses for the six months ended September 30, 1998
increased to $13.6 million, compared to $12.1 million for the same period of the
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
prior fiscal year. The increase relates primarily to legal and advisory fees
paid to assist the Company in developing and implementing restructuring plans
and negotiating with lenders.
Interest expense for the six months ended September 30, 1998 increased
to $3.2 million, compared to $2.6 million for the corresponding period of the
prior fiscal year. This increase was attributable to increased borrowing levels
required to satisfy higher borrowing levels due to losses in the snowboard
business.
Other income for the quarter ended September 30, 1998 increased to $2.2
million, compared to $0.5 million for the corresponding period of the prior
fiscal year. The increase in other income is primarily the result of realized
and unrealized net gains on forward foreign currency contracts.
Liquidity and Capital Resources
The Company's primary cash requirements are for raw materials for
inventory 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.
At September 30, 1998, the Company had a working capital deficit of
($4.0) million, compared to working capital of $6.7 million at March 31, 1998.
This decrease in working capital is due to higher borrowing levels due to losses
in the snowboard business.
As of September 30, 1998, the Company had approximately $71.1 million
of outstanding borrowings under its short-term credit facilities. All of such
borrowings are secured by inventory and receivables.
In August, 1998, the Company's maximum borrowing limit on its line of
credit with a U.S. bank (the "U.S. Credit Line") was increased by approximately
$4.0 million to $33.6 million. On November 12, 1998, the Company entered into a
restated credit agreement with the U.S. bank which, among other things, extended
the maturity of the credit facility until March 31, 1999, increased the interest
rate thereon to the bank's prime rate plus 0.5 percent and waived certain
covenants.
Under the restated credit agreement, the Company agreed to pledge
additional collateral, including certain real property owned by the Company. In
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
addition, the Company entered into a lockbox agreement with the bank which
requires that all payments from debtors be remitted to a lockbox account. The
bank will apply the amounts in the lockbox account to reduce amounts outstanding
under the credit agreement. The bank advances funds under the agreement to the
Company on a daily basis in accordance with the borrowing base limits
established in the agreement.
On August 1, 1998, the Company's DM 80.0 million (U.S. $47.9 million)
line of credit agreement with HypoVereinsbank, Deutsche Bank AG and BFG Bank
(together, the "German banks") expired (the "German Credit Line"). As a result
of such expiration, the German banks had the right to declare all obligations of
the Company under the German Credit Line immediately due and payable. On August
6, 1998, the German banks had notified the Company that they would cancel the
German Credit Line and would not extend any further borrowings under such lines.
However, after further negotiations, on August 19, 1998, HypoVereinsbank and
Deutsche Bank AG agreed in principle to extend their existing lines of credit
through March 31, 1999 and to provide a temporary increase in available credit
by DM 10 million through November 30, 1998. On October 13, 1998, the Company
entered into a final agreement with HypoVereinsbank providing a credit line of
DM 56.4 million (U.S. $33.7 million) through March 31, 1999. On November 5,
1998, the Company entered into a final agreement with Deutsche Bank AG providing
a credit line of DM 14.8 million (U.S. $8.9 million) through March 31, 1999.
Marker Germany agreed to pledge additional collateral to HypoVereinsbank and
Deutsche Bank AG consisting of certain intellectual property rights owned by
Marker Germany. BFG Bank has not agreed to extend its DM 5.0 million (U.S. $3.0
million) line of credit beyond November 30, 1998. The Company is currently in
negotiations with BFG Bank, in an effort to seek extension of this line through
March 31, 1999. In the event that the banks do not extend the terms of the
Company's U.S. Credit Line and German Credit Line to provide the Company with
necessary working capital beyond March 31, 1999, or the Company is unable to
borrow amounts under existing credit lines sufficient to fund operations, there
is a substantial risk that the Company will not be able to continue as a going
concern.
As part of the overall restructuring of the Company's capital
structure, the Company and its banks are continuing to discuss alternatives to
mitigate the Company's financial difficulties and the reinstatement or renewal
of the credit lines after March 31, 1999. There can be no assurance that
satisfactory agreements will be reached between the Company and current or
prospective providers of long term debt or equity financing.
On August 24, 1998, the Company issued and sold 1,000,000 shares of
Series B Preferred Stock for an aggregate purchase price of $3,000,000 to Henry
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
E. Tauber, then President of Marker International. The proceeds were used by the
Company to repay a short-term loan with HypoVereinsbank. See "Item 2. Changes in
Securities and Use of Proceeds."
Year 2000 Computer Issue
Many currently installed computer systems and software are coded to
accept only two digit entries in the date code field. Beginning the year 2000,
these date code fields will need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates. As a result, within the
next fourteen months, computer systems and/or software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements. The
Company is currently assessing the potential impact of Year 2000 on the
processing of date-sensitive information by the Company's information systems,
manufacturing systems and other ancillary systems. While there can be no
assurance that Year 2000 matters will be satisfactorily identified and resolved,
the Company currently believes, based on preliminary discussions with its
information systems vendors, that Year 2000 issues will not have a material
adverse effect on the Company.
The Company's comprehensive Year 2000 initiative is being managed by a
team of internal staff and is designed to ensure that there are no adverse
effects on the Company's ability to conduct business. The initiative covers the
corporate office network and financial systems, payroll processing, corporate
computers, manufacturing systems and telephone systems. In addition, the project
includes a review of the Year 2000 compliance efforts of the Company's key
suppliers and other principal business partners and, as appropriate, the
development of joint business support and continuity plans for Year 2000 issues.
The Company has brought a number of its systems into Year 2000
compliance, and has established a target date of July 15, 1999 for remediation
of all of those systems which are not yet compliant, subject to additional Year
2000 testing and responsive actions. The Company's accounting system is expected
to be compliant by July 1999. The Company's ability to meet the target dates is
dependent upon the timely provision of necessary upgrades and modifications by
its suppliers and contractors. The Company has established a supplier compliance
program, and is working with its key suppliers to minimize such risks. The
Company currently estimates that it will incur expenses of approximately
$150,000 through 1999 in connection with its anticipated Year 2000 efforts. The
timing and amount of the Company's expenses may vary and are not necessarily
indicative of readiness efforts or progress to date.
As part of its Year 2000 initiative, the Company is evaluating
scenarios that may occur as a result of the century change and is in the process
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
of developing contingency and business continuity plans tailored for Year
2000-related occurrences. The Company believes that some of its significant
hardware and software systems are already Year 2000 compliant. The Company
believes that the most reasonably likely worst case scenario of failure by the
Company or its suppliers to adequately resolve Year 2000 issues would arise from
a failure of its order entry and accounts receivable system. Such a failure
would require the company to resort to "non-computerized" means to undertake
such sales and distribution functions as placing customer orders, and ordering
inventory. While the Company believes that it is equipped to operate in such a
"non-computerized" mode to address such a failure, there can be no assurance
that the Company would not, as a result of such or any other unanticipated Year
2000 failure, suffer from lost revenues, increased operating costs, loss of
customers or other business interruptions of a material nature.
The above information is based on the Company's current best estimates,
which were derived using numerous assumptions of future events, including the
availability and future costs of certain technological and other resources,
third party modification actions and other factors. Given the complexity of
these issues and possible as yet unidentified risks, actual results may vary
materially from those anticipated and discussed above. Specific factors that
might cause such differences include, among others, the availability and costs
of personnel trained in this area, the ability to locate and correct all
affected computer code, the timing and success of remedial efforts of the
Company's third party suppliers and similar uncertainties.
Other Matters
In August 1998, the Nasdaq Stock Market, Inc. notified the Company of
its failure to meet certain minimum financial qualifications required to
maintain its listing on the Nasdaq National Market ("Nasdaq"). Nasdaq's
continued listing standards require, among other things, net tangible assets of
$4.0 million and a minimum bid price of one dollar. As a result of the Company's
inability to meet Nasdaq's requirements, shares of the Company's stock ceased to
trade on Nasdaq at the close of business on October 28, 1998. The Company's
stock currently trades on the OTC Bulletin Board.
In October 1998, Peter Weaver was appointed President and Chief
Executive Officer of Marker International. In this position, Mr. Weaver will be
responsible for the Company's world-wide operations. At the time of Mr. Weaver's
appointment, Robert Sind, the Company's then acting Chief Operating Officer
since June 23, 1998, completed his service with the Company.
The Company has entered into a five year employment agreement, dated as
of October 8, 1998, with Mr. Weaver providing for an annual base salary of
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
$300,000. In addition, on October 23, 1998, Mr. Weaver received options to
purchase 900,000 shares of common stock at an exercise price of $0.50 per share,
the per share fair market value of the Company's common stock on that date.
Options to purchase 600,000 shares become exercisable on April 23, 1999. Of the
remaining 300,000 options, 200,000 shares become exercisable after one year of
service and 100,000 shares after two years of service.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
With the exception of historical information (information relating to
the Company's financial condition and results of operations at historical dates
or for historical periods), the matters discussed in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking statements that necessarily are based on certain assumptions and
are subject to certain risks and uncertainties. These forward-looking statements
are based on management's expectations as of the date hereof, and the Company
does not undertake any responsibility to update any of these statements in the
future. Actual future performance and results could differ from that contained
in or suggested by these forward-looking statements as a result of the factors
set forth in this Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Business Risks described in the Company's
Report on Form 10-K for the year ended March 31, 1998 and elsewhere in the
Company's filings with the Securities and Exchange Commission.
25
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On August 24, 1998, the Company issued and sold 1,000,000 shares of its
newly created Series B Preferred Stock, $0.01 par value (the "Series B Preferred
Stock"), for an aggregate purchase price of $3,000,000 to Henry E. Tauber, the
then President of Marker International. Each share of the Series B Preferred
Stock is convertible, at the option of the holder, at any time, into shares of
common stock of the Company at a rate of one and one-third shares of common
stock for each share of Series B Preferred Stock. Allen & Company Incorporated
delivered an oral report to the Company concluding that the terms of the sale of
the Series B Preferred Stock were fair and reasonable and no less favorable to
the Company than those that could have been obtained from an unrelated third
party. The proceeds were used by the Company to repay a short-term loan with
HypoVereinsbank. The foregoing shares were sold without registration in a
transaction qualifying for exemption from registration afforded by Section 4(2)
of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
On August 1, 1998, the Company's DM 80.0 million (U.S. $47.9 million)
line of credit agreement with HypoVereinsbank, Deutsche Bank AG and BFG Bank
(together, the "German banks") expired (the "German Credit Line"). As a result
of such expiration, the German banks had the right to declare all obligations of
the Company under the German Credit Line immediately due and payable. On August
6, 1998, the German banks had notified the Company that they would cancel the
German Credit Line and would not extend any further borrowings under such lines.
However, after further negotiations, on August 19, 1998, HypoVereinsbank and
Deutsche Bank AG agreed in principle to extend their existing lines of credit
through March 31, 1999 and to provide a temporary increase in available credit
by DM 10 million through November 30, 1998. On October 13, 1998, the Company
entered into a final agreement with HypoVereinsbank providing a credit line of
DM 56.4 million (U.S. $33.7 million) through March 31, 1999. On November 5,
1998, the Company entered into a final agreement with Deutsche Bank AG providing
a credit line of DM 14.8 million (U.S. $8.9 million) through March 31, 1999.
Marker Germany agreed to pledge additional collateral to HypoVereinsbank and
Deutsche Bank AG consisting of certain intellectual property rights owned by
Marker Germany. BFG Bank has not agreed to extend its DM 5.0 million (U.S. $3.0
million) line of credit beyond November 30, 1998. The Company is currently in
negotiations with BFG Bank, in an effort to seek extension of this line through
March 31, 1999. In the event that the banks do not extend the terms of the
Company's U.S. Credit Line and German Credit Line to provide the Company with
necessary working capital beyond March 31, 1999, or the Company is unable to
26
<PAGE>
PART II - OTHER INFORMATION
borrow amounts under existing credit lines sufficient to fund operations, there
is a substantial risk that the Company will not be able to continue as a going
concern. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
27
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
---------
10.28 Revolving Credit Agreement dated October 30, 1998,
between Marker International and First Security Bank,
N.A. (without exhibits).*
27 Financial Data Schedule. *
b) Reports filed on Form 8-K:
Current Report on Form 8-K filed on September 3, 1998
reporting under Item 5 events which occurred in August 1998.
Current Report on Form 8-K/A filed on September 11, 1998 which
amended and restated in its entirety the Form 8-K filed on
September 3, 1998.
