UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-24556
MARKER INTERNATIONAL
(Exact name of registrant as specified in its charter)
Utah 87-0372759
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1070 West 2300 South
Salt Lake City, Utah 84119
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (801) 972-2100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of
the Registrant as of June 30, 1999 (based upon the average of closing bid and
ask prices as of such date) was $4,344,825.
The number of shares of Common Stock outstanding as of June 30, 1999
was 11,140,577.
Documents incorporated by reference: None.
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FORM 10-K
MARKER INTERNATIONAL
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TABLE OF CONTENTS
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PART I
Page
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ITEM 1 Business..........................................................3
ITEM 2 Properties.......................................................14
ITEM 3 Legal Proceedings................................................15
ITEM 4 Submission of Matters to a Vote of Security Holders..............16
PART II
ITEM 5 Market for the Registrant's Common Equity
and Related Stockholder Matters........................17
ITEM 6 Selected Consolidated Financial Data.............................19
ITEM 7 Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations..........20
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk.......29
ITEM 8 Consolidated Financial Statements and
Supplementary Data.....................................30
ITEM 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................30
PART III
ITEM 10 Directors and Executive Officers of the Registrant...............31
ITEM 11 Executive Compensation...........................................33
ITEM 12 Security Ownership of Certain Beneficial
Owners and Management..................................36
ITEM 13 Certain Relationships and Related Transactions...................36
PART IV
ITEM 14 Exhibits, Consolidated Financial Statement
Schedules and Reports on Form 8-K......................40
SIGNATURES...........................................................................48
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PART I
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This form 10-K contains forward-looking statements within the meaning
of that term in the Private Securities Litigation Reform Act of 1995 (Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934). Additional written or oral forward-looking statements may be made by
the Company from time to time, in filings with the Securities and Exchange
Commission or otherwise. Statements contained herein that are not historical
facts are forward-looking statements made pursuant to the safe harbor provisions
referenced above. Forward-looking statements may include, but are not limited
to, projections of revenue, income or loss and capital expenditures, statements
regarding future operations, financing needs, compliance with financial
covenants in loan agreements, plans for acquisition or sale of assets or
businesses and consolidation of operations of newly acquired businesses, and
plans relating to products or services of the Company, assessments of
materiality, predictions of future events and the effects of pending and
possible litigation, as well as assumptions relating to the foregoing. In
addition, when used in this discussion, the words "anticipates," "believes,"
"estimates," "expects," "intends," "plans" and variations thereof and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified based on current
expectations. Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements contained in this Annual Report on Form 10-K.
Statements in this Annual Report, particularly in "Item 1. Business," "Item 3.
Legal Proceedings," the Notes to Consolidated Financial Statements and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe certain factors, among others, that could contribute to or
cause such differences. Other factors that could contribute to or cause such
differences include, but are not limited to, unanticipated developments in any
one or more of the following areas: ability to secure financing, the rate and
consumer acceptance of new product introductions, competition, the number and
nature of customers and their product orders, pricing, foreign manufacturing,
sourcing and sales (including foreign government regulation, trade and
importation concerns and fluctuation in exchange rates), borrowing costs,
changes in taxes due to changes in the mix of U.S. and non-U.S. revenue, pending
or threatened litigation, the availability of key personnel and other risks
factors which may be detailed from time to time in the Company's Securities and
Exchange Commission filings.
Readers are cautioned not to place undue reliance on any
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unexpected events.
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Item 1. Business
Recent Events
Letter of Intent with CT Sports Holding AG - On March 7, 1999, Marker
International ("Marker" or the "Company") signed a letter of intent with CT
Sports Holding AG, a Swiss company ("CT Sports"), pursuant to which the Company
will transfer substantially all of its assets and certain liabilities under a
confirmed chapter 11 plan of reorganization to a newly formed entity ("Newco").
In exchange, Marker will receive a 15% equity interest in Newco, subject to
possible adjustment. The remaining 85% equity interest in Newco will be issued
to CT Sports in exchange for $15 million in cash (subject to reduction by
$1,025,501 as a result of the consummation of the transactions under the Marker
Canada, Ltd. ("Marker Canada") Shareholders Agreement described below). CT
Sports is a newly formed entity owned by Tecnica S.p.A. and H.D. Cleven, the
principal shareholder of the Volkl Group.
Under the letter of intent, Marker International, DNR USA, Inc. ("DNR
USA"), and DNR North America, Inc. ("DNR North America") are required to file a
petition for relief under Chapter 11 of the United States Bankruptcy Code
("Chapter 11") within 14 days of the execution of a definitive purchase
agreement. Following the execution of the purchase agreement, Marker will be
obligated to pay a $1.0 million break-up fee to CT Sports if the acquisition is
not consummated and (i) Marker consummates any plan of reorganization other than
the plan agreed upon by CT Sports, or (ii) Marker consummates any sale of its
stock or assets other than as contemplated by the purchase agreement upon terms
more favorable to the shareholders of Marker (an "Alternative Sale"). Marker
will not be obligated to pay the break-up fee if Marker's failure to consummate
the acquisition is due to (i) circumstances beyond its control, Marker is not in
material breach of the purchase agreement and Marker has not consummated an
Alternative Sale, or (ii) a material breach by CT Sports of the purchase
agreement. Marker is also required to reimburse CT Sports and its affiliates for
actual costs and expenses incurred by them in connection with the acquisition
unless (i) either the letter of intent or the purchase agreement is terminated
in accordance with terms or as a result of a material breach by CT Sports, or
(ii) CT Sports elects to abandon the acquisition.
The letter of intent requires a period of exclusivity and cooperation
from Marker. There are numerous conditions to CT Sport's obligation to
consummate the acquisition. Such conditions include, but are not limited to, (a)
Newco entering into employment agreements with key members of Marker's
management, (b) satisfactory due diligence, (c) there not being any material
adverse change in the business of the Company, (d) Marker and CT Sports entering
into lockup agreements with a majority of Marker's shareholders and (e)
acceptable pre-bankruptcy agreements with key creditors.
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Marker is currently in the process of negotiating the terms and
conditions of a definitive purchase agreement with CT Sports and is negotiating
with certain of its creditors in order to satisfy certain of the conditions
precedent to the acquisition. There can be no assurance that Marker will enter
into a definitive purchase agreement with CT Sports on the terms contemplated in
the letter of intent or that Marker will be able to satisfy the conditions
precedent under any such agreement.
The transaction does not require the Company's other subsidiaries,
including Marker USA, Marker Japan, Marker Ltd., Marker Austria GmbH ("Marker
Austria"), Marker Canada and Marker Deutschland GmbH ("Marker Germany"), to file
a voluntary petition for relief under Chapter 11 and, therefore, the Company
currently does not anticipate filing voluntary petitions for these subsidiaries.