- ----------------------
* Filed herewith.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARKER INTERNATIONAL
--------------------
Registrant
Dated: November 20, 1998 /s/ Peter C. Weaver
--------------------
Peter C. Weaver
President and Chief Executive Officer
Dated: November 20, 1998 /s/ Kevin Hardy
----------------
Kevin Hardy
Chief Financial Officer
29
REVOLVING CREDIT AGREEMENT
MARKER INTERNATIONAL,
MARKER, USA,
MARKER, LTD.,
DNR NORTH AMERICA, INC., and
DNR USA, as Borrowers
FIRST SECURITY BANK, N.A., as Lender
October 30, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I. DEFINITIONS........................................................1
1.1 Defined Terms........................................................1
ARTICLE II. TERMS OF THE CREDIT..............................................10
2.1 Bank's Commitments..................................................10
2.2 The Revolving Note..................................................10
2.3 Manner of Borrowing.................................................10
2.4 Lockbox Remittances.................................................11
2.5 Certain Representations.............................................12
2.6 Verification of Lockbox Remittances.................................12
2.7 Request for and Issuance of Import L/Cs.............................12
2.8 Exchange Purchase Agreements........................................13
2.9 Borrowing Base Submissions..........................................14
2.10 Use of Proceeds.....................................................14
2.11 Grant of Security Interest; Limited Power of Attorney...............14
ARTICLE III. INTEREST, REPAYMENT, OTHER OBLIGATIONS..........................15
3.1 Interest............................................................15
3.2 Mandatory Payment and Prepayments - Revolving Note..................15
3.3 Optional Prepayments................................................16
3.4 Payments Due On Non-Banking Days....................................16
3.5 Application of Payments.............................................16
3.6 Restriction on Payments to Affiliates...............................16
3.7 Release of Certain Collateral........................................17
3.8 Provision for Consignment Sales......................................17
3.9 Subordination of Insider Debt........................................18
ARTICLE IV. REPRESENTATIONS AND WARRANTIES...................................18
4.1 Due Incorporation...................................................18
4.2 Authorization.......................................................18
4.3 Power...............................................................18
4.4 Non-Default.........................................................18
4.5 Litigation..........................................................19
4.6 Financial Statements................................................19
4.7 Year 2000 Compliance................................................19
4.8 German Banks'Reinstatement of Marker Germany Credit Arrangements....19
i
<PAGE>
ARTICLE V. COVENANTS.........................................................20
5.1 Payment of Taxes....................................................20
5.2 Maintain Business...................................................20
5.3 Maintain Properties.................................................20
5.4 Insurance...........................................................20
5.5 Good Standing.......................................................20
5.6 Books and Records; Inspections......................................20
5.7 Litigation; Condemnation Awards.....................................21
5.8 Merger or Sale......................................................21
5.9 Financial Statements................................................21
5.10 Annual Audits......................................................21
5.11 Compliance Certificates............................................22
5.12 Other Information..................................................22
5.13 Hedging............................................................23
5.14 Capital Expenditures; Salary Increases.............................23
5.15 Zions Credit Obligation............................................23
5.16. Guaranteed Obligations of Non-U.S. Subsidiaries...................23
5.17. Subordination of Insider Debt.....................................24
5.18 Location of Inventories; Subordination of Liens....................24
5.19 Negotiable Documents...............................................24
5.20 Insurance Claims....................................................24
5.21 Terms of Invoices...................................................25
5.22 Use of Marker Tradename.............................................25
ARTICLE VI. CONDITIONS PRECEDENT TO BANK FACILITIES..........................25
6.1 Initial Conditions..................................................25
6.2 Conditions Precedent to Each Subsequent Advance or Other Facility...26
ARTICLE VII. DEFAULT..........................................................26
7.1 Events of Default...................................................26
7.2 Remedies............................................................28
7.3 Offset..............................................................29
7.4 Expenses............................................................29
7.5..Right of First Refusal Upon Sale of Collateral......................30
ARTICLE VIII. GENERAL........................................................30
8.1 Expenses Payable in Absence of Default..............................30
8.2 Waivers; Consideration; Releases....................................31
8.3 Notices.............................................................31
8.4. Sale of Obligations; Consent to Disclosure of Financial Information.31
8.5 Taxes................................................................32
8.6 Governing Law........................................................32
8.7 Captions.............................................................32
ii
<PAGE>
8.8 Binding Effect.......................................................32
8.9 Time of Essence; No Extension at Maturity............................32
8.10 Survival............................................................32
8.11 Further Assurances.................................................32
8.12 Counterparts........................................................32
8.13 Integration........................................................32
iii
<PAGE>
REVOLVING CREDIT AGREEMENT
--------------------------
THIS REVOLVING CREDIT AGREEMENT (the "Agreement"), is entered
into as of the 30TH day of October, 1998, by and among MARKER INTERNATIONAL, a
Utah corporation ("International"), and its subsidiaries, MARKER USA, a Utah
corporation ("USA"), MARKER LTD, a Utah corporation ("LTD"), DNR NORTH AMERICA,
INC., a Delaware corporation ("DNRNA"), DNR USA, a Delaware corporation
("DNRUSA"), and FIRST SECURITY BANK, N.A., ("Bank"). USA, LTD, International,
DNRUSA, and DNRNA are hereinafter referred to collectively as "Borrowers."
Recitals
--------
This Revolving Credit Agreement (hereafter called the
"Agreement") replaces and supercedes that "Fourth Amended and Restated Revolving
and Term Credit Agreement," dated November 6, 1997 (hereafter referred to as the
"Fourth Agreement"), as amended by that "Addendum and Amendment to Fourth
Amended and Restated Revolving and Term Credit Agreement," dated as of August
18, 1998 (hereafter referred to as the "Addendum"). The obligations of
indebtedness of the Borrowers to the Bank are currently evidenced by that
certain "Ninth Amended and Substituted Revolving Promissory Note" dated as of
August 18, 1998 (hereafter called the "Ninth Note").
International is the "parent" of the other Borrowers and each
of the Borrowers (including International) will benefit from the Agreement for
the reason that the Borrowers are a part of an integrated business unit,
including production, marketing and distribution activities, and the Agreement
and the Commitments of the Bank pursuant to the Agreement will permit the
business unit to be strengthened and will permit the business unit to maintain
ongoing operations through the current business season. Each of the Borrowers is
therefore willing to pledge Collateral and to undertake joint and several
liability for the repayment of the indebtedness of each Borrower to the Bank,
for the reason that each Borrower will obtain substantial economic benefits from
the Agreement.
Agreement
---------
In consideration of the foregoing, the mutual covenants
contained herein and the benefits to be derived by the parties hereunder, Bank
and Borrowers hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Defined Terms. Unless expressly stated to the contrary or
unless the context clearly requires otherwise, as used in this Agreement and in
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the other Loan Documentation, the following terms shall have the respective
meanings set forth below (and such meanings shall be equally applicable to both
the singular and plural form of the terms defined):
"Account" or "Accounts": shall have the meaning given the term
"Account" under ss. 70A-9-106 of the Utah Code Annotated (1980, as amended)
which provision is part of the Uniform Commercial Code for the State of Utah
(the "Code"), provided that for purposes hereof (to the extent not so defined in
the Code), the amount of such Account at any given time, shall be the
outstanding unpaid principal amount thereof, together with all contract rights
and general intangibles arising in connection with any accounts receivable or in
connection with the sale, lease or disposition of Inventory, including all
accounts receivable from Affiliates and Insiders, all choses in action and other
claims and all existing and future leasehold interests in equipment, real estate
and fixtures, chattel paper, documents, instruments, letters of credit, bankers'
acceptances and guaranties, arising in connection with the sale, leasing or
disposition of Inventories, and all proceeds thereof.
"Advance" shall mean a cash advance by the Bank to or for the
account of the Borrowers under the Revolving Note pursuant to the provisions of
Article II hereof.
"Advance Rate" shall mean (i) as to Eligible Inventory, 55%
thereof; and (ii) as to Eligible Accounts, 80% thereof.
"Affiliate" and "Insider" shall refer to all subsidiaries of
International and all entities under common control with any Borrower and shall
also include all directors, officers, and shareholders of any Borrower. The term
shall include D.N.R. Sports Systems, Inc. and its subsidiaries. The terms shall
be construed in the broadest sense in accordance with the provisions of 11
U.S.C.A. Section 101.
"Aggregate Outstandings" shall mean the sum of (i) the
outstanding and unpaid principal balance of the Revolving Note, (ii) the amounts
outstanding, whether drawn or undrawn, under the then effective Import L/Cs
issued by Bank for the account of any Borrower, and (iii) the FX Amount.
"Agreement" shall mean this Revolving Credit Agreement (which
amends by substitution the Fourth Agreement, as amended by the Addendum, as this
Agreement may be further amended from time to time.
"Authorized Representative" shall mean the person or persons
(but not more than three such persons at any given time) designated in a written
appointment of authorized representative (in a form satisfactory to the Bank) as
the "authorized representative" of the Borrowers, such person or persons to be
an officer or officers of Borrowers.
"Available Credit" has application as a limitation on all of
the Commitments in the aggregate and means the amount available at any given
time for Advances, Import L/C's, and Foreign Exchange Contracts. The amount of
Available Credit shall mean: (1) from the date hereof through and including
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December 31, 1998, the difference obtained by subtracting the then Aggregate
Outstandings from the sum of the Borrowing Base plus $3,000,000.00; and (2) from
December 31, 1998 through and including the Termination Date, the difference
obtained by subtracting the then Aggregate Outstandings from the sum of the
Borrowing Base, provided that Available Credit shall not exceed the amount
available under the Revolving Commitment and shall not be a negative number.
"Banking Day" shall mean any business day on which First
Security Bank is open for business in Salt Lake City, Utah.
"Borrowing Base" shall mean, at any time, the sum of:(i) the
amount determined under a Borrowing Base Certificate by applying (as shown in
the formula therein contained) the applicable Advance Rate to, respectively,
Eligible Inventory and Eligible Accounts, plus (ii) the undrawn face amounts of
any outstanding letters of credit obtained by Borrowers in favor of Bank as
beneficiary, which letters of credit shall be in a form and issued by financial
institutions acceptable to Bank, plus (iii) the valuation of the Eligible Real
Estate.
"Borrowing Base Certificate" shall mean the certificate in the
form set forth in EXHIBIT "B" hereto which must be submitted by the Borrowers on
a daily basis and serves as a basis for determining the amount of Available
Credit from time to time.
"Budget" refers to the budget projection "Marker U.S.
Companies - Available Cash - FY 1999," dated 16 August 1998, attached hereto as
Exhibit "C."
"Collateral" shall mean the assets and property, which are
described as security for performance and repayment of the Obligations, as
provided in the Collateral Documentation, including, but not limited to, all
"Accounts" and "Inventory" of Borrowers, and all sums on deposit in the
Collateral Accounts, in the Consignment Savings Account, and Operating Accounts,
and all items in process of collection according to the Lockbox Agreement. In
addition, the term shall include all "Trademarks and Patents" as described in
that "Collateral Assignment of Trademarks and Patents" dated August 18, 1998,
and as described in the Uniform Commercial Code financing statements related
thereto. The term "Collateral" shall also include all proceeds and products
thereof, including (without limitation) all general intangibles and policies of
insurance and claims or causes of action relating to the foregoing, now existing
or hereafter discovered.
"Collateral Account" shall mean the blocked account (under the
sole control of the Bank) into which all Lockbox remittances are deposited for
collection.
"Collateral Documentation" shall mean the following
documentation: (1) the "Security Agreement," dated March 28, 1991, as amended on
July 31, 1992, as further amended by that "Second Amendment to Receivables and
Inventory Security Agreement;" dated as of August 18, 1998; (2) "Collateral
Assignment of Trademarks and Patents," dated as of August 31, 1998; (3) all
Uniform Commercial Code Financing Statements filed from time to time with
respect to the Collateral; (4) the "Deed of Trust With Assignment of Rents and
Security Agreement," dated as of August 18, 1998, and recorded on August 19,
1998, as Entry No. 7063058 in the official records of Salt Lake County, Utah;
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(5) that "Collateral Assignment, Acknowledgement and Consent "dated as of
October 30, 1998, assigning to Bank that "Exclusive Distributorship Agreement"
dated as of October 30, 1998.
"Commitments" shall mean the obligations of the Bank, upon the
terms and subject to the conditions of this Agreement and pursuant to the
provisions of Section 2.1 hereinafter to make Advances to Borrowers, to provide
Import L/Cs to Borrowers and to enter into Foreign Exchange Contracts with
Borrowers under the Revolving Commitment.
"Consignment Sales Profits" shall mean the net sales profits
realized by USA in connection with the distribution and sales of goods on
consignment from Marker Deutschland GmbH, pursuant to Section 3.8 (after
deduction of 10% of the gross sales price to cover commissions, warehousing and
administrative expenses).
"Consignment Savings Account" shall mean those savings
accounts (including certificate of deposit accounts and any negotiable or
non-negotiable certificates or receipts arising in connection with such savings
accounts) into which seventy (70%) of the Consignment Sales Profits shall be
deposited by USA.
"Default" shall mean any event which, with the giving of
notice or the lapse of time (if such notice or lapse of time is required under
Section 7.1 or under some other provision of this Agreement, or otherwise), or
both, would constitute an Event of Default.
"Dollars" and "$": shall mean United States of America
dollars.
"Eligible Accounts" shall mean all of the Borrowers' Accounts,
adjusted by subtracting therefrom the following:
(a) Any Accounts which are more than sixty (60) days
past the applicable original (without subsequent extension or
amendment) payment due date, provided however that Eligible
Accounts may include up to $500,000.00 of Redated Accounts;
(b) Any Accounts in connection with which a material
part of the property subject of the Account has been returned,
rejected, lost or damaged;
(c) Any Accounts with respect to which the account
debtor is insolvent or the subject of a bankruptcy or other
insolvency proceeding, receivership or arrangement for the
benefit of creditors;
(d) Any Accounts with respect to which any Collateral
Party has received any indication from an account debtor that
the Account will not be paid timely, or with respect to which
the account debtor has prepaid the account or has a credit
balance or with respect to which the account debtor is
asserting an offset or counterclaim or other defense to
payment;
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(e) Any Account which is not a valid, legally
enforceable obligation of the account debtor or which is
subject to any offset, discount, rebate or other defense on
the part of the account debtor; provided, however, that the
amount of the reduction hereunder shall be limited to the
amount of the offset, discount, rebate or defense, if the
amount has been finally established by court decree, or by
consent of the applicable Collateral Party;
(f) Any Account which is subject to a lien, security
interest or other claim, having a priority over the lien and
security interest of Bank therein (unless such prior lien,
security interest or claim shall have been subordinated to
Bank's interest, in a manner satisfactory to Bank);
(g) Any Account where the account debtor is an
Affiliate or Insider with respect to any Borrower, and any
Account where the account debtor is a United States
governmental entity or a person or entity whose billing
address is not located within the U.S.A.;
(h) Any Account, which in the good faith reasonable
judgment of Bank, is not readily and fully collectible from
the account debtor in the ordinary course or within the sixty
(60) day time frame following the contracted and agreed due
date for payment of the same;
(i) Any Account of an account debtor, 30% of whose
aggregate account balance is more than sixty (60) days past
the original payment due date (whether or not such Account
shall have been Redated), however notwithstanding the
foregoing, Accounts not exceeding $100,000.00 in total value
which would otherwise be "ineligible" for inclusion in the
Borrowing Base pursuant to this subsection (i) shall be deemed
to be "eligible" for inclusion in the Borrowing Base; and
(j) The Consignment Savings Account.
"Eligible Inventory" shall mean all of the Borrowers"
Inventory which is fit for marketing and in merchantable condition, without
defect or flaw reducing the marketability of the same at normal wholesale
prices, excluding: (i) packaging and shipping materials; (ii) supplies used or
consumed in Borrowers' businesses; (iii) goods stored at premises (other than
retail stores) which are not owned and controlled by a Collateral Party, unless
Bank shall have received a satisfactory agreement with each owner and mortgagee
of such premises acknowledging Bank's first priority security interest in the
Inventory, waiving security interests, liens and other claims and remedies by
such person against the Inventory, permitting Bank and its representatives to
have access to the premises to exercise its rights and remedies with respect to
the Inventory (both before and for a satisfactory period after Borrowers'
default under and termination of such Collateral Party's lease, if any) and
providing for notice to Bank of any default by any Collateral Party in its lease
of the premises; (iv) goods delivered for lease or sale on consignment by
Non-U.S. subsidiaries; (v) Inventory that would be rejected by a retailer
customer of a Collateral Party as not complying with the terms and
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specifications of a contract of purchase between such customer and the
Collateral Party; (vi) Inventory subject to a security interest or lien in favor
of any person other than Bank, including Inventory in which any Non-U.S.
subsidiary retains a purchase money security interest and all goods subject to
vendor's rights of reclamation;(vii) bill and hold goods; (viii) unserviceable,
obsolete (or slow moving) defective, damaged Inventory which, in accordance with
generally accepted accounting principles, have substantially diminished value
[however such Inventory shall be deemed to be "Eligible" to the extent of such
diminished value as determined in accordance with generally accepted accounting
principles]; (ix) Inventory which is not subject to the first priority, valid
and perfected security interest of Bank; (x) returned Inventory that is not held
for resale; (xi) Inventory to be returned to vendor (other than one of the
Borrowers); (xii) all goods which, in the reasonable good faith judgment of Bank
and its legal counsel, are subject to a superior or prior claim of title,
ownership, or possession; (xiii) all goods which have been in any way identified
to a contract of sale to any buyer from a Collateral Party (the same being
excluded from Eligible Inventory at the time of such identification); (xiv)
Inventory consisting of spare parts; and (xv) all Inventory of LTD consisting of
product lines and colors that, as of April 1 of any year, are not carried in
LTD's catalog for the current or coming season ("Outdated Inventory"), but only
to the extent such Inventory also constituted Outdated Inventory as of the
preceding April 1. Eligible Inventory shall be measured at the applicable
Collateral Party's cost for the same. Any Inventory that is not Eligible
Inventory shall nevertheless be part of the Collateral.
"Eligible Real Estate" shall mean the real estate encumbered
by the "Deed of Trust (with Assignment of Rents),"
dated August 18, 1998, which shall have a valuation
(for purposes of the Borrowing Base) as follows:
(i) $2.6 million if the Trust Deed shall not have been
fully or partially reconveyed;
(ii) In the event of a partial reconveyance, $2.6 million
less the actual amount paid to Bank in connection
with a sale or refinance of the real estate; and
(iii) In the event of a full reconveyance, $2.6 million
less the actual amount paid to Bank in connection
with a sale or refinance of the real estate, but in
any event, not greater than $1.0 million during the
period from the date of the full reconveyance through
thirty (30) days from the date of such full
reconveyance; and thereafter,$0.0 [zero];
AND IN ANY EVENT, prior to December 31, 1998, if the actual proceeds paid in
connection with any sale or refinance are less that $2.6 million, the value of
the real estate for Borrowing Base purposes, shall never exceed that amount
which would cause the Total Sum of Overadvances to exceed $3,000,000.00.
"Event of Default" shall mean any event described as such in
Section 7.1.
"Foreign Exchange Contracts" shall mean contracts between any
Borrower and Bank for purchase by that Borrower from Bank (whether as "forward
contracts", "options" or otherwise) of foreign currencies in accordance with the
provisions of Section 2.6 and for the express purposes set forth therein.
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"Full Reconveyance" shall mean, with respect to the
determination of "Eligible Real Estate," the release and reconveyance of ALL or
substantially all of that real property (upon which two buildings owned by
International are situated) encumbered by that "Deed of Trust (With Assignment
of Rents)," dated August 18, 1998,
"FX Amount" shall mean, as of any specific time, the sum of:
(i) ten percent (10%) of the dollar amount of then outstanding Foreign Exchange
Contracts having remaining terms of six months or less, (ii) fifteen percent
(15%) of the dollar amount of then outstanding Foreign Exchange Contracts having
remaining terms of more than six but less than or equal to twelve months, and
(iii) twenty percent (20%) of the dollar amount of then outstanding Foreign
Exchange Contracts having remaining terms of more than twelve months up to a
maximum of twenty-four months.
"Inventory" shall have the meaning given the term "Inventory"
under ss. 70A-9-109 (4) of the Code, and shall include all non-cash and cash
proceeds and products thereof, including all insurance proceeds.
"Import L/Cs" shall mean letters of credit to be issued by
Bank for the account of any Borrower, as more fully set forth in Sections 2.1
and 2.6 hereafter.
"L/C Note" shall mean collectively, (a) the Computer
Applications Agreements in the form of EXHIBIT A-2, attached hereto and
incorporated herein by this reference, made and executed by Borrowers, which
evidence, by reference to the form of the Application Agreement and Note forms
attached as exhibits thereto (the "Application Agreements") the reimbursement
obligations of Borrowers in connection with the Import L/Cs and (b) if manual
applications for Import L/Cs are made, the separately and manually executed
Application Agreements. Borrowers and Bank specifically acknowledge and agree
that to the extent the obligations imposed by and covenants made under
paragraphs 3, 4 and 5 of the Application Agreements are inconsistent with the
other Loan Documentation, the terms and provisions of the other Loan
Documentation shall control.
"Loan Documentation" shall mean the following documents
executed (or to be executed) or acknowledged by Borrowers in connection with
this transaction: (a) this Agreement; (b) the Note; (c) the Collateral
Documentation; (d) all documents relating to Import L/Cs; (f) all documents
relating to Foreign Exchange Contracts; (e) the Lockbox Agreement: (f) the
Consent to Service Agreement; (g) all other documents and instruments executed
in connection herewith or with any of the foregoing documents; together with all
amendments, extensions and renewals of the same.
"Lockbox Agreement" shall mean the agreement between each of
the Borrowers and the Bank providing for the receipt and application of payments
on Accounts assigned as Collateral, the form of which is attached hereto as
Exhibit "D".
"Non-U.S. subsidiaries" shall include all Affiliates of Marker
International, Inc., which are not Borrowers under this Agreement.
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"Notes" shall mean the Revolving Note (Exhibit "A-1"), and the
L/C Notes (in the customary form), together with all amendments, renewals and
substitutions therefor.
"Obligations" shall mean the principal, interest and other
amounts owing from time to time under the Notes and all other liabilities and
obligations of Borrowers (including liabilities for fees, expenses and charges)
now or hereafter arising under or out of this Agreement or any of the other Loan
Documentation, including without limitation any contingent or potential
liability associated with the issuance of Import L/Cs or in connection with any
Foreign Exchange Contract and any indebtedness created in the event any
overdraft on any account with Bank is created (no matter how created and
provided that nothing herein shall be a commitment by Bank to honor overdrafts).
"Operating Account" shall mean the deposit accounts of
Borrowers into which all Advances under the Revolving Commitment are deposited,
identified as follows: 0600061519, 0600017784, and 0600057715.
"Partial Reconveyance" shall mean, with respect to the
determination of "Eligible Real Estate," the release and reconveyance of a
substantial portion of that real property (upon which at least one [of two]
buildings owned by International are situated) encumbered by that "Deed of Trust
(With Assignment of Rents)," dated August 18, 1998,
"Prime Rate" shall mean the Bank's announced rate of interest
used as a reference point from which it may calculate the cost of credit to
customers. The Prime Rate is subject to change from time to time. The Bank may
make loans bearing interest above, at or below its "Prime Rate." The Prime Rate
is not necessarily the lowest or best rate for borrowing available to customers
of or borrowers from Bank.
"Redated Accounts" shall mean Accounts arising from the sale
of Inventory to account debtors, with respect to which the terms of payment for
goods shipped on account have been extended for a period not exceeding one year,
provided that such account debtors are determined to have satisfactory credit
ratings and the total aggregate amount of such Accounts with the same account
debtor does not exceed established credit limits, provided that such Accounts
have not been previously extended, and provided that such Accounts arose from
the sale of Eligible Inventory under the control or in the possession of the
subject account debtors.
"Revolving Commitment" shall mean the Bank's commitment to
lend to Borrowers, on a revolving basis, in the form of Advances and Import L/Cs
up to the maximum aggregate principal amount of Revolving Note, at any time from
the date hereof, through and including the Termination Date (provided there is
sufficient Available Credit to permit said levels of borrowing); provided
further that the FX Amount calculated from time to time (based upon the
percentages of outstanding Foreign Exchange Contracts set forth in the
definition of FX Amount above) shall reduce (on a dollar for dollar basis) the
amount available under the Revolving Commitment for Advances and Import L/Cs.
The maximum amount of the Revolving Commitment shall be permanently reduced by:
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(1) the $500,000 principal installment payment scheduled for December 31, 1998;
and by (2) the amount that the valuation of the Eligible Real Estate is reduced
for purposes of the Borrowing Base, as and when such reductions in the valuation
of the Eligible Real Estate are recognized for purposes of the Borrowing Base.1
"Revolving Loan" shall mean the loan being made under the
Revolving Commitment that is evidenced by the Revolving Note.
"Revolving Note" means the Ninth Amended and Substituted
Revolving Promissory Note, dated of even date herewith, made by the Borrowers
and payable to the Bank in the maximum aggregate principal sum of
$33,600,000.00, in the form of Exhibit "A-1" attached hereto and incorporated
herein by this reference.
"Revolving Standard Rate" shall mean the "Prime Rate," plus an
increment of 50 basis points, which rate shall change immediately upon any
change in the "Prime Rate."
"Security Agreement" means the "Second Amendment to
Receivables and Inventory Security Agreement" as further amended from time to
time.
"Termination Date" shall mean the earlier of March 31, 1999,
or the date on which the Bank terminates the Revolving Commitment pursuant to
Article VII hereof.
"Total Sum of Overadvances" refers to the sum of: (a) the
difference between: (i) $2.6 million, and (ii) the actual proceeds paid in
consideration for the full reconveyance of that Deed of Trust (with Assignment
of Rents)," dated August 18, 1998 [to the extent that such sum is less than $2.6
million]; and (b) $3,000,000.00, or such lesser sum as is equal to the
difference between (i) the Aggregate Outstandings; and (ii) the sum of: (x) the
applicable Advance Rate multiplied by Eligible Inventory; plus (y) the
applicable Advance Rate multiplied by: Eligible Accounts; plus (z) the undrawn
face amounts of any outstanding letters of credit obtained by Borrowers in favor
of Bank as beneficiary,2
"Year 2000 Compliant" means, with regard to any entity, that
all software, embedded microchips, and other processing capabilities utilized
- -----------------------------------------
1 The interrelationship between these definitions is complex. "Revolving
Commitment" is the gross amount of the loan. The term "Available Credit" is an
overall limitation on the formula contained in the "Revolving Commitment." The
amount of the "Revolving Commitment" is determined using calculations contained
in other definitions, including: both "Borrowing Base," and "Available Credit."