Sale of Marker Canada Interest - On June 18, 1999, CT Sports, Marker
International, Marker Canada and Lapointe Rosenstein, as escrow agent, entered
into a shareholders agreement (the "Shareholders Agreement") pursuant to which
CT Sports purchased 200 class "A" shares of Marker Canada for a purchase price
of Cdn $1.5 million (U.S. $1.0 million). The 200 class "A" shares represent
66.66% of the outstanding voting and participating shares of Marker Canada. The
remaining 100 class "A" shares, representing 33.33% of the outstanding and
voting shares, are held by the Company. The purpose of this transaction was to
provide working capital to Marker Canada.
CT Sports will hold its 200 shares in the name of and on the behalf of
Marker International GmbH (in foundation), which upon formation will be deemed
to be the shareholder of such shares. The purchase price of Cdn $1.5 million
(U.S. $1.0 million) will be deducted from the U.S. $15 million required to be
contributed by CT Sports to Newco pursuant to the purchase agreement between the
Company and Newco (the "Asset Purchase Agreement"). CT Sports has the option
(the "Option") to require Marker to sell to CT Sports all of Marker's 100 shares
of Marker Canada for a purchase price of Cdn $750,000 (U.S. $0.5 million), less
all amounts then payable by Marker or any of its subsidiaries to Marker Canada,
CT Sports or any subsidiary or affiliate of CT Sports. The Option is exercisable
if (i) the transactions contemplated by the Asset Purchase Agreement are not
consummated on or before December 31, 1999, (ii) Marker or any of its
subsidiaries is acquired by, merges with or sells all or a substantial part of
its assets or securities to a person other than CT Sports, its subsidiaries or
affiliates, (iii) Marker makes a motion or application in the bankruptcy court
to reject the Option, or (iv) Marker contests the validity or enforceability of
the Option or denies it has any obligations under the Shareholders Agreement.
In connection with the Shareholders Agreement, each of Marker, Tecnica
S.p.A. and the Volkl Group entered into distribution agreements with Marker
Canada granting Marker Canada the exclusive right to distribute certain products
in Canada for a period of five years.
License of Apparel Business - On March 8, 1999, the Company and Marker
Ltd., a wholly-owned subsidiary of Marker, entered into a license agreement
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granting Ski & Sports Recreation Company, L.L.C. ("SSRC") an exclusive,
worldwide right to manufacture, market and sell the Company's clothing, gloves
and luggage products (the "Apparel Business") utilizing the Marker tradename in
return for royalty payments equal to a percentage of net sales which ranges from
3% to 5%. The initial term of the agreement is from April 1, 1999 through March
31, 2009 and is automatically extended for additional one year periods unless
sooner terminated by either party in accordance with the agreement. The Company
has the right to terminate the license agreement in the event annual sales fall
below a certain level. In addition, the Company has an option for the 24 month
period commencing on April 1, 1999 and ending on March 31, 2001 to acquire by
assignment all of the rights of SSRC under the license agreement for a formula
price based upon earnings before interest and taxes as set forth in the Option
and Right of First Refusal Agreement dated March 8, 1999 between the Company and
Marker Ltd. and SSRC. Further, the Company has a right of first refusal through
March 31, 2002 as to any sale or transfer of the business and assets used by
SSRC for the manufacture, sale and marketing of the Apparel Business. In
connection with the license agreement, SSRC agreed to purchase certain assets of
Marker Ltd. for $859,000, of which $450,000 was paid at closing, $204,500 was
due on July 10, 1999 (but remains unpaid) and $204,500 is due on August 31,
1999. With respect to certain Olympic inventory, SSRC agreed to pay 60% to 75%
of the net sales price to the Company as the sales price is received.
Marker Germany and Marker Austria Stockholder's Deficit - As of March
31, 1999, Marker Germany and Marker Austria, on a stand alone unconsolidated
basis, each had a net stockholder's deficit. Under the applicable foreign laws
and regulations, in order to avoid bankruptcy proceedings, these entities
require additional capital infusions. Marker and CT Sports are in the process of
negotiating the Asset Purchase Agreement and debt restructuring arrangements
with certain of Marker's creditors. If successful, these negotiations will
result in capital infusions which will increase the stockholder's equity of
these entities. There can be no assurance that the Company will be successful in
increasing stockholder's equity at a level sufficient to avoid such bankruptcy
proceedings.
Non-compliance with Debt Covenants / Defaults / Debt Restructuring - As
of March 31, 1999, the Company was not in compliance with a minimum tangible net
worth covenant under a $3.0 million Canadian Dollar (U.S. $2.0 million) line of
credit agreement with the Royal Bank of Canada ("Royal Bank"). The Company was
also not in compliance with margin requirements under the same line of credit as
of March 31, 1999. On June 22, 1999, the Royal Bank notified the Company of
several terms and conditions that it requires the Company to meet in order for
the Royal Bank to continue to provide financing to the Company. The Company is
currently in the process of attempting to comply with the terms and conditions
that the Royal Bank has outlined in its letter and is in the process of
negotiating with a new lender in order to obtain financing. In the event that
non-compliance is not cured or waived, the Royal Bank may exercise its rights to
demand payment of all amounts due and/or foreclose on the Company's assets which
are pledged as collateral under the agreement which could also lead to
cross-defaults under the Company's other credit arrangements. There can be no
assurance that the Company will be able to cure its non-compliance, reach a
satisfactory agreement with Royal Bank or secure financing from a new lender.
On April 15, 1999, the Company did not make a required principal and
interest payment of DM 900,000 (U.S. $496,000) on a note payable to
HypoVereinsbank, New York. On April 16, 1999, HypoVereinsbank notified the
Company that the nonpayment of principal and interest constituted a default
under the terms of the note and that the entire balance of DM 6.4 million (U.S.
$3.5 million) was immediately due and payable. As a result, HypoVereinsbank
applied the proceeds of a time deposit that was held as security by the bank in
the amount of $2.0 million against the outstanding balance due on the note. The
Company is currently negotiating with HypoVereinsbank to restructure the
outstanding balance. In the event that an agreement is not reached,
HypoVereinsbank could proceed to obtain a judgment against the Company and force
the Company into an involuntary bankruptcy. There can be no assurance that the
Company will reach a satisfactory agreement with HypoVereinsbank.
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The Company did not make the required interest payments of $125,000 due
in October 1998 and $125,000 due in April 1999 on the Series A Bonds. As a
result, the bondholder has the right to declare the Series A Bonds in default
and accelerate the entire outstanding balance of $11.4 million plus accrued
interest. On March 26, 1999, CT Sports entered into a restructuring agreement
with the bondholder which is contingent, among other things, Marker entering
into a definitive purchase agreement with CT Sports. Under the agreement the
Series A Bonds will be reduced to an aggregate principal amount of $5,750,000
and payable in four equal annual installments of $750,000 with $2,750,000
payable after 5 years. The agreement also requires interest payments at 2% per
annum during the first four years, and thereafter a variable rate not exceeding
the prime rate on commercial loans in Japan plus 0.5%. The agreement also
requires that certain personal guarantees of Eiichi Isomura on Marker Japan's
debt obligations be satisfied commencing on the sixth anniversary of the
bankruptcy court confirming a plan of reorganization. There can be no assurance
that the bondholder will not declare the Series A Bonds in default and
accelerate the outstanding balance.
Subsequent to March 31, 1999 the Company notified M&T Bank and KeyBank,
banks with which the Company had certain foreign exchange arrangements, that the
Company would be unable to utilize its foreign exchange contracts as originally
intended. As a result, on May 25, 1999 M&T Bank terminated the foreign exchange
netting agreement (the "Netting Agreement") dated May 1, 1997 with the Company.
Pursuant to its rights under the Netting Agreement, M&T Bank canceled and closed
out all outstanding foreign exchange contracts for a loss of $3.7 million as of
May 21, 1999 and demanded immediate payment of this amount. Although the Company
is currently negotiating with M&T Bank to restructure this obligation, there can
be no assurance that the Company will reach a satisfactory agreement with M&T
Bank. In the event that an agreement is not reached, M&T could proceed to obtain
a judgment against the Company and force the Company into an involuntary
bankruptcy. As of June 30, 1999, the aggregate loss on foreign exchange
contracts with M&T Bank and KeyBank totaled approximately $5.1 million. The loss
on the KeyBank contracts will continue to fluctuate as a result of changes in
the exchange rates.
The Company is not in compliance with several loan covenants under the
terms and conditions of the revolving credit agreement among the Company, its
U.S. subsidiaries and First Security Bank. On June 14, 1999, First Security Bank
notified the Company that the termination of the Netting Agreement with M&T Bank
constituted a default under the revolving credit facility. Also, as of June
30,1999, the Company's outstanding balance on its line of credit exceeded the
available borrowing base for a period greater than the ten day mandatory
repayment period allowed under the revolving credit agreement which also
constitutes a default. As of July 14, 1999, First Security Bank had not declared
the line of credit in default, but has reserved the right to do so. In the event
that the bank declares the line of credit in default, the bank can exercise its
rights to demand payment of all amounts due under the revolving credit
agreement, foreclose on the Company's assets which are pledged as collateral
under the agreement, or force the Company into an involuntary bankruptcy. There
can be no assurance that the Company will be able to cure its non-compliance or
reach a satisfactory agreement with the bank.
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On March 31, 1999, the Company's DM 58.7 million (U.S. $32.3 million)
line of credit with HypoVereinsbank, Deutsche Bank AG and BFG Bank expired.
HypoVereinsbank and Deutsche Bank AG have agreed to extend the credit line
through August 31, 1999 based on numerous conditions. Such conditions include,
but are not limited to, (i) the consummation of the transactions contemplated by
the Asset Purchase Agreement (ii) Marker and CT Sports entering into lockup
agreements with a majority of Marker's shareholders and acceptable
pre-bankruptcy agreements with key creditors, and (iii) product purchase
guarantees by CT Sports. There can be no assurance that the Company will be
successful in meeting these conditions. In the event that the Company is unable
to meet these conditions, the German banks could terminate the bank line
immediately and force the Company into an involuntary bankruptcy.
On January 14, 1999, the Company, in coordination with Zions First
National Bank ("Zions") disposed of its leased snowboard equipment through an
auction. The net proceeds of the auction were paid to Zions. The balance of $1.8
million was to be paid according to the original terms of the lease. On March
17, 1999, the Company signed an agreement with Zions whereby the Company would
make a lump sum payment of $170,000 on or before July 1 as full settlement of
the remaining lease obligation of $1.7 million. On June 30, 1999, the Company
signed a revised agreement with Zions whereby the Company paid $30,000 on June
30, 1999, and must pay the remaining $140,000 on or before October 1, 1999. In
the event this payment is not made, the Company remains liable for the entire
$1.7 million obligation. There can be no assurance that the Company will be able
to satisfy its obligation to pay the remaining $140,000 to Zions by October 1,
1999.
Although the Company is seeking to alleviate its current fiscal
problems by, among other things, restructuring the Company's obligations,
obtaining additional financing, entering into the Asset Purchase Agreement with
CT Sports, and filing a voluntary petition for relief under Chapter 11 of the
United States Code, there can be no assurance that the Company will be
successful in such endeavors or that the Company will not be forced into an
involuntary bankruptcy. Accordingly, there is substantial doubt that the Company
will be able to continue as a going concern.
General
Marker is a leading designer, developer, manufacturer and marketer of
alpine ski bindings in North America, Europe and Asia. Marker International is a
holding company which operates its business through its subsidiaries, Marker
Germany, Marker USA, Marker Japan, Marker Austria and Marker Canada (see "Recent
Events" regarding the sale of 66.66% of the equity interests in 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.
In addition, prior to September 1998, Marker designed, developed,
manufactured and marketed snowboards, Interface Step-in SystemsTM, traditional
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snowboard bindings and snowboard boots. Marker operated its snowboard business
through DNR Sportsystem Ltd. ("DNR Sportsystem"), an 80% owned subsidiary of
Marker AG, a wholly-owned subsidiary of the Company, and Marker's wholly-owned
subsidiaries, DNR USA, Inc. ("DNR USA"), DNR North America, Inc. ("DNR North
America") and DNR Japan Co., Ltd. ("DNR Japan"). DNR Sportsystem designed,
developed and distributed snowboards and related products. DNR USA manufactured
snowboards for distribution under the Santa CruzTM and MarkerTM brand names. DNR
North America and DNR Japan, through their own sales force, marketed snowboards,
Interface Step-in SystemsTM, snowboard bindings and boots directly to retailers
in the United States and Japan, respectively. The Company has substantially
completed the process of exiting the snowboard business through dissolution and
sale of its snowboard subsidiaries and related assets. On December 14, 1998, the
Company sold its 80% interest in DNR Sportsystem Ltd. for nominal consideration
and the elimination of all outstanding intercompany balances. On December 31,
1998, the Company sold the building and land that housed the Company's snowboard
manufacturing operations for $3.1 million. On January 14, 1999, the Company's
leased snowboard manufacturing equipment was disposed of through an auction and
the net proceeds of the auction were paid to the equipment lessor. The Company
has a remaining obligation of $1.7 million to the lessor, which is included in
the liabilities of continuing operations. The Company is currently in the
process of collecting its remaining outstanding snowboard receivables of
$171,000, net of allowance for doubtful accounts, as of March 31, 1999, which
will complete the Company's exit from the snowboard business.
The Company was incorporated in 1981 under the laws of the State of
Utah. The Company's principal executive offices are located at 1070 West 2300
South, Salt Lake City, Utah 84119 and its telephone number is (801) 972-2100.
Products
Ski Bindings
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The Company designs, develops, manufactures and distributes ski
bindings consisting of more than 25 high quality models. The models range from
high performance racing models, such as the Logic CP Biometric M9.1 Turbo SC
RacingTM and other top-end models featuring the Company's patented Selective
Control SystemTM, BiometricTM Programmed Upward Release and Comshock PistonTM,
to the children's M9 model. Suggested retail prices in the United States of such
models range from $120 to $395.
In addition to a ski binding's primary function of attaching a ski to a
ski boot, the binding serves as a safety mechanism. The timing of a binding's
release mechanism is significant in both its retention and release functions.