The term "Borrowing Base" is also determined using other definitions, including
"Eligible Accounts," Eligible Inventory," "Eligible Real Estate," "Import
L/C's," and "Foreign Exchange Contracts." The term "Total Sum of Overadvances"
is a limitation on the calculation contained in "Eligible Real Estate." The
"Total Sum of Overadvances" will not exceed $3,000,000.00 from the date of this
Agreement through December 31, 1998, and thereafter, will not exceed
$1,000,000.00 during the 30-day period following a "Full Reconveyance" and
thereafter will not exceed zero [see the definition of "Eligible Real
Estate."]The term "FX Amount" is a limitation on "Foreign Exchange Contracts"
included in the "Revolving Commitment," and is one of the amounts included in
the calculation of "Aggregate Outstandings." This footnote is included by way of
illustration only and shall not alter or override the provisions of the
Agreement.
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by, and material to the business operations or financial condition of such
entity, are able to interpret and manipulate data on and involving all calendar
dates correctly and without causing any abnormal ending scenario, including in
relation to dates in and after the Year 2000.
1.2 Other Terms. Other terms are given specific definitions in
other parts of this Agreement and also in the other Loan Documentation and such
definitions shall govern herein and in the other Loan Documentation unless
expressly provided otherwise or unless the context clearly requires otherwise.
Unless express definition or the context otherwise clearly requires, all terms
used in this Agreement which are defined or given scope or meaning in the
Uniform Commercial Code (as in effect in the State of Utah) shall have the same
definition, scope and meaning for the purposes of this Agreement and the other
Loan Documentation. The plural shall include the individual and the masculine
gender shall include the feminine and vice versa and references to the neuter
shall include both the masculine and feminine and vice versa.
ARTICLE II
TERMS OF THE CREDIT
-------------------
2.1 Bank's Commitments. Upon the terms and subject to the
conditions of this Agreement, the Bank will extend credit to the Borrowers prior
to the Termination Date through the following financial accommodations: (a) the
Bank hereby commits to lend to Borrowers, by making Advances to the Borrowers on
a revolving basis and by issuing Import L/Cs for the account of Borrowers, for
use by the Borrowers in their general business operations, subject to repayment
as hereinafter stated, up to the maximum aggregate amount available under the
Revolving Commitment, at any time through the date hereof through and including
the Termination Date (provided there is sufficient Available Credit to permit
said levels of borrowing), provided further that the FX Amount calculated from
time to time shall reduce (on a dollar for dollar basis) the amount available
under the Revolving Commitment for Advances and Import L/Cs; (b) within the
Revolving Commitment, the Bank hereby further commits, subject to the conditions
and limitations set forth in Section 2.6 below and elsewhere in this Agreement,
to make its foreign currency exchange facilities available to Borrowers by
entering into contracts with Borrowers for sale by Bank to Borrowers of various
foreign currencies (provided there is sufficient Available Credit to permit such
activity in accordance with Section 2.6 and recognizing that the FX Amount
calculated from time to time shall reduce (on a dollar for dollar basis) the
amount available under the Revolving Commitment for Advances and Import L/Cs).
The sum of all Advances outstanding under this Agreement, the face amounts of
all Import L/Cs outstanding under this Agreement, and the FX Amount (the
Aggregate Outstandings) shall not at any time exceed the Available Credit at any
given time from and including the Termination Date. Repayment and reborrowing
under the Revolving Commitment shall be permitted subject to the conditions
hereinafter set forth.
2.2 The Revolving Note. Advances to the Borrowers shall be
evidenced by the Revolving Note, in the form attached hereto as EXHIBIT "A-1",
which shall replace and amend the Ninth Note. The Revolving Note is payable to
the order of the Bank in the maximum principal amount of $33,600,000.00. The
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Revolving Note shall mature on the Termination Date. Each Advance made by the
Bank shall be recorded by the Bank on a computer ledger maintained by the Bank
for that purpose showing the date and the amount of each Advance and each
payment of principal. The aggregate amount of the Advances made under the
Revolving Note less repayments of principal shall be the principal amount owing
and unpaid on the Revolving Note. The notations made by the Bank on the computer
ledger related to the Revolving Note shall be presumed to be accurate and shall
be conclusive unless shown by clear and convincing evidence to the contrary, to
have been mistaken.
2.3 Manner of Borrowing. So long as all conditions of this
Agreement have been and remain satisfied, Borrowers may effectuate Advances
under the Revolving Commitment by presenting daily Borrowing Base Certificates
disclosing the amount of the desired Advance and the Operating Account(s) into
which the Advance is to be deposited. Bank shall make Advances as requested,
provided that there is sufficient Available Credit under the Revolving
Commitment. Each Advance shall be made available to the Borrowers not later than
3:00 p.m. on the Banking Day following the submission of the Borrowing Base
Certificate to the Bank.
2.4 Lockbox Remittances. In accordance with the terms and
conditions of the Lockbox Agreement, Borrowers shall notify all account debtors
to remit all payments on account to the Lockbox. If, notwithstanding
instructions to debtors to make payments to the Lockbox, any Borrowers receive
any payments on accounts pledged as Collateral, such Borrowers shall deposit
such payments into the Collateral Account. Borrowers shall, acting as trustees
for Bank, receive, as the property of Bank, any monies, checks, notes, credit
card sales drafts, credit card sales or charge slips or receipts, drafts or any
other payment relating to and/or proceeds of sales of Inventory, Accounts or
other Collateral which come into their possession or under their control, and
immediately upon receipt thereof shall deposit or cause the same to be deposited
in the Collateral Account. In no event shall the same be commingled with
Borrowers' own funds. Borrowers understand and agree that in accordance with the
terms and conditions of the Lockbox Agreement, the deposit of some items may be
delayed pending verification and collection. Amounts deposited in the Collateral
Account shall not bear interest and shall not be subject to withdrawal by any
Borrower. All deposits in the Collateral Account shall constitute proceeds of
Collateral and shall not constitute payment of the Obligations. Bank shall
provide credit to the Collateral Account in accordance with Regulations "J" and
"CC" but in the event that Bank or its agent are not able to verify that such
funds have been or will be "collected," Bank shall be permitted to put a "hold"
on such funds without further notice to Borrower. All "collected" funds in the
Collateral Account shall be applied to the payment of the Obligations, in any
order or manner of application satisfactory to Bank. If any such item is later
returned uncollected, such Borrower will immediately pay Bank the amount of that
item, or Bank may, at its discretion, charge any uncollected item against the
Collateral Account of such Borrower. Each depositing Borrower shall be liable as
an endorser on all items received for deposit in the Collateral Account, whether
or not in fact endorsed by such Borrower, and Bank shall be authorized and
empowered to deal with all Lockbox items as provided in the Lockbox Agreement
(which is incorporated herein by reference).. Bank is provided, hereunder, the
option, to the extent of Available Credit or Collateral Account deposits, to
credit (without notice to or demand upon Borrowers) against any of the
Obligations which have become due and owing (including without limitation
monthly interest payments, Import L/C reimbursement obligations and payments of
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funds to settle Foreign Exchange Contracts), funds from the Collateral Accounts
or funds which are Advances. If insufficient sums are available from these
sources, the application of such funds by Bank shall not be deemed to be a
waiver of any Default or Event of Default arising from the failure to make the
subject payment or any portion thereof not covered by the foregoing procedure.
If such funds are sufficient, then the election by Bank to so apply funds, shall
be deemed a cure of any failure to make timely payment (and the resulting
Default and Event of Default).
2.5 Certain Representations. Each submission of a Borrowing
Base Certificate and request for an Advance shall be deemed to be the
representation to the Bank by the Borrowers and the Authorized Representative
making such request that (a) no known Default or Event of Default exists or will
exist upon completion of the requested Advance; (b) the total amount of the
Aggregate Outstandings will not exceed the Available Credit; (c) The requested
Advance will be utilized in accordance with the Budget;(d) the representations
and warranties contained in Article IV hereof are true and correct with the same
force and effect as if made on the date of such request (except for
representations and warranties which relate solely to an earlier date and except
for changes of which the Bank has been previously advised occurring as a result
of transactions or events which are not in violation of any term of this
Agreement); and (e) the Borrowers are otherwise in compliance with the terms of
this Agreement without known breach, delinquency, Default or Event of Default.
2.6 Verification of Lockbox Remittances. All funds deposited
into the Collateral Accounts must be reconciled against the Borrowers' records
of payments received on account. Borrowers agree to provide to Bank or to its
agent, Altres Financial, all documentation reasonably necessary to reconcile
such deposits and payments on a monthly basis. In the event that Bank or its
agent is, for whatever reason, unable to reconcile such deposits with Borrowers
records of payments on account, and such unreconciled balances total $300,000.00
or more for a period of ten (10) Banking Days or more (after written notice to
Borrowers of the existence of such unreconciled balances), Bank shall, at its
option, suspend Advances to Borrowers until such deposits and records of
payments on account are reconciled.
2.7 Request for and Issuance of Import L/Cs. Borrowers may
make application for issuance of Import L/Cs through actions under the Computer
Applications Agreement or by submission of separate Application Agreements. So
long as the applicable conditions precedent to issuance, which are stated in
Article VI and elsewhere in this Agreement have been fully met to the
satisfaction of Bank, Bank will issue Import L/Cs up to the amount of the
Available Credit from time to time under the Revolving Commitment, provided that
no Import L/C will be issued to the extent such issuance would: (i) cause the
sum of the outstanding principal balance of the Revolving Note plus the face
amounts of all outstanding Import L/Cs issued under the Revolving Commitment
plus the FX Amount to exceed the aggregate limits of the Revolving Commitment,
or (ii) cause a violation of any of the other limitations in the definition of
Available Credit, or (iii) provide for the issuance of an Import L/C with an
expiry date beyond the Termination Date. The repayment obligation with respect
to each Import L/C will be evidenced by the L/C Note for such Import L/C. The
submission of a request for an Import L/C shall also be deemed to constitute a
reaffirmation of the representations and warranties which are set forth in
Subsections (a), (b), (c), (d) and (e) of Section 2.5 above, and also a
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representation and warranty that the issuance of the Import L/C being applied
for will not cause a violation of any of the credit limitations contained in the
definition of Available Credit. As an additional conditions precedent to the
issuance of an Import L/C, Borrowers must pay Bank, in advance, the letter of
credit fees requisite to such issuance, as then in effect under import letter of
credit policies and fee schedules of Bank. Unless otherwise agreed in advance in
writing by Bank, all Import L/C's shall provide for payment only upon
presentation of a full set of negotiable bills of lading or other documents of
title to Bank, and Import L/Cs shall only be issued for purposes of facilitating
the import of and payment for products and goods in the ordinary course of
business of the Borrowers. Borrowers agree to immediately arrange for the
amendment of all outstanding Import L/C's to conform to the restrictions
contained in this subsection 2.6. Borrowers agree that Bank shall not release to
any Borrower any part of a set of negotiable bills of lading or other documents
of title or any duplicate copy of such negotiable bills of lading or other
documents of title except for the purpose of effecting the delivery of goods to
such Borrower within 21 days or less.
2.8 Exchange Purchase Agreements. From time to time from the
date hereof through and including the Termination Date, at the request of
Borrowers (either written or telephonic followed by immediate confirmation in
writing), Bank will (subject to applicable conditions precedent set forth in
Article VI and elsewhere in this Agreement and also subject to the other
limitations and terms set forth in this Agreement) enter into Foreign Exchange
Contracts with Borrowers of up to the maximum aggregate amount, at any time
subject to outstanding contracts (not yet settled), that will not cause a
violation of any of the credit limitations contained in the definition of
Available Credit. Borrowers warrant, represent and agree that the purpose of
entering into Foreign Exchange Contracts is (i) to fix, at the date that it
enters into purchase contracts with Marker Germany for products of that company,
the dollar cost of such contract (which is contracted in Deutschmarks ("DM")),
or (ii) to fix the dollar costs of other foreign purchases. Except as
hereinafter provided, the Foreign Exchange Contracts, which will be offered by
Bank to Borrowers, shall be forward contracts. The terms of such forward
contracts shall be the standard forward contract format then generally offered
by Bank to its customers, subject to the rights of Bank and Borrowers to then
negotiate special terms and also to provide for the length of the forward
contract (Bank initially intends not to enter into Foreign Exchange Contracts
having terms longer than 24 months). Bank reserves the right to require, in
connection with such forward contracts or any other variety of Foreign Exchange
Contract between Bank and Borrowers, that delivery of foreign currencies to the
party specified by Borrowers, shall be conditioned upon prior deposit of the
dollar purchase price of said foreign currencies with the Bank immediately
before the time that Bank must wire or otherwise give instruction for foreign
currency delivery. The submission of a request for a Foreign Exchange Contract
shall also be deemed to constitute a reaffirmation of the representations and
warranties which are set forth in Subsections (a), (b), (c), (d), and (e) of
Section 2.5 above, and also a representation and warranty that the Foreign
Exchange Contract requested will not cause the aggregate balance outstanding
under Foreign Exchange Contracts (and the resulting FX Amount) to cause a
violation of any of the credit limitations contained in the definition of
Available Credit. At the request of Borrowers, in writing, reconfirming that the
purpose of the requested contract is congruent with the warranties,
representations and agreements set forth hereinabove, Bank (if then being
offered generally by Bank) will issue DM option contracts as well as forward
contracts. The availability of all Foreign Exchange Contracts will be subject to
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the condition of payment by Borrowers of the fees, charges and contract amounts
which are required as a condition precedent by Bank for such contracts, provided
that Bank agrees that such fees, charges and contract amounts shall be
reasonably related to such fees generally charged by Bank or charged by other
offerors of such contracts. The obligations of Bank hereunder, are specifically
conditioned upon the Bank having normal access to foreign exchange markets and
to facilities for the purchase of foreign currencies for its own account and the
account of other customers.
2.9 Borrowing Base Submissions. The Borrowers agree to submit
to Bank, on a daily basis, a Borrowing Base Certificate presenting and
warranting to Bank the current status of the Borrowing Base. To satisfy this
requirement, the Borrowing Base Certificate shall, in addition to providing the
information set forth in the form attached hereto as EXHIBIT B, also have
attached thereto, an aging report for Accounts (in form and substance
satisfactory to Bank), an inventory list, including report specifying in detail
satisfactory to Bank, the amount, kinds, pricing and location of Inventory. The
submission of such additional attachments and information shall be deemed to be
a warranty and certification by Borrowers of the accuracy and truth of the
information provided. Borrowers also agree to provide such other supplementary
information (including copies of contracts, etc.) as shall in the reasonable
judgment of Bank be requested. Each submission of a Borrowing Base Certificate
shall constitute a reaffirmation that no substantial negative change in the
Borrowing Base has occurred which has not been fully disclosed to the Bank.
2.10 Use of Proceeds. Borrowers prepared the Budget and the
Budget was submitted for the review and approval of the Bank. The Bank made its
decision to extend and increase the Revolving Commitment based upon the
information contained in the Budget. Borrowers will immediately inform the Bank
(and will seek the written approval of) concerning any material changes to the
Budget, which approval shall not be unreasonably withheld. Borrowers shall
inform Bank in advance of unbudgeted uses for loan Advances and shall submit a
revision to the Budget together with all supporting documentation and
information requested by the Bank. Subject to the foregoing, Borrowers shall use
the proceeds of the Advances provided by Bank to Borrowers hereunder only in
accordance with the Budget, except as otherwise approved in writing by the Bank.
All Import L/C's and Foreign Exchange Contracts provided by Bank to Borrowers
pursuant to the provisions hereof shall be used by Borrowers only for general
operating, working capital and other proper corporate purposes of Borrowers in
accordance with the Budget, except as otherwise approved in writing by the Bank.
None of the proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purposes of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the Advances
to be considered a "purpose credit" within the meaning of Regulation G of the
Board of Governors of the Federal Reserve System, as amended.
2.11 Grant of Security Interest; Limited Power of Attorney. As
security for the repayment of the Obligations, Borrowers grant unto Bank a
security interest in all of the Collateral of Borrowers wherever located, and in
addition, grant such other and further liens, encumbrances, and security
interests as are described in the Collateral Documentation. Any description of
the Collateral contained in this Agreement shall not be deemed to limit the
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scope of such liens and encumbrances but shall be in addition to any security
interests described in the Collateral Documentation. In addition, Borrowers
herewith pledge and deliver to Bank all promissory notes, warehouse receipts,
negotiable bills of lading, documents of title and chattel paper which evidence
any accounts receivable or rights to the possession of goods. Borrowers herewith
grant unto Bank a limited power of attorney to endorse the name of any Borrower,
as payee(s), bearer(s), or holder(s) of such notes, bills of lading, warehouse
receipts, documents of title and chattel paper. USA hereby grants a security
interest in the Consignment Savings Account and pledges such account and
certificates to Bank as additional collateral for all Obligations.
ARTICLE III
INTEREST, REPAYMENT, OTHER OBLIGATIONS
--------------------------------------
3.1 Interest. The various credit facilities provided under
this Agreement shall bear interest as follows:
(a) Revolving Loan Interest Interest on the
unpaid and outstanding principal balance of Advances under the Revolving Loan
will be calculated at the per annum rate which shall at all times (adjusted
daily) be equal to the Revolving Standard Rate.
(b) Prime Rate. The Prime Rate may change from
time to time, and interest payable on the Revolving Loan will continue to
fluctuate at the Revolving Standard Rate as adjusted from time to time for
changes in the Prime Rate. Any changes in the interest rate under the Revolving
Loan shall become effective, without prior notice, on the date on which the
Prime Rate changes. Should the actual rate of interest as calculated exceed that
allowed by law, the applicable rate of interest will be the maximum rate of
interest lawfully allowed.
(c) Default Interest Rate. Upon the occurrence
of an Event of Default, the rate of interest per annum for the Revolving Loan
shall be the per annum rate which shall at all times (adjusted daily) be equal
to three percent (3.0%) above the Prime Rate in effect from and after such Event
of Default; provided further, however, that if Bank shall waive in writing or
allow a cure of such Event of Default, the interest rate for the loans shall
revert to the non-default rate specified above from and after such waiver or
completion of cure (whichever is sooner).
(d) Interest Accrual and Payments. Interest on
the Notes shall be computed on the basis of actual days elapsed and a year of
365 days. Interest shall be payable monthly in arrears on the first day of each
month for interest accrued during the preceding month, and at maturity. The Bank
shall submit its statement to the Borrowers for monthly interest. The Bank is
authorized to debit, after the occurrence of an Event of Default, any demand
deposit account maintained by any Borrower with the Bank to effect the payment
of principal or monthly interest.
(e) Interest on Other Facilities. The L/C Notes
shall bear interest at the Revolving Standard Rate. Obligations of Borrowers for
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payments arising under or in connection with Foreign Exchange Contracts which
are not paid when due shall bear interest at the default rate specified in such
Foreign Exchange Contracts, or, if no default rate is set forth therein, then at
the default rate specified hereinabove for the Revolving Note.
3.2 Mandatory Payment and Prepayments - Revolving Note. The
entire unpaid principal balance of the Revolving Note shall be due and payable
on the Termination Date. In addition, if at any time the Aggregate Outstandings
exceed the Available Credit at any given time through and including the
Termination Date, then Borrowers shall immediately prepay the Revolving Note (or
at Bank's sole discretion otherwise reduce the amount of the outstanding
Obligations) in an aggregate amount equal to such excess. Moreover, if at any
time the sum of the outstanding principal balance under the Revolving Note plus
the face amounts of all outstanding Import L/Cs issued under the Revolving
Commitment plus the FX Amount exceeds the then applicable Available Credit, then
Borrowers shall immediately prepay the Revolving Note (or at Bank's sole
discretion otherwise reduce the amount of the outstanding Obligations) in an
aggregate amount equal to such excess
3.3 Optional Prepayments. The Borrowers shall have the right
at any time and from time to time to prepay the Notes in whole or in part
without premium or penalty, provided that any prepayment must be accompanied by
the payment of all accrued and unpaid interest thereon through the date of
prepayment. All optional and mandatory payments and prepayments of principal and
interest on the Notes shall be made at Special Loans Department, 79 South Main
Street, 8th Floor, Salt Lake City, Utah 84111, in United States dollars and in
immediately available funds.
3.4 Payments Due On Non-Banking Days. Whenever any payment to
be made hereunder or under the Notes or any of the Obligations shall be due on a
Saturday, Sunday or a public holiday, such payment may be made on the next
succeeding Banking Day, and such extension of time shall, in such case, be
included in the computation of payment of interest hereunder and under the
Notes.
3.5 Application of Payments. With respect to payments made by
Borrowers or received in connection herewith without designation as to which of
the Notes or other Obligations such payment is to be applied, such payment may
be applied by Bank to such of the Obligations as it determines in its sole
discretion. Upon the occurrence of an Event of Default, payments received or
other funds realized for application shall also be subject to application to
Obligations as Bank may determine in its sole and absolute discretion. Borrowers
shall make all payments to Bank on the Obligations free and clear of, and
without deduction or withholding for or on account of, any offset, counterclaim,
defense, duties, taxes, levies, imposts, fees, deductions, withholdings,
restrictions, or conditions of any kind. If, after receipt of any such payment
of, or proceeds of Collateral applied to the payment of any of the Obligations,
Bank is required to surrender or return such payment to any person for any
reason, then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall continue in
full force and effect as if such payment or proceeds had not been received by
Bank. Borrowers shall be liable to pay to Bank, and Borrowers hereby agree to
indemnify and hold Bank harmless for, the amount of any payments or proceeds
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surrendered or returned. This provision shall remain effective notwithstanding
any contrary action which may be taken by Bank in reliance upon such payment or
proceeds, and this provision shall survive the payment of the Obligations and
the termination or non-renewal of this Agreement.
3.6 Restriction on Payments to Affiliates. Notwithstanding any
other provision of this Agreement to the contrary, Borrowers acknowledge and
agree that, although funds under the Commitments may be used in accordance with
the Budget to repay intercompany payables owed to Affiliates in connection with
the purchase of Inventories, funds under the Commitments shall not be loaned or
otherwise used in or for the benefit of Affiliates or Insiders except as
provided in the Budget. Without limiting the generality of the foregoing, no
funds under the Commitments may be used for loans or prepayments or other
advances to (non-Borrower) Affiliates or Insiders, except as previously agreed
by Bank in writing.
3.7 Release of Certain Collateral. In the absence of a
condition that may (upon written notice to Borrower and the passing of a "cure"
period) ripen into Event of Default, which condition is then continuing, and at
such time as the Total Sum of Overadvances is reduced to zero (but in any event
not sooner than January 15, 1999), Bank shall release all Collateral described
in the "Collateral Assignment of Trademarks and Patents," dated as of August 31,
1998,.on the further condition that the Borrowers shall have previously and
permanently reduced the Revolving Commitment by at least $2.6 million as a
result of the sale or refinancing of all of the real estate encumbered by that
Deed of Trust With Assignment of Rents and Security Agreement," dated as of
August 18, 1998, and recorded on August 19, 1998, as Entry No. 7063058 in the
official records of Salt Lake County, Utah.
3.8 Provision for Consignment Sales. USA and/or International
shall enter into an Exclusive Distributorship Agreement with Marker Deutschland
GmbH for the importation , distribution, and sales of goods to be sold on
consignment for the account of Marker Deutschland GmbH. Marker Deutschland
currently contemplates providing 47,155 pairs of consigned goods to
USA.(described in attached Exhibit "E") USA and International agree that they
will not enter into agreements for consigned goods in excess of the currently
contemplated 47,155 pairs of consigned goods without first demonstrating to
Bank's satisfaction that such additional consigned goods will not impair Bank's
existing collateral position; i.e., that such additional consigned goods will
not saturate the market for the existing product or depress the selling price
for the existing product that constitutes part of Bank's collateral. The
following additional terms apply to the distribution of consigned goods by
USA:(a) if USA is able to sell or otherwise distribute such consigned goods,
such sale or distribution will be considered to be covered by the licensing
provisions contained in the Exclusive Distribution Agreement for the sale or
distribution of products of Marker Deutschland GmbH; and USA shall endeavor to
sell such consigned goods on terms and for prices equal to the terms and prices
charged by USA for Inventories; (b) upon satisfaction of any conditions imposed
by Marker Deutschland GmbH. for the release of the consigned goods from any
warehousing arrangement and upon default, Bank (or Bank's assignees) shall have
the right, but not the obligation, to sell the consigned goods with the same
rights as are granted to International and USA (contained in the Exclusive
Distribution Agreement); (c) any sales and shipments by USA which include
Inventory as well as consigned goods shall be deemed to have been conducted in
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the following order: first, the sale of all Inventory, and secondly, the sale of
any consigned goods, and Bank shall be entitled to monitor and audit joint sales
of Inventory and consigned goods to verify compliance with this term. (d) USA
agrees to deposit seventy percent (70%) of the Consignment Sales Profits on all
sales of consigned goods into a Consignment Savings Account at Bank and
controlled solely by Bank; such Consignment Savings Account shall be converted
into negotiable thirty (30) day certificates of deposit on a monthly basis, duly
indorsed and pledged to Bank as Collateral. In the event that the sum of the
Obligations is equal to or less than the amount of the Consignment Savings
Account, or at the Termination Date, Bank will be entitled to apply the funds in
the Consignment Saving Account to the Obligations. Bank shall release its
security interest in such Consignment Savings Account upon payment in full of
the Obligations. At the request of Borrowers, Bank agrees to review with
Borrowers the financial impact upon Borrowers of the initial (47,155 pairs)
consignment sales program to ascertain if such consignment sales positively (or
negatively) impacted the sales of Inventories on hand. Bank shall have no
obligation to approve additional consignment sales programs.