When a skier applies an amount of force to a ski binding that exceeds the safety
setting of the binding, the binding is designed to release the ski boot from the
ski in order to decrease the risk of injury to the skier. Therefore, a binding
must be designed to recognize specific levels of force exerted against it.
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Marker bindings feature LogicTM, BiometricTM, Edge Pressure SystemTM
and Gliding AFDTM technology. The Company's patented technology tightly couples
the ski boot and binding, resulting in a binding system that is designed not to
be affected by contamination between the ski boot and binding and provide more
power to the ski, less fatigue to the skier.
Soft Goods
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The Company designed, distributed and marketed apparel for adults,
gloves and ski and non-ski luggage. The Company's clothing line featured
quality, functional and versatile performance wear for year-round sports and
recreational activities available at a wide range of prices.
The Company's apparel lines, gloves and luggage were sold year round to
retailers mainly in the United States through Marker Ltd.'s own sales force.
In October 1995, Marker Ltd. was selected by the Salt Lake Olympic
Organizing Committee for the 2002 Olympic Winter Games ("SLOC") as a licensee
for the sale of winter outerwear, polar fleece, luggage and gloves with the
imprint and embroidery of the 2002 Olympic Winter Games. In February 1996,
Marker Ltd. was selected as a licensee for sale of T-shirts, sweatshirts, golf
shirts and related apparel with the imprint and embroidery of the 2002 Olympic
Winter Games.
Effective April 1, 1999, the Company licensed Ski & Sports Recreation
Company, L.L.C. to manufacture and sell apparel, luggage and gloves utilizing
the Marker trademark. See "Recent Events."
Marketing
The Company actively advertises and markets its products. The Company
spends the majority of its advertising budget on advertisements in ski
magazines, such as Skiing Magazine, Ski Magazine and Powder Magazine in the
United States, and similar magazines in foreign markets.
To increase brand recognition, in addition to offering technologically
advanced bindings, the Company aggressively markets the Marker brand name. To
influence its presence in retail shops, the Company devotes resources to
maintaining and improving its relationships with retailers and shop personnel so
that they will use Marker products and recommend them to their retail customers.
In this regard, the Company, through its sales force, conducts in-shop sales
clinics. In addition, the Company, as part of the United States Authorized
Retailer Program, requires that all authorized retail shops employ a technician
who has been trained and certified by the Company concerning the installation
and adjustment of Marker bindings. Additionally, the Company sells its bindings
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to the sales staff of its retailers and to professional skiers at special prices
so that they will be able to recommend the Company's products as a result of
personal experience.
To foster the recognition of the Marker brand name, the Company also
establishes endorsement relationships with national ski teams and racing
professionals. These endorsement contracts typically run from one to two years
and provide for a base payment to the racer, with additional payments for
placing in a competition. Racers using and endorsing Marker bindings have been
among the winners in World Cup, World Championship and Olympic competitions.
Many of the United States' best-known skiers, including 1998 Olympic Super G
Gold medalist Picabo Street, three-time World Cup Champion and Olympic Gold
medalist Phil Mahre, World Champions Steve Mahre and Tamara McKinney and Olympic
Gold medalist Stein Eriksen, endorse and use Marker bindings. Skiers endorsing
and using Marker bindings, as in prior years, were very successful in the 1999
Alpine Ski World Championship held in Vail, Colorado in February 1999, winning 4
Gold, 4 Silver and 2 Bronze medals out of 10 events.
Skiers endorsing and using Marker bindings also excelled in the season
long 1999 FIS World Cup competition. Alexandra Meissnitzer of Austria is the
1999 Women's Overall World Cup Champion, as well as the 1999 World Cup Giant
Slalom and Super G Champion. Athletes endorsing and using Marker bindings won
many World Cup trophies again in 1999 on the World Cup circuit. These athletes
scored 24 wins, finished second 21 times and finished third 18 times out of 69
World Cup events (33 men, 36 women) in 1999. The Company believes that winning
World Cup, World Championship and Olympic competitions at places like St. Anton,
Sestrieres and Vail increases the Company's visibility in the marketplace.
Marker engineers also use these competitions as opportunities to work with the
Marker skiers to develop new products and to test and refine prototypes, with
the goal of benefiting skiers of all levels.
Sales
Approximately 65% of the Company's total ski binding orders for each
fiscal year are obtained through its "Pre-Season Sales Program," which runs from
February 1st through September 15th. In clothing, luggage and gloves,
approximately 75% of the total orders for a fiscal year are obtained during this
period. The volume of orders is affected by the volume of the retailers' prior
season's sales and inventory levels. Marker bindings ordered under the
Pre-Season Sales Program are shipped to retailers from March through November
and are recorded by the Company as sales on the date of shipment. This results
in the recording of the majority of the Company's annual sales during its second
and third fiscal quarters. Although certain of Marker's customers have
contributed significantly to the Company's sales, no customer represented more
than 10% of its sales in any of the last three years.
Approximately 30% of the Company's total ski binding orders for each
fiscal year are obtained through its "Reorder Program," which includes products
ordered after September 15th and shipped before March 31st of each year.
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Bindings sold under the Reorder Program usually include models in the Company's
existing inventory and products which will be discontinued in the upcoming
season. The success of the Reorder Program primarily affects the Company's third
and fourth fiscal quarter results.
Approximately 5% of the Company's total ski binding orders for each
fiscal year are obtained through its Shop and Pro Programs, which offer reduced
pricing on the Company's products to retail ski shop employees, ski instructors
and other professionals in the industry. The Company believes that
recommendations from sales persons and professional skiers can be an important
factor in influencing consumer decisions to purchase a particular binding brand.
Sales of the Company's snowboard products historically occurred during
the February 1st through September 15th pre-season period.
Product Development and Intellectual Property
In order to maintain its leadership position and to continue to offer
technologically advanced ski bindings, the Company continues to devote resources
to improving and developing its current products and those it will use in the
future. The Company's research, development and design of ski bindings is
managed by the Company's Research and Development Department (the "R&D
Department") at the Company's plant in Eschenlohe, Germany. The Company has
developed all of its proprietary technology used in manufacturing Marker ski
bindings. During fiscal years 1999, 1998 and 1997, the Company's research and
development expenses from continuing operations were approximately $2.8 million,
$3.0 million, and $3.0 million, respectively.
Product development is a result of the integrated efforts of the
Company's R&D, manufacturing and sales departments, all of which work together
to generate new ideas to be incorporated into the Company's products. The
Company also regularly receives suggestions from ski racers who use the
Company's products. After the Company decides to use a new component in a
product, the R&D Department, with the assistance of machine shop personnel,
integrates the mechanical process and refines the product design and mechanism
of the developing product. Simultaneously with the development of the internal
mechanisms of its products, the Company usually engages an outside firm to
assist in the determination of colors and the integration of shape with the new
technology.
The Company has a state-of-the-art laboratory used for testing products
in the development stage, as well as products currently on the market.
Additionally, the laboratory technicians regularly test products produced by the
Company's competitors.