3.9 Subordination of Insider Debt. Each Borrower, by its
execution of this Agreement, agrees that the repayment of any indebtedness owed
to such Borrower by any other Borrower is subordinated to the repayment of all
indebtedness owed to Bank by any such Borrower. In the absence of default, such
indebtedness incurred in the ordinary course of business may be paid as
contemplated in the Budget.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrowers hereby represent and warrant to the Bank as
follows:
4.1 Due Incorporation. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Utah (or the State of Delaware in the case of DNRNA and DNRUSA) and has the
corporate power to own its property and to carry on its business as now
conducted.
4.2 Authorization. The execution, delivery and performance of
this Agreement and the other Loan Documentation have been duly authorized by all
necessary corporate action on the part of the Borrowers. This Agreement and the
other Loan Documentation have been duly executed by authorized officers of the
respective Borrowers and (assuming its due execution by the Bank) constitute
valid and binding agreements, enforceable against the Borrowers who are parties
thereto in accordance with their respective terms.
4.3 Power. Each of the Borrowers has the power and the legal
right and authority to enter into this Agreement and to execute and deliver the
various items of the Loan Documentation to be executed by it, and each of the
Borrowers has the power and legal right and authority to execute and grant the
security interests, liens, assignments and security agreements which are
required as conditions precedent to the credit facilities hereunder.
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4.4 Non-Default. Except as previously disclosed to Bank in
writing, the execution and delivery of this Agreement, the Collateral
Documentation, the Notes and the other Loan Documentation and compliance with
the terms and provisions of this Agreement, the Collateral Documentation, the
Notes and the other Loan Documentation will not violate the provisions of any
applicable law, regulation, order or decree, or constitute a violation of or
default under the articles of incorporation or by-laws of any Borrower or any
material agreement binding upon any Borrower.
4.5 Litigation. Except as to matters disclosed to the Bank in
Borrowers' financial statements which are identified in Section 4.6 below, there
is no action or proceeding pending or, to the knowledge of any Borrower,
threatened against any Borrower before any court or administrative agency
(except insured claims) wherein an unfavorable ruling, decision or finding may
result in any material adverse change in the business or financial condition of
any Borrower or in any Borrower's abilities to pay and perform under or in
connection with this Agreement; nor has any judgment or order which entails or
might result in such a change been made or entered by any court or
administrative agency. With respect to the "Sims litigation," Borrowers warrant
that they retain any and all claims which they may have against any and all
advisors and legal counsel who were retained by any Borrower in connection with
the termination of the "Sims license agreement," and that no Borrower will
settle, waive or compromise any claim which any Borrower may have against any
attorney, advisor, consultant or other party in connection with the Sims license
agreement or any litigation arising with respect thereto.
4.6 Financial Statements. The Borrowers have furnished the
Bank with the following financial statements: Unaudited financial statements of
Borrowers as of June 30, 1998; All of the foregoing financial statements are
true and correct and were prepared in accordance with generally accepted
accounting principles consistently maintained throughout the periods involved
and present fairly the respective financial conditions of the Borrowers as of
the dates thereof. Since the date of each of the aforesaid statements, there has
been no material adverse change in the individual or aggregate and combined
condition (financial or otherwise) of the Borrowers, except changes disclosed to
the Bank in writing prior to the execution of this Agreement, and changes in the
ordinary course of business which have not been, in any case, materially
adverse.
4.7 Year 2000 Compliance. Each Borrower has: (i) undertaken a
detailed inventory, review, and assessment of all areas within its business and
operations that could be adversely affected by the failure of such Borrower to
be Year 2000 Compliant on a timely basis; (ii) developed a detailed plan and
timeline for becoming Year 2000 Compliant on a timely basis; and (iii) to date,
implemented that plan in accordance with that timetable in all material aspects.
Each Borrower reasonably anticipates that it will be Year 2000 Compliant on a
timely basis. Each Borrower has made written inquiry of each of its key
suppliers, vendors, and customers as to whether such persons and entities will,
on a timely basis, be Year 2000 Compliant in all material respects and on the
basis of such inquiry believes that all such persons and entities will be Year
2000 Compliant. For purposes hereof, "key suppliers, vendors and customers"
refers to those suppliers, vendors, and customers of each Borrower whose
business failure would, with reasonable probability, result in a material
adverse effect on the business, properties, condition (financial or otherwise),
or prospects of such Borrower. Each of the Non-U.S. subsidiaries shall be deemed
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to be a "key" supplier or customer of Borrowers.
4.8 German Banks' Reinstatement of Marker Germany Credit
Arrangements. Marker Deutschland GmbH. ("Marker Germany") has reinstated its
credit arrangements with Hypo Vereinsbank, BFG Bank, and Deutsche Bank (the
"German Banks"), and the German Banks have extended new credit to Marker Germany
in accordance with the financial plan of Marker Germany for meeting the
financial needs of Marker Germany through March 31, 1999.
ARTICLE V
COVENANTS
---------
Each of the Borrowers covenants and agrees that, unless the
Bank shall otherwise consent in writing, it will:
5.1 Payment of Taxes. Pay all taxes, assessments and other
governmental charges required of it before any penalty accrues, unless the
charge is being contested in good faith with reserves, bonds or set asides for
payment having been established to Bank's satisfaction.
5.2 Maintain Business. Continue the conduct of its business
and, as applicable, maintain its corporate existence and maintain all material
rights, licenses and franchises and comply with all applicable laws and
regulations necessary to enable it to conduct its business as presently
conducted.
5.3 Maintain Properties. Maintain its property, including any
collateral given for security, in good working order and condition.
5.4 Insurance. Maintain in full force and effect insurance
coverage by financially sound and responsible insurers, approved by the Bank, on
all properties and assets of a character usually insured by organizations
engaged in the same or similar business and adequate public liability insurance
against tort claims which may be asserted against the Borrower. This provision
is in addition to the requirements of the Collateral Documentation or other
instrument executed in connection with the Commitments.
5.5 Good Standing. Maintain, as applicable, its good standing
as a corporation under the laws of the state of its incorporation and as a
corporation qualified to do business in all jurisdictions where it is presently
qualified; and upon request by the Bank, qualify and remain qualified to do
business in any jurisdiction in which the Bank may reasonably believe
qualification to be necessary for the protection or enforcement of any of the
interests and liens in the Collateral.
5.6 Books and Records; Inspections. Keep proper books and
records of account in which full, true and correct entries will be made of all
its dealings, business and affairs in accordance with generally accepted
accounting principles consistently maintained, to examine and copy its books and
financial records, to permit Bank or its agents to inspect and audit
inventories, and to discuss its affairs and finances with it or its principal
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officers, all at such times as the Bank may reasonably request. Further,
Borrowers shall cooperate, during reasonable business hours, with requests by
Bank to examine underlying records, books, and papers for purposes of confirming
the information provided in connection with Borrowing Base Certificates,
provided that Bank shall give the applicable Borrower advance written notice of
a request for such inspection or examination, such notice being adequate if
given five (5) full Banking Days before the time and day at which Bank intends
to conduct the same. Borrowers shall permit any person designated by the Bank to
visit and inspect any of its properties, and in connection with any on-site
inspections, Bank agrees to exercise reasonable care to avoid interruption of
the normal business affairs and work of the Borrowers.
5.7 Litigation; Condemnation Awards. Give prompt written
notice to the Bank of any litigation or governmental proceeding pending or, to
its knowledge, threatened against it (including but not limited to any
condemnation proceedings) which (a) involves a claim of over $35,000.00 or (b)
if adversely determined, may have a material adverse effect on its business or
condition (financial or other), affairs or operations or ability to pay or
perform hereunder and execute and deliver to Borrower an irrevocable and
unconditional assignment of such Borrower's condemnation award and Borrowers
agree to cooperate with Bank in the defense or prosecution of any condemnation
proceedings. Notwithstanding the execution and delivery of such assignment of
any condemnation awards, Borrower shall not be credited with "payment" of the
amount of such award unless and until Bank actually receives payment of such
claim. Borrower further grants unto Bank a limited and irrevocable power of
attorney to prosecute such condemnation proceedings on behalf of such Borrower,
and to otherwise take all reasonable and necessary actions to enforce and
compromise such claim (if necessary).
5.8 Merger or Sale. Not merge or consolidate with any other
corporation or sell, lease, transfer or otherwise (except in the ordinary course
of business) dispose of all or a substantial part of its assets (including
shares in any Borrower or in any Non-U.S. subsidiary), provided however,
International shall exercise its best efforts to dispose of the real estate
which is encumbered by the "Deed of Trust With Assignment of Rents and Security
Agreement," dated as of August 18, 1998, and recorded on August 19, 1998, as
Entry No. 7063058. No Borrower will, without the advance written consent of
Bank, directly or indirectly permit a change in the control of any Borrower or
any Non-U.S. subsidiary. Notwithstanding the foregoing, Bank contemplates the
sale or other disposition of LTD, DNRUSA and/or DNRNA by International in
consideration of the assumption, by the purchaser, of all or a portion of the
liabilities of LTD, DNRUSA and/or DNRNA; International agrees that such sale or
other disposition shall not be consummated without the written consent of Bank,
which consent shall not be unreasonably withheld. Borrowers will not abandon,
sell, compromise, or take any action to impair any claims that any Borrower or
any Non-US subsidiary may have without the prior written approval of Bank.
5.9 Financial Statements. Deliver to the Bank, with respect to
each of the Borrowers, as soon as available and in any case within thirty (30)
days after the end of each month, an income statement for such month and for the
entire fiscal year to the end of such month, and a balance sheet as at the end
of such month, certified as accurate by a financial officer of each Borrower, as
the case may be, and deliver to the Bank, with respect to International, as soon
as available and in any case within forty-five (45) days after the end of each
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fiscal quarter, an income statement for the entire fiscal year to the end of
such quarter, and a balance sheet as at the end of such quarter, certified as
accurate by a financial officer of International.
5.10 Annual Audits. Deliver to the Bank, as soon as available
and in any case within ninety (90) days after the end of each fiscal year, an
income statement for such fiscal year and a balance sheet as at the end of such
fiscal year, certified as an "audited" statement by Arthur Andersen & Co. or
other firm of independent certified public accountants of recognized standing
selected by the Borrowers and acceptable to the Bank, together with any
supplementary reports furnished to the Borrowers or their directors by such
accountants. All such financial statements shall be certified as having been
prepared in conformity with generally accepted accounting principles applied on
a basis consistent with that of the preceding fiscal year except to the extent
necessary to reflect changes in accounting principles approved by the accounting
firm referred to in this Section 5.10. In addition, at least once during the
term of this Agreement (but not prior to December 31, 1998), Borrowers shall, at
the Bank's expense, deliver or cause to be delivered to Bank written reports and
valuation appraisals of the Inventory, in form, scope and methodology reasonably
acceptable to Bank, addressed to Bank or upon which the Bank shall be expressly
permitted to rely. Borrowers shall, at Borrowers' expense, conduct through an
inventory counting service acceptable to Bank, a physical count of the Inventory
in scope, form, and methodology reasonably acceptable to Bank, the results of
which shall be reported directly to Bank by such inventory counting service, and
Borrowers shall promptly deliver confirmation (in a form satisfactory to Bank)
that appropriate adjustments have been made to the Inventory records of
Borrowers the reconcile the Inventory count of such inventory counting service
to Borrowers' own Inventory records.
5.11 Compliance Certificates. Deliver to the Bank, with
respect to each Borrower, within forty-five (45) days after the end of each
fiscal quarter, a compliance certificate in form and substance satisfactory to
the Bank, signed by the Chief Financial Officer or President of the Borrower,
certifying compliance by the Borrower with all covenants and obligations under
this Agreement and the other Loan Documentation, excepting such covenants and
obligations with respect to which Bank has granted a waiver (in writing) or with
respect to which Bank has agreed to exercise forbearance notwithstanding the
non-compliance therewith by Borrowers.
5.12 Other Information. Furnish to the Bank on or before the
next Banking Day, such other financial information, reports or documents as the
Bank may at any time, and from time to time, reasonably request, in writing
including:
(i) all 10K and 10Q filings filed by International;
(ii) any acceleration or claimed acceleration of any
indebtedness owed to another party in excess of $100,000.00;
(iii) any acceleration or claimed acceleration of any
indebtedness owed to another party in excess of the payments
contemplated in the Budget;
(iv) weekly sales journals, including backup documentation for
all sales (including but not limited to weekly cash and sales
registers);
(v) weekly listings and agings of Accounts and accounts
payable;
(vi) weekly reports listing the estimated value of the
Inventories, on a cost basis;
(vii) weekly and monthly comparisons of Borrowers' actual
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results for the previous week or month as compared with cash
projections of Borrowers for such week or month as contained
in the Budget (Exhibit "C");
(viii) weekly listings of returns of Inventories, markdowns of
Inventories, and exchanges of Inventories for credit,
including the names, addresses, amounts and terms of such
exchanges or returns, signed by the person(s) who authorized
such returns or exchanges;
(ix) monthly perpetual Inventory reports;
(x) monthly listings of the names and addresses of all current
customers, and monthly listings of the names, addresses,
amounts, and terms of all Accounts;
(xi) monthly listings of Redated Accounts;
(xii) a listing of existing and pending claims of Borrowers on
any policies of insurance, accompanied by copies of all
applicable policies of insurance;
(xiii) reports of sales and use tax collections, deposits and
payments, including monthly sales and use tax accruals;
(xiv) any material changes or updates to the Budget; and
(xv) such other and further information as Bank may reasonably
request, including (but not limited to) copies of customer
statements and credit memos, remittance advices and reports,
copies of deposit slips and bank statements, copies of
shipping and delivery documents, copies of purchase orders,
invoices and delivery documents for Inventories sold and
acquired, etc.
Bank shall have the right at any time or times, in Bank's name (or on behalf of
the Bank by Bank's agent(s)), to verify the validity, amount or any other matter
relating to any Account or any Collateral, or relating to any report or document
submitted to Bank or to Bank's agent. Such verification may be conducted by
mail, telephone, facsimile transmission, or otherwise.
5.13 Hedging. USA shall have currency exchange hedging devices
(either forward or option contracts) in effect at all times, that are sufficient
to cover at least 50% of USA's foreign payables (excluding those payable in
Dollars) to Marker Germany for product. By the end of each fiscal year, USA
shall have such currency exchange hedging devices in effect that are sufficient
to cover 50% of such foreign payables of USA (excluding those payable in
Dollars) generated during that fiscal year which remain unpaid at year-end (and
shall maintain a 50% level of coverage on such payables until payment is
actually made).
5.14 Capital Expenditures; Salary Increases. Not permit
capital expenditures by the Borrowers as a group to exceed $50,000.00. in the
aggregate during the fiscal year ending March 31, 1998; Not permit increases in
salaries to directors and management level officers of Borrowers to exceed the
amounts contemplated in the Budget
5.15 Zions Credit Obligation. Take all reasonable measures to
arrange for the deferral of payment of any obligation owing to Zions Credit
Corporation beyond December 31, 1998, or otherwise to reschedule such payment
obligation in a manner acceptable to Bank.
5.16. Guaranteed Obligations of Non-U.S. Subsidiaries. Take
all reasonable steps to arrange for the deferral of payments due and the
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extension of maturity dates of loan by institutional lenders to Non-U.S.
subsidiaries where such loans are guaranteed, in whole or in part, directly or
indirectly, by any Borrower.
5.17. Subordination of Insider Debt Deliver evidence that all
debt owed by any Borrower to any other Borrower or to any other subsidiary of
International or to any "Affiliate" or "Insider" of any Borrower, has been
unconditionally subordinated to the repayment of the Obligations of Borrowers to
Bank, except as otherwise expressly agreed in writing by Bank. However, it is
expressly understood that subordinations shall not be required from Marker
Deutschland GmbH., from Marker Canada, and from Marker Japan.
5.18 Location of Inventories; Subordination of Liens. All
Inventories shall be stored in and delivered only to warehouses and facilities
located in either the state of New Hampshire or in the state of Utah. In the
event that Inventories are stored in public warehouse facilities in any
location, Borrowers shall immediately notify Bank of the location of such public
warehouse and shall deliver to Bank negotiable warehouse receipts or other
documents of title evidencing the goods and Inventories stored in such location.
Borrowers shall not store goods and Inventories in facilities or public
warehouses except that such warehouseman or landlord shall agree in writing, in
advance, to the subordination of such warehouseman's lien or landlord's lien to
the priority of the security interest of the Bank in such goods or Inventories.
5.19 Negotiable Documents. Accounts shall not be evidenced by
negotiable documents without the consent of Bank. In the event that account
debtors, Non-U.S. subsidiaries or others (and notwithstanding this prohibition)
deliver to any Borrower negotiable documents (e.g. promissory notes, documents
of title, negotiable warehouse receipts, negotiable bills of lading) which
evidence an obligation of payment or a right to the possession of goods,
Borrowers shall immediately endorse and deliver the same in bearer form to Bank.
5.20 Insurance Claims. Give prompt written notice of the
happening of any event giving rise to insured claims against any Borrower, and
to the extent that such claim(s) are not reflected in the Budget, and to
transmit to Bank copies of any insurance policies which may be implicated with
respect to such claim. At the written request of Bank, Borrowers will provide
copies of any documentation relating to such claims and will provide a written
narrative explaining such claim. At the written request of Bank, Borrowers will
execute and deliver to Bank an irrevocable and unconditional assignment of any
of Borrowers' claims on any policy of insurance to the extent that such claim
arises out of a "loss" in connection with the Collateral and to the extent that
such claim arises out of the "loss" or impairment of rights in connection with
patents, trademarks, licenses, sublicenses, distribution rights, and similar
claims. Borrowers will cooperate and assist Bank as requested in collecting the
proceeds of such claim. Notwithstanding the assignment of such claim to Bank,
Bank shall not credit the amount of such claim in reduction of the Obligations
of Borrower unless and until Bank actually receives payment of such claim.
Borrower further grants unto Bank a limited and irrevocable power of attorney to
prosecute such insurance claim and to otherwise take all reasonable and
necessary actions to enforce and compromise such claim (if necessary).
5.21 Terms of Invoices. Legend all invoices and sales
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documentation to disclose to purchasers that returns of merchandise shall be
accepted only for exchange for goods of equal or greater value and shall not be
accepted for cash or credit, except with respect to merchandise which contains
manufacturing defects or which was damaged in shipment to the purchaser.
Borrowers agree that authority to approve any returns of merchandise shall be
limited to no more than two officers of Marker USA.
5.22 Use of Marker Tradename. International, as owner of the
"Marker" trademark and related rights in the U.S.A., as well as the remainder of
the Borrowers (to the extent that they have any rights in the "Marker" name)
hereby covenant that they have not and will not allow any other entity, except
another Borrower, to use the "Marker" name and related trademarks and tradenames
and other rights to sell ski bindings and snowboard bindings and other goods
bearing the "Marker" name in the U.S.A., without the prior express written
consent of Bank. Any such consent which is already contained in the Loan
Documentation shall be considered to already have been given by Bank.
ARTICLE VI
CONDITIONS PRECEDENT TO BANK FACILITIES
6.1 Initial Conditions. The Bank shall not be obligated to
make any Advances, issue Import L/Cs or provide Foreign Exchange Contracts until
each of the following conditions precedent shall have been satisfied:
(a) The Bank shall have received the following, each
fully executed and dated in form and substance
satisfactory to the Bank:
(i) The Revolving Note, duly executed by the
Borrowers.
(ii) Copies of the articles of incorporation and
by-laws of the Borrowers and of necessary resolutions of the
Borrowers authorizing the execution, delivery and performance
of this Agreement, and the other items of Loan Documentation
to be executed by Borrowers, respectively, all in form and
substance satisfactory to the Bank and its counsel.
(b) Copies of documentation referenced in Sections
5.4, 5.5, 5.10, 5.11 and 5.12.
(c) In addition, no Default or Event of Default shall
have occurred and be existing and unwaived by Bank in
writing.
(d) All legal matters incident hereto or to the loans
to be made hereunder shall be satisfactory to
counsel to the Bank.
6.2 Conditions Precedent to Each Subsequent Advance or Other
Facility. The obligation of the Bank to make each Advance (including the initial
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Advance) and to make available each Import L/C and Foreign Exchange Contract is
subject to the following further conditions precedent at the time of the
requested transaction:
(a) No uncured Default and no uncured Event of
Default has occurred or will exist upon completion of the
requested Advance or provision of the requested Import L/C or Foreign Exchange
Contract, unless the same has been expressly waived in writing.
(b) The representations and warranties contained in
Article IV hereof are true and correct with the same force and effect as if made
on and as of the date of such request (except for representations and warranties
which relate solely to an earlier date and except for changes of which the Bank
has previously been advised occurring as a result of transactions or events
which are not in violation of any term of this Agreement).
(c) For each Import L/C, Borrowers have executed and
delivered the required L/C Note, and for each Foreign Exchange Contract,
Borrowers have executed and delivered the required Foreign Exchange Contract.
ARTICLE VII
DEFAULT
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7.1 Events of Default. Each of the following occurrences shall
constitute an Event of Default:
(a) Any Borrower fails to pay any of the Obligations
which require payment of money, including any amount of principal, interest,
fees or other charges within ten (10) calendar days after such payment becomes
due.
(b) Any Borrower fails to perform any of the other
covenants, conditions or agreements (other than for payment of money) provided
for in this Agreement or in any of the other Loan Documentation and, if subject
to cure, such failure shall not have been cured within thirty (30) calendar days
after written notice by the Bank to the applicable Borrower of such failure.
(c) Any representation or warranty made by or on
behalf of any Borrower to the Bank (whether made in this Agreement, any other
Loan Documentation or in any financial statement or certificate furnished
pursuant to this Agreement or thereto), shall prove to have been knowingly,
materially and adversely false or misleading as of the time when such
representation or warranty was made.
(d) The maturity of any substantial indebtedness of
any Borrower to another lender shall be, in fact, and by notice from the
applicable lender, accelerated; or the preconditions or circumstances (if any)
required to permit acceleration of the maturity of any such indebtedness shall
be existing and be uncured and unremedied to the satisfaction of the applicable
lender for a period of thirty (30) days or more. Notwithstanding the foregoing,
no Event of Default shall have occurred if to the satisfaction of Bank (not
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unreasonably withheld) the applicable Borrower, in good faith, is contesting the
acceleration or claimed amount and has provided adequate reserves in the Budget,
escrowed funds or bonding to cover the amounts claimed owing.
(e) The termination of any line of credit by a lender
to any Non-U.S. subsidiary, or the receipt by any Borrower of notice to the
effect that a lender intends to terminate a line of credit, provided that any
Borrower is a guarantor or co-maker of such terminated line of credit.
(f) Any of the Loan Documentation (including any of
the Collateral Documentation) shall, except with the Bank's prior written
consent, cease for any reason to be in full force and effect (including, but not
limited to the receipt by USA and/or by International of notice of cancellation
or notice of nonrenewal of the "Exclusive Distributorship Agreement").
(g) Any Borrower or Non-U.S. subsidiary shall become
involved in financial difficulties as evidenced by:
(i) An admission in writing of its inability to pay
its debts generally as they become due; or
(ii) A filing, by or against the Borrower, of a
petition seeking an order for relief under any chapter of the
United States Bankruptcy Code (the "Bankruptcy Code") as from
time to time in effect, and, if against the Borrower, the
consent to or acquiescence therein by the Borrower, or the
failure to obtain dismissal thereof within thirty (30) days;
or
(iii) Making an assignment of all or substantially
all of its assets for the benefit of its creditors, or the
filing of a proceeding involving the liquidation and/or
reorganization of its affairs; or
(iv) Consenting to the appointment of a trustee,
receiver or custodian for all or a major portion of its
property; or
(v) Being the subject of an order for relief under
the Bankruptcy Code (or the equivalent thereof under the laws
of the nation wherein any Non-U.S. subsidiary may be
incorporated or resident); or
(vi) The entry of a court order under any federal or
state law appointing a receiver, trustee or custodian for all
or a major portion of its property, or ordering the winding up
or liquidation of its affairs, which order, if not consented
to by it, shall not be vacated, denied, set aside or stayed
within thirty (30) days from the date of entry; or
(vii) The issuance of a writ or warrant of attachment
or any similar process by any court against all or any major
portion of its property, and such writ or warrant of
attachment or similar process is not stayed or is not released
within thirty (30) days after its entry or levy or after any
stay is vacated or set aside.
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7.2 Remedies. Upon the occurrence of an Event of Default or at
any time thereafter until such Event of Default is cured and the exercise of
remedies related thereto waived by the Bank in writing, the Bank may exercise
any or all of the following rights and remedies:
(a) The Bank may terminate the Commitments under this
Agreement.
(b) The Bank may declare the obligations for payment
of money, and all other obligations or indebtedness
of the Borrowers, or any of them, whether arising under this Agreement or
otherwise, to be immediately due and payable, and the same shall thereupon be
immediately due and payable, without any presentment or other demand, protest,
notice of dishonor or any other notice of any kind, all of which are hereby
expressly waived.
(c) The Bank may exercise and enforce with respect to
any Collateral the rights and remedies available on default to a secured party
under the Uniform Commercial Code, or under the terms and provisions of the
Collateral Documentation, or any other applicable law. The Bank may require the
Borrowers or any of them to assemble the Collateral and make it available to the
Bank at a place, to be designated by the Bank, which is reasonably convenient to
the applicable Borrower and the Bank If notice of any intended disposition of
part or all of the Collateral is required by law in any particular instance,
such notice shall be deemed commercially reasonable if given at least thirty
(30) calendar days prior to the date of disposition.
(d) The Bank may exercise all rights and remedies
available under any security agreement or other instrument creating a security
interest or lien in any Collateral provided pursuant hereto; provided, however,
that if any Event of Default under subsection 7.1(f) shall occur, the
Commitments shall immediately and automatically (without notice to any Borrower)
terminate and the Obligations shall become immediately due and payable without
notice of any kind.
(e) Immediate prepayment of all sums, which may, at
the time of the Event of Default, be outstanding and undrawn under any Import
L/C, shall be required. Any sums so paid shall be deemed absolute payment to
Bank and shall not be considered to be money paid for security. Further, such
prepayment obligation shall be an absolute non-contingent obligation of the
Borrower that is the account party on the particular Import L/C. Notwithstanding
the foregoing, if any of the subject Import L/Cs shall thereafter expire,
undrawn to any extent, such expiration shall give rise to an obligation of Bank
to pay to the Borrower that is the account party on the particular Import L/C an
amount equal to any such sums actually prepaid hereunder for which no draw was
made.