The R&D Department continually develops new components for which the
Company may obtain patents. The Company typically files its patent applications
in the name of Marker International or the appropriate subsidiary. Patent
11
<PAGE>
applications have been filed in the United States, Germany, Japan and, in
certain cases, the countries in which the Company's competitors manufacture ski
bindings. The Company has filed more than 17 patent applications over the past
three years and currently has over 93 families of patents and patent
applications covering its technology filed in numerous countries around the
world, of which over 29 are devoted to technology currently in use by the
Company. In addition, the Company owns 56 applied and registered trademarks, of
which 21 are used for our current product line.
The Company has been involved in patent disputes with its competitors
in the past. In connection with the resolution of such disputes, the Company has
negotiated settlements which include cross-licensing agreements involving
certain technology believed by the Company to be significant. Based on the
Company's analysis of its competitors' products, the Company believes it may
have present patent infringement claims. The Company has not determined whether
to pursue any such claims, nor is there any assurance that if so pursued, the
Company would be successful on the merits.
The Company markets its products under a number of trademarks
registered in various countries throughout the world. The Company believes that
the MARKER trademark is widely known as identifying high-quality,
high-technology ski bindings and is deemed to be a valuable asset of the
Company. The Company is not aware of any third party violations of its
trademarks.
Competition
The Company competes on the basis of the quality, technology, brand
name recognition and performance of its ski bindings and related products. Other
competitive factors include marketing and distribution methods, customer service
and the management of sales promotion activities.
The Company devotes resources to establishing and maintaining strong
relationships with retailers and shop personnel through sales clinics, technical
training and certification, and discounted prices to shop personnel. The Company
believes that its strong relationship with retailers and shop personnel gives
the Company's ski products advantageous shelf space in certain retail outlets
and recommendations from shop personnel.
The Company's primary competitors are Salomon, Tyrolia/Head, Rossignol
and ESS/Atomic. Certain of the Company's competitors offer other ski equipment
in addition to ski bindings. Based upon market surveys of the alpine ski binding
market in the United States (computed in dollars), the Company estimates that
its share of the alpine ski binding market was more than 45% for the 1998/99 ski
season. Foreign market surveys available to the Company indicate that its alpine
ski binding market share for such period was more than 40% in Germany and
approximately 20% in Japan.
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Due to existing technological and manufacturing barriers, as well as
the difficulty of overcoming lack of brand recognition and quality concerns, the
Company does not anticipate the entry of significant new competitors into the
ski binding market.
Raw Materials
The Company requires various readily available metals and plastics to
manufacture its ski bindings. The Company furnishes its suppliers with the
tooling for the metals and moldings for the plastics used in production. The
suppliers then provide the Company with the required parts. The Company believes
it is not dependent on any one supplier or any group of suppliers for the raw
materials necessary to manufacture its bindings.
Seasonality
The Company's business is seasonal in nature and results of operations
vary from quarter to quarter. Orders for the Company's products from retailers
and distributors are the highest during the Company's first fiscal quarter,
which ends June 30. The Company ships its products to fill those orders, and
records significant sales, during its second and third fiscal quarters. The
Company collects a substantial portion of its receivables during its third and
fourth fiscal quarters.
Working Capital
Historically, the Company satisfied its working capital needs from
credit facilities obtained from banks as addressed in Management's Discussion
and Analysis, set forth in Item 7, below. The Company currently has inadequate
working capital to fund operations and service repayment of debt (see "Recent
Events").
Employees and Labor Relations
As of March 31, 1999, the Company had 530 full-time and part-time
employees. Subsequent to March 31, 1999, the Company reduced its headcount by 95
employees through a severance program. The severance program is part of an
overall restructuring plan that the Company is in the process of implementing in
order to reduce its cost structure. None of the Company's employees are
unionized. In Germany, where approximately 335 individuals are currently
employed by the Company, the employees are represented by a worker's council. As
required by German law, one of the council members is paid by the Company to
represent the interests of the workers. The Company believes that its relations
with its employees are good.
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<PAGE>
Regulations
Federal, state and local environmental regulations have not had, and
are not expected to have, any material adverse effect upon the expenditures,
earnings or competitive position of the Company.
Foreign and Domestic Operations and Exports
Information regarding the Company's operations and assets by geographic
region for the fiscal years ended March 31, 1999, 1998 and 1997 appears in Note
12 of the Notes to Consolidated Financial Statements contained herein.
Item 2. Properties
The Company owns its 57,000 square foot combined headquarters and
western United States distribution facility located in Salt Lake City, Utah,
which was constructed in fiscal 1995. The Company's headquarters and
distribution facility is for sale. The Company also leases an 8,600 square foot
warehouse in Manchester, New Hampshire for use as its eastern United States
distribution hub. The Company believes that the New Hampshire warehouse space is
adequate to meet the needs of the Company's eastern customers.
Marker Germany leases a 124,146 square foot office, research and
development and manufacturing facility in Germany. Nearly all of the Company's
binding products are manufactured at this facility which houses technologically
advanced production and quality assurance machinery. The Company believes that
the facility is well suited to meet the manufacturing needs of the Company and
is presently utilized at approximately 65% of total capacity. The lease for the
manufacturing facility expires in 2012.
Marker Japan leases three offices in Japan from which sales and
distribution activities are directed. These offices are located in the cities of
Tokyo, Sapporo and Osaka and comprise approximately 3,500, 500 and 675 square
feet, respectively. In addition, Marker Japan leases warehouse space for
inventory storage in Tokyo and Osaka totaling approximately 12,900 and 1,075
square feet, respectively. Management believes that these facilities are
suitable for the required operational needs of Marker Japan.
The Company owned a 56,608 square foot snowboard manufacturing facility
located on approximately five acres of land it owned adjacent to the Company's
headquarters in Salt Lake City. On December 31, 1998, the Company sold the
building and land that housed the Company's snowboard manufacturing operations
for $3.1 million.
14
<PAGE>
During fiscal year 1999, the Company leased a 4,700 square foot
facility in St-Laurent, Quebec, to house sales and administration staff for
Marker Canada. Warehouse space in Canada is leased as needed from a public
warehouse.
Item 3. Legal Proceedings
On March 22, 1999, Pierro G. Ruffinengo filed a breach of contract
lawsuit against the Company and certain of its officers and directors in the
Third Judicial District Court in Salt Lake City, Utah. The plaintiff, who
provided legal and consulting services to the Company from 1982 to 1998, is
claiming monetary damages and also claiming an ownership interest in several
patents. The Company is currently involved in settlement negotiations with Mr.
Ruffinengo. Based on a review of the current facts and circumstances, management
has provided for what is believed to be a reasonable estimate of the exposure to
loss associated with this matter. There can be no assurance that the Company
will reach a satisfactory settlement with the plaintiff.
On May 11, 1999, Marker was served with a subpoena to provide documents
and records to a Grand Jury in the United States District Court, Northern
Division for District of Utah. The subpoena requests documents and records to be
produced regarding certain individuals with respect to The Salt Lake City
Olympic Organizing Committee, Salt Lake City Olympic Bid Committee and the
International Olympic Committee. The Company believes that it has submitted all
the required documentation. Although to date the Company has not received
additional correspondence from either The Salt Lake City Olympic Organization
Committee, the Salt Lake City Olympic Bid Committee, the International Olympic
Committee or the Grand Jury regarding this matter, there can be no assurance
that these matters will not be pursued further.