(f) Payment of ten percent (10%) of the dollar price
required to settle all outstanding Foreign Exchange Contracts shall be deemed
accelerated and such amounts shall be immediately due and payable, provided that
actual delivery of the foreign currency subject of such agreements shall only
occur at the originally specified date. Any Foreign Exchange Contract, which is
in the form of an option, shall be deemed exercised and the foregoing
acceleration of payment of ten percent (10%) of the dollar purchase price shall
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apply. Upon settlement of outstanding Foreign Exchange Contracts, if the
acceleration and payment of said ten percent (10%) amount has resulted in an
overpayment to Bank, Bank shall promptly pay the amount of the overage to the
Borrower with whom the Foreign Exchange Contract was entered into, and if said
acceleration and payment has resulted in an underpayment to Bank, Borrowers
shall promptly pay Bank the amount of the shortfall.
(g) All sums payable by Marker Deutschland GmbH. to
USA or to International in connection with the termination of the "Exclusive
Distributorship Agreement" shall be paid directly to the Bank, and Borrowers
shall cooperate with Bank in notifying Marker Deutschland GmbH. to make such
payments directly.
(h) All sums payable by any Borrower which have been
subordinated to the indebtedness of Borrowers pursuant to this Agreement
[Subsection 3.9 above] shall be paid to the Bank;
(i) With respect to the real estate which is the
subject of the "Deed of Trust With Assignment of Rents and Security Agreement,"
dated as of August 18, 1998, and recorded on August 19, 1998, as Entry No.
7063058 in the official records of Salt Lake County, Utah, International
expressly waives and releases the right to marshal the assets of International
and waives and releases the Bank from any obligation to comply with the "One
Form of Action" Rule, U.C.A. Section 78-37-1; International acknowledges that
such "One Form of Action" Rule is inapplicable to with respect to this Agreement
or with respect to any of the Obligations of International which are secured by
the said "Deed of Trust With Assignment of Rents and Security Agreement," for
the reason that International has pledged and encumbered other forms of
collateral to Bank as additional security for the Obligations.
(j) No remedy conferred upon or reserved to the Bank
herein is intended to be exclusive of any other available remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
any other remedy given under this Agreement or any of the other Loan
Documentation or now or hereafter available at law, in equity or by statute.
7.3 Offset. In addition, upon the occurrence of any Event of
Default or at any such time thereafter, the Bank may offset any indebtedness
then owed by the Bank to any or all of the Borrowers, whether or not such
indebtedness is then due, against the Obligations and against any other
indebtedness then owed by the Borrowers (or any of them) to the Bank, whether or
not then due, and may exercise any and all other rights and remedies available
to it by law (including statutory and common law rights to set-off) or agreement
with respect to the Obligations and all other indebtedness then owed to the Bank
by any of the Borrowers. Upon the occurrence of any Event of Default, Bank may
offset the amount of the Consignment Savings Account.
7.4 Expenses. Upon the occurrence of any Default hereunder,
Borrowers agree to pay the Bank, on demand, the amount of all out-of-pocket
expenses, including reasonable attorneys' fees and legal expenses, incurred by
the Bank in connection with the exercise or enforcement of any right or remedy
referred to in this Agreement (or in any of the other Loan Documentation),
including any of the same incurred in connection with the pursuit of Bank's
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rights and interests in connection with any bankruptcy proceeding affecting any
Borrower or the Collateral (including in connection with any plan of
reorganization). In addition, Borrowers shall pay all reasonable out-of-pocket
expenses of Bank, including without limitation, all attorneys' fees, appraisal
fees, travel expenses, filing fees, and other costs and expenses incurred in
connection with any renegotiation and redocumentation of this Agreement and in
connection with any negotiations with other lenders to any Borrower.
7.5 Right of First Refusal Upon Sale of Collateral. In
exercising its right to sell the Collateral pursuant to the terms of this
Agreement or the Collateral Documentation, the Bank hereby grants to the
Borrowers a right of first refusal with respect to any bulk sale of any of the
Collateral (provided that the affected Borrower is not, at the time of the bulk
sale, the subject of any proceedings in bankruptcy). Such right of first refusal
shall be exercisable at such time as the Bank receives a bona fide offer from a
single purchaser (or from a group of purchasers submitting a single offer), in
writing, to purchase, over a period not exceeding sixty (60) days (whether in a
single transaction or a series of transactions) fifty percent (50%) or more of
the Collateral (measured in estimated dollar value), Bank shall provide
Borrowers written notice of such offer(s), whereupon Borrowers shall notify
Bank, in writing, of Borrowers' intent to exercise such right of first refusal.
Borrowers shall have thirty (30) days from the date of the mailing of such
notice to notify Bank and to close the purchase of such Collateral on the same
terms and conditions (e.g. the same price, the same payment terms, the same
delivery date, etc.) as such bona fide offeror(s), in which event Bank shall
sell such Collateral to such Borrowers. In the event that, for any reason, the
offeror fails to consummate the purchase of the Collateral, the right of first
refusal shall be revived.
ARTICLE VIII
GENERAL
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8.1 Expenses Payable in Absence of Default. The Borrowers
agree to reimburse the Bank, upon demand, for all reasonable out-of-pocket
expenses (including reasonable attorneys' fees and legal expenses) incurred
hereunder or in connection herewith, including all reasonable expenses incurred
in connection with negotiations with Non-U.S. subsidiaries and its respective
creditors, and expenses incurred in connection with the preparation of all
predecessor documentation, including the Addendum, this Agreement, the
Collateral Documentation, and all other Loan Documents, and all such reasonable
expenses incurred in connection with any subsequent amendment hereof or any
agreement or security agreement or instrument made pursuant hereto, including
filing fees, regardless of whether the transactions contemplated hereby are
consummated. In addition, Borrowers shall pay all reasonable out-of-pocket
expenses of Bank, including without limitation, any valuation audits of the
Inventories of Borrowers, all attorneys' fees, appraisal fees, fees associated
with the Lockbox Agreement (including out-of-pocket fees incurred in the
monitoring of Borrowers' Accounts by Altres Financial) travel expenses, filing
fees, and other costs and expenses incurred in connection with any renegotiation
and redocumentation of this Agreement and in connection with any negotiations
with other lenders to any Borrower.
8.2 Waivers; Consideration; Releases. No failure on the part
of the Bank or the holder to exercise and no delay in exercising, any power or
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right hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right preclude any other or further exercise
thereof or the exercise of any other power or right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Borrowers acknowledge and agree with Bank that the unpaid principal balance of
Obligations of Borrowers to Bank are, as of the date hereof, $33,162,448.28, not
including interest, expenses, and miscellaneous charges associated with
negotiations with Non-U.S. subsidiaries and their respective creditors and
out-of-pocket expenses incurred in connection with the documentation of the
Addendum and this Agreement, including the Collateral Documentation. Each
Borrower agrees with Bank that this Agreement and each of the other constituents
of the Loan Documentation constitutes the culmination of negotiations between
the parties wherein each Borrower was represented by legal counsel and each such
document was executed and delivered in the absence of coercion or economic
duress on the part of Bank. Each Borrower acknowledges and agrees that each has
received adequate consideration for the delivery of any Collateral pledged to
Bank to secure repayment of the Obligations of Borrowers. Each Borrower
acknowledges and agrees that but for the pledge and encumbrance of such
collateral for the benefit of Bank, each such Borrower would not have been able
to obtain credit from other lenders, or if such credit could have been obtained
from such other lenders, credit would not have been extended to the Borrowers on
comparable terms or conditions. Borrowers and Bank are desirous of entering into
a mutually satisfactory credit relationship and to that end, Bank has agreed to
continue to forbear in the exercise of any remedies available to Bank as an
incident of the continuing conditions of default identified in Section 2.4
above. Each Borrower hereby waives and unconditionally releases any and all
claims which such Borrower may have against Bank (whether or not arising in
connection with the Obligations), now known or hereafter discovered.
8.3 Notices. All notices, requests and demands will be given
to or made upon the respective parties hereto at their respective addresses
specified on the signature page hereof or, as to any party, at such other
address as may be designated by it in a written notice to the other party. All
notices, requests, consents and demands hereunder will be effective when
deposited in the mails, postage prepaid, or delivered by telecopy or overnight
courier, addressed as aforesaid, or when actually personally delivered.
8.4. Sale of Obligations; Consent to Disclosure of Financial
Information. Borrowers and Bank have received and expect to continue to receive
offers from third party lenders to purchase the Loan Documentation and the
Obligations of the Borrowers. Bank agrees to identify such potential purchasers
to Borrowers, and in the event that Borrowers shall not object to the disclosure
of Borrowers' financial information to such potential purchaser(s), Borrowers
shall execute and deliver their written consent to the complete disclosure to
such parties of all information and documentation contained in Bank's files or
otherwise available to Bank, including (without limitation) the opinions,
recommendations and credit analyses of Bank. Borrowers waive all rights to
participate in such discussions and waive all claims against Bank arising in
connection with such disclosures with the full understanding that Bank may
disclose to such party's information that may have an adverse impact upon
Borrowers' relationship with such parties as purchasers and transferees of the
Obligations and Loan Documentation.
8.5 Taxes. Borrowers agree to pay, and save the Bank harmless
31
<PAGE>
from all liability for, any stamp or other taxes which may be payable with
respect to the execution or delivery of this Agreement or the issuance of the
Notes, which obligation of the Borrowers shall survive the termination of this
Agreement.
8.6 Governing Law. This Agreement shall be construed in
accordance with and governed by the internal law of the State of Utah. All
matters concerning the validity and perfection of a security interest shall be
governed by the conflict of law rules set forth in the Uniform Commercial Code.
8.7 Captions. Captions herein are for convenience only and
shall not be deemed part of this Agreement.
8.8 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, the Bank and their respective successors
and assigns, except that the rights and duties of Borrowers hereunder may not be
assigned or delegated. This Agreement cannot be amended, modified, waived,
cancelled, terminated or discharged orally, but only in writing executed by the
parties hereto.
8.9 Time of Essence; No Extension at Maturity. Time is of the
essence hereof. Borrowers acknowledge and agree that Bank will not extend or
renew this Agreement or otherwise provide additional credit accommodations to
any Borrower after the Termination Date.
8.10 Survival. The terms of this Agreement and the Loan
Documentation shall continue in full force and effect so long as any Obligation
shall remain outstanding.
8.11 Further Assurances. Borrowers shall take all such further
actions and execute such additional documents as Bank may request, in form
satisfactory to Bank, to vest in, perfect, keep perfected and assure Bank's
rights hereunder and in and under the Loan Documentation.
8.12 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
8.13 Integration. In addition to this Agreement and the other
Loan Documentation (including UCC financing statements), this finance
transaction may include written documentation such as resolutions, waivers,
notices, acknowledgments, statements, closing or escrow instructions, loan
purpose statements, and other documents that Bank may customarily use in such
transactions. Such additional documents are incorporated herein by this
reference. The Loan Documentation and such other documents listed in this
paragraph express, embody and supersede any previous understandings, agreements
or promises (whether oral or written) with respect to this finance transaction,
and the above listed documents represent the final expression of the agreement
between Bank and Borrowers, the terms and conditions of which cannot hereafter
be contradicted by any oral understanding (if any) not reduced to writing. It is
further expressly agreed that the security provided by the Security Agreement
and any other documents securing the Obligations shall continue in full force
and effect for all of the Obligations and shall have the benefit of the priority
32
<PAGE>
afforded by prior filings, recordings and actions, all of which are reconfirmed
and continued hereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
MARKER INTERNATIONAL, a Utah
corporation
By: /s/ Kevin Hardy
-------------------
Its: Chief Financial Officer
----------------------------
Address: 1070 West 2300 South
Salt Lake City, Utah 84119
MARKER USA, a Utah corporation
By: /s/ Kevin Hardy
-------------------
Its: Chief Financial Officer
----------------------------
Address: 1070 West 2300 South
Salt Lake City, Utah 84119
MARKER LTD, a Utah corporation
By: /s/ Kevin Hardy
-------------------
Its: Chief Financial Officer
----------------------------
Address: 1070 West 2300 South
Salt Lake City, Utah 84119
DNR NORTH AMERICA, INC., a
Delaware corporation
By: /s/ Kevin Hardy
-------------------
Its: Chief Financial Officer
----------------------------
Address: 1070 West 2300 South
Salt Lake City, Utah 84119
DNR USA, a Delaware corporation
By: /s/ Kevin Hardy
-------------------
Title: Chief Financial Officer
------------------------------
33
<PAGE>
Address: 1070 West 2300 South
Salt Lake City, Utah 84119
FIRST SECURITY BANK, N.A.
By /s/ Vicki J. Perkins
-----------------------
Its Senior Vice President
--------------------------
Address: 79 South Main Street, Suite 800
Salt Lake City, Utah 84111
ATTN: Vicki Perkins, Vice President & Manager
33
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<PERIOD-END> SEP-30-1998
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