In September 1995, the Company, along with other significant companies
in its business, received a letter from the Department of Justice (the "DOJ")
explaining that the pricing practices of the various companies in the ski
industry were being reviewed. Although to date the Company has not received
additional correspondence from the DOJ, there can be no assurance that the DOJ
will not pursue these matters further.
In the opinion of the Company, neither the Company nor any of its
subsidiaries is currently a party to or subject to any other material pending
legal proceedings. However, the Company is not in compliance with certain
financial covenants and in default under its obligations to certain creditors
(see "Business - Recent Events"). Any legal proceeding resulting from such
non-compliance and such defaults would have a material adverse effect on the
Company's ability to continue its operations.
The nature of the sport of skiing entails inherent risks of injury. It
is expected that the Company from time to time will be subject to claims and
lawsuits as a result of the nature of its businesses. The Company maintains
insurance that it believes meets industry standards to protect itself against
product liability claims. The adequacy of the insurance coverage and reserves
established by the Company to cover known, as well as incurred but unknown,
product liability claims are evaluated at the end of each fiscal year. There can
15
<PAGE>
be no assurance, however, that such coverages or reserves will be sufficient
protection against any future legal proceedings (including any related payments,
settlements or costs).
Item 4. Submission of Matters to Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered in this report.
16
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock traded on the Nasdaq National Market under
the symbol "MRKR" until October 28, 1998. The following table sets forth the
high and low closing sale prices of the common stock, as reported by the Nasdaq
National Market, for the calendar periods indicated, in dollars:
Quarter Ended High Low
------------- ------ -----
1997
----
March 31 $ 5.75 $ 4.13
June 30 4.88 2.75
September 30 7.25 3.13
December 31 5.63 3.41
1998
----
March 31 4.50 3.13
June 30 3.69 1.63
September 30 2.13 .38
From October 29, 1998, until the date hereof, the Company's common
stock has been quoted on the over-the-counter bulletin board. The following
table sets forth the high and low closing prices of the common stock, as quoted
on the over-the-counter bulletin board, for the calendar periods indicated, in
dollars.
Quarter Ended High Low
------------- ------ -----
1998
December 31 $ 1.13 $ .42
1999
March 31 .78 .42
June 30 .59 .25
Such over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
Based upon information available from the Company's registrar and
transfer agent, the Company estimates that at June 30, 1999 there were
approximately 1,800 holders of record of the Company's common stock.
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<PAGE>
Dividend Policy
No dividends have been declared on the Company's common stock since
1984 and the Company does not anticipate paying any dividends in the foreseeable
future. It is the present intention of the Board of Directors to retain all
earnings for working capital purposes.
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<PAGE>
Item 6. Selected Consolidated Financial Data
The following consolidated financial information is provided for the
last five fiscal years. The information is qualified in its entirety by, and
should be read in conjunction with, the Consolidated Financial Statements and
Notes thereto included herein (in thousands, except per share data and notes).
<TABLE>
<CAPTION>
Consolidated Income Statement Data for Fiscal Year Ended March 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 74,167 $ 81,401 $ 83,076 $ 87,911 $ 83,962
Cost of sales 54,638 54,460 50,441 52,608 48,878
--------- --------- --------- --------- ---------
Gross profit 19,529 26,941 32,635 35,303 35,084
--------- --------- --------- --------- ---------
Operating expenses:
Selling 15,275 13,065 14,730 14,592 13,049
General and administrative 15,401 7,475 8,616 10,559 9,314
Research and development 2,756 3,003 2,996 2,762 2,349
Warehousing and shipping 2,020 1,660 1,617 1,566 1,455
--------- --------- --------- --------- ---------
Total operating expenses 35,452 25,203 27,959 29,479 26,167
--------- --------- --------- --------- ---------
Operating (loss) income (15,923) 1,738 4,676 5,824 8,917
--------- --------- --------- --------- ---------
Other income (expense):
Interest expense (6,637) (5,746) (5,109) (5,193) (4,999)
Other, net 1,508 33 2,814 2,072 1,584
--------- --------- --------- --------- ---------
Total other income (expense) (5,129) (5,713) (2,295) (3,121) (3,415)
--------- --------- --------- --------- ---------
(Loss) income from continuing operations
before income taxes and cumulative
effect of accounting change (21,052) (3,975) 2,381 2,703 5,502
Provision for income taxes (1,458) (1,158) (700) (609) (1,395)
--------- --------- --------- --------- ---------
(Loss) income from continuing operations before
cumulative effect of accounting change (22,510) (5,133) 1,681 2,094 4,107
Cumulative effect of accounting change, net of tax -- -- -- (266) --
--------- --------- --------- --------- ---------
(Loss) income from continuing operations (22,510) (5,133) 1,681 1,828 4,107
--------- --------- --------- --------- ---------
Discontinued operations:
(Loss) income from operations of discontinued
snowboard business, net of income taxes (1,484) (12,196) 2,921 1,595 --
Loss on disposal of snowboard business (24,024) -- -- -- --
--------- --------- --------- --------- ---------
(Loss) income from discontinued operations (25,508) (12,196) 2,921 1,595 --
--------- --------- --------- --------- ---------
Net (loss) income $ (48,018) $ (17,329) $ 4,602 $ 3,423 $ 4,107
========= ========= ========= ========= =========
Net (loss) income applicable to common shares $ (48,187) $ (17,329) $ 4,602 $ 3,423 $ 3,653(1)
========= ========= ========= ========= =========
Net (loss) income per common share:
Basic $ (4.33) $ (1.56) $ 0.45 $ 0.41(2) $ 0.50
========= ========= ========= ========= =========
Diluted $ (4.33) $ (1.56) $ 0.45 $ 0.40(2) $ 0.50
========= ========= ========= ========= =========
</TABLE>
-------------
(1) Net income applicable to common shares reflects the following transactions
as if they occurred on April 1, 1993 (the beginning of fiscal 1994): (a) the
exchange of Series A preferred stock (including the premium thereon) for 378,572
shares of Common Stock resulting in the elimination of dividends totaling
approximately $87,000 and $387,000 for the fiscal years ended March 31, 1995 and
1994, respectively, (b) the exchange of Series A-1, A-2 and A-3 redeemable
preferred stock for $19 million aggregate principal amount of Series A-1, A-2
and A-3 bonds resulting in the treatment of dividends totaling approximately
$454,000 and $1,416,000 as interest expense net of the related tax effect for
the fiscal years ended March 31, 1995 and 1994, respectively, and (c) the 3,604
to 1 stock split of the Company's outstanding Common Stock.
(2) For the fiscal year ended March 31, 1996, the cumulative effect of
accounting change (CEC) decreased net income per common share $0.03 per share.
This resulted in diluted net income per common share before CEC of $ 0.43 and
after CEC of $ 0.40.
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<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data at March 31,
--------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets $ 47,082 $ 77,614 $ 78,271 $ 64,592 $ 66,856
Total assets 58,973 105,120 117,140 87,265 82,998
Current liabilities 81,941 70,868 57,146 51,045 44,930
Long-term debt, net of
current maturities 3,821 14,898 16,487 5,452 6,244
Series A Bonds, net of
current maturities -- 5,500 10,000 10,000 13,500
Minority Interest -- 1,447 1,810 -- --
Redeemable preferred stock 3,000 -- -- -- --
Total shareholders'
equity (deficit) (29,789) 12,407 31,697 20,768 18,324
</TABLE>
Item 7. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
Overview
Marker incurred a net loss of $48.0 million for the year ended March
31, 1999, and as of March 31, 1999 had a shareholders' deficit of $29.8 million
(see Note 1 to the consolidated financial statements). The Company currently has
inadequate working capital to fund operations and service repayment of debt. The
Company is not in compliance with certain financial covenants and in default
under its obligations to certain creditors (see "Business - Recent Events" and
"Liquidity and Capital Resources"). Accordingly, there is substantial doubt that
the Company will be able to continue as a going concern. Although the Company is
seeking to alleviate its current fiscal problems by, among other things,
restructuring the Company's obligations, obtaining additional financing,
entering into a purchase agreement with CT Sports, and filing a voluntary
petition for relief under Chapter 11 of the United States Code, there can be no
assurance that the Company will be successful in such endeavors or that the
Company will not be forced into an involuntary bankruptcy.
Marker is a leading designer, developer, manufacturer and marketer of
alpine ski bindings in the North America, Europe and Asia. The Company is a
holding company which operates through its subsidiaries, Marker Germany, Marker
USA, Marker Japan, Marker Austria and Marker Canada (see "Business - Recent
Events" regarding the sale of 66.66% of the equity interests in Marker Canada).
Substantially all of the Company's ski bindings are manufactured by Marker
Germany, which also distributes bindings in Germany, and sells to subsidiaries
of the Company and to independent distributors in countries where the Company
does not have a distribution subsidiary. Each of Marker USA and Marker Japan has
an independent sales force and marketing department for sales and marketing of
bindings and related parts directly to retailers in the United States and to
both retailers and wholesalers in Japan, respectively. In January 1998, Marker
20
<PAGE>
Canada began its own distribution of Marker ski bindings and snowboard equipment
along with other brand name sporting equipment, including, Tecnica ski boots,
in-line skates, trekking boots and Volkl skis and tennis equipment. Marker
Austria distributes the Company's ski bindings into Austria through an
independent sales force.
Until March 1999, Marker Ltd., also a subsidiary of the Company,
designed, distributed and sold to retailers the Company's clothing, gloves and
luggage products for skiing and other recreational activities. On March 8, 1999,
Marker and Marker Ltd. entered into a license agreement granting SSRC an
exclusive, worldwide right to manufacture, market and sell the Company's
clothing, gloves and luggage products (the "Apparel Business") utilizing the
Marker name in return for royalty payments equal to a percentage of net sales
which ranges from 3% to 5%. Marker has the right to terminate the license
agreement in the event annual net sales fall below a certain level. In addition,
Marker and Marker Ltd. may, at any time before March 31, 2001, acquire by
assignment all of the rights of SSRC under the license agreement for a formula
price based upon earnings before interest and taxes. Further, the Company has
the right of first refusal through March 31, 2002 as to any sale or transfer of
the business and assets used by SSRC for the manufacture, sale and marketing of
the Apparel Business. In connection with the license agreement, SSRC purchased
certain assets of Marker Ltd. for $859,000 of which $450,000 was paid at
closing, $204,500 is due on July 10, 1999 and $204,500 is due on August 31,
1999.
In addition, prior to September 1998, the Company designed, developed,
manufactured and marketed snowboards, Interface Step-in SystemsTM, traditional
snowboard bindings and snowboard boots. The Company operated its snowboard
business through its 80% owned subsidiary, DNR Sportsystem, and its wholly-owned
subsidiaries, DNR USA, DNR North America and DNR Japan. DNR Sportsystem
designed, developed and distributed snowboards and related products. DNR USA
manufactured snowboards for distribution under the Santa CruzTM and MarkerTM
brand names. DNR North America and DNR Japan, through their own sales forces,
marketed snowboards, Interface Step-in SystemsTM, snowboard bindings and boots
directly to retailers in the United States and Japan, respectively.
The Company has substantially completed the process of exiting the
snowboard business through dissolution and sale of its snowboard subsidiaries
and related assets. On December 14, 1998, the Company sold its 80% interest in
DNR Sportsystem for nominal consideration and the elimination of all outstanding
intercompany balances. On December 31, 1998, the Company sold the building and
land that housed the Company's snowboard manufacturing operations for $3.1
million. On January 14, 1999, the Company's leased snowboard manufacturing
equipment was disposed of through an auction and the net proceeds of the auction
were paid to the equipment lessor. The Company has a remaining obligation of
$1.7 million to the lessor, which is included in the liabilities of continuing
operations. The Company is currently in the process of collecting its remaining
outstanding snowboard receivables of $171,000, net of allowance for doubtful
accounts, as of March 31, 1999, which will complete the Company's exit from the
snowboard business. For the year ended March 31, 1999, the Company recorded a
loss from discontinued operations of approximately $25.5 million. This loss is
based upon management's current estimates regarding the ultimate realization
21
<PAGE>
from the sale of remaining assets and the settlement of liabilities on disposal
of the snowboard operations. However, actual results could differ from those
estimates.
In order to decrease inventory levels, the Company temporarily ceased
binding production at its ski binding manufacturing facility in Germany as of
November 16, 1998. The Company resumed binding production on April 6, 1999. The
Company's manufacturing facility received financial assistance from the German
government which partially offset expenses that were incurred during the period
that the production assembly line was closed. In connection with a German
government program, the German government compensated employees who were
affected by the shutdown of the assembly line while the Company paid 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 receive from their
customers is based upon, among other things, market conditions and the rate
afforded by the forward foreign exchange contracts. Accordingly, the
relationship of the exchange rate between the functional currency of the
subsidiary and the Mark has a direct impact on the cost of the products sold by
the distribution subsidiary.
From fiscal 1996 to fiscal 1997 and fiscal 1997 to fiscal 1998, based
upon forward foreign exchange contracts entered into by the Company, the United
States dollar ("Dollar") increased in value 2.1% and 2.7%, respectively, against
the Mark. During the same periods, based upon forward foreign exchange rate
contracts entered into by the Company, the Japanese yen ("Yen") increased in
value 2.7% and decreased by 15.6% respectively, against the Mark. Assuming that
foreign exchange rates between the Dollar and the Mark, and between the Yen and
the Mark, had remained constant from fiscal 1996 to fiscal 1997 and fiscal 1997
to fiscal 1998, the Company's cost of sales would have increased by
approximately $0.7 million and decreased by $0.7 million, respectively. For
fiscal 1999, the Company due to cash flow constraints was unable to effectively
utilize its foreign exchange contracts. As a result, the Company recorded its
purchases at the spot rate at the applicable transaction dates.
In accordance with United States generally accepted accounting
principles, upon consolidation of the Company's financial statements, the income
and expense items of the Company's foreign subsidiaries are translated at the
weighted average rates of exchange prevailing during the period. Therefore,
Marker's results of operations are subject to translation risks and can vary as
a result of fluctuations in the exchange rates between the functional currencies
of such foreign subsidiaries and the Dollar.
22
<PAGE>
In addition, upon consolidation of the Company's financial statements,
the assets and liabilities of the Company's foreign subsidiaries are translated
into Dollars from their functional currencies at the rate of exchange on the
last day of the fiscal year. Therefore, Marker's consolidated assets and
liabilities may vary as a result of fluctuations in the exchange rates between
the functional currencies of such foreign subsidiaries and the Dollar. The
resulting translation adjustments from foreign currency fluctuations are
recorded in shareholders' equity as accumulated other comprehensive loss
adjustments.
The Company's business is seasonal in nature and results of operations
vary from quarter to quarter. Orders for the Company's products from retailers
are highest during the Company's first fiscal quarter, which ends June 30.
During its second and third fiscal quarters, the Company ships its products to
fill those orders, and records a significant portion of its annual sales. The
Company then collects a substantial portion of its receivables during its third
and fourth fiscal quarters. In accordance with industry practice, a substantial
portion of the Company's accounts receivable remains outstanding for five to six
months and a small percentage remains outstanding for up to ten months. These
factors result in variations in the Company's results of operations and cash
flows.
Results of Continuing Operations
Fiscal 1999 Compared to Fiscal 1998
Net sales decreased 8.9% in fiscal 1999 to $74.2 million, compared to
$81.4 million in fiscal 1998. The decrease in sales is primarily attributable to
unseasonably warm weather in the United States during the fall and winter months
and lower sales to independent distributors in Asia and Europe due to an overall
market decline.
Gross profit for fiscal 1999 decreased to $19.5 million, and decreased
as a percentage of sales to 26.3%, compared to $26.9 million, or 33.1% of sales,
for fiscal 1998. The decrease in gross profit percentage primarily resulted from
(i) unabsorbed fixed costs related to the temporary shutdown of the production
line in Germany, (ii) increased inventory reserves for closeout inventory, and
(iii) lower margins from the sale of the Company's clothing and soft goods
products. The decrease in clothing and soft goods margins resulted from an
increase in closeout product sales, which typically are at lower margins.
Operating expenses increased to $35.5 million for fiscal 1999, compared
to $25.2 million for fiscal 1998. The increase resulted primarily from (i) legal
and advisory fees paid to assist the Company in developing and implementing
restructuring plans and negotiating with lenders, (ii) the operations of a new
distribution subsidiary in Canada which began operations in January 1998, and
(iii) accrued severance costs due to a reduction in force at the production
facility in Germany.
23
<PAGE>
Interest expense increased approximately $0.9 million to $6.6 million
for fiscal 1999, compared to $5.7 million for fiscal 1998. The increase was
attributable to increased average borrowing levels required to satisfy higher
working capital requirements due to the Company's losses and a higher interest
rate applied to the U.S. credit line.
Other income increased to $1.5 million in fiscal 1999, compared to
$33,000 in fiscal 1998. The increase in other income was primarily the result of
realized and unrealized net gains on forward foreign currency contracts and the
result of realized and unrealized net gains on unhedged payables denominated in
foreign currencies.
The provision for income taxes increased from $1.4 million in fiscal
1998 to $1.2 million in fiscal 1999. The increase in the provision for income
taxes was attributable to the increase in the valuation allowance for deferred
tax assets since management believes that none of the deferred tax assets will
be realized.
Fiscal 1998 Compared to Fiscal 1997
Net sales decreased 2.0% in fiscal 1998 to $81.4 million, compared to
$83.1 million in fiscal 1997. Net sales decreased by approximately $5.1 million
as a result of the weighted average exchange rates used to consolidate the sales
of the German and the Japanese subsidiaries from their functional currency to
U.S. Dollars, which was partially offset by an increase in soft good sales of
$3.5 million.
Gross profit for fiscal 1998 decreased to $26.9 million, and decreased
as a percentage of sales to 33.1%, compared to $32.6 million, or 39.3% of sales,
for fiscal 1997. The reduction in gross profit percentage was primarily due to
lower production levels at the factory and to the introduction of the M51 Series
of bindings which were costlier to produce than initially anticipated.
Operating expenses decreased to $25.2 million for fiscal 1998, compared
to $28.0 million for fiscal 1997. Operating expenses decreased $2.4 million
primarily as a result of the weighted average exchange rates used to consolidate
the operating expenses of the German and Japanese subsidiaries from their
functional currency to Dollars.
Interest expense increased approximately $0.6 million to $5.7 million
for fiscal 1998, compared to $5.1 million for fiscal 1997. The increase is the
result of higher average outstanding balances on the Company's existing line of
credit arrangements and higher weighted average interest rates on the credit
lines for fiscal 1998 as compared to fiscal 1997.
Other income items decreased to $33,000 in fiscal 1998, compared to
$2.8 million in fiscal 1997. The decrease is attributable in part to forward
foreign exchange contracts held by the Company at March 31, 1998, which were not
24
<PAGE>
accounted for as firm commitment hedging transactions. As a result, the Company
adjusted the contracts to market value and recorded a loss of approximately $1.3
million, which has been recorded in other expense.
The provision for income taxes increased from $0.7 million in fiscal
1997 to approximately $1.2 million in fiscal 1998. The increase in the provision
for income taxes was attributable to the increase in the valuation allowance for
deferred tax assets.
Liquidity and Capital Resources
Marker incurred a net loss of $48.0 million for the year ended March
31, 1999, and as of March 31, 1999 had a shareholders' deficit of $29.8 million.
The Company currently has inadequate working capital to fund operations and
service repayment of debt. The Company is not in compliance with certain
financial covenants and in default under its obligations to certain creditors
(see "Business - Recent Events"). Accordingly, there is substantial doubt that
the Company will be able to continue as a going concern.
The Company's primary cash needs are for purchases of raw materials
inventory for production, finished goods inventory, funding of accounts
receivable, and capital expenditures. 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.
Working capital decreased from $6.7 million at March 31, 1998 to
$(34.8) million, at March 31, 1999. The decrease in working capital is primarily
attributable to the Company's losses.
During fiscal 1999, the Company spent approximately $3.6 million on
capital expenditures which consisted primarily of manufacturing equipment in
Germany.
At March 31, 1999, the Company's primary sources of liquidity consisted
of $5.5 million in cash and cash equivalents and available borrowings under
lines of credit. At March 31, 1999, the Company had approximately $47.0 million
available borrowings under lines of credit, of which it had borrowed
approximately $46.1 million. The Company's borrowings under lines of credit
typically reach their maximum during the Company's third fiscal quarter. In
fiscal 1999 and 1998, the Company had maximum borrowings outstanding under its
lines of credit of approximately $78.9 and $74.2 million, respectively.
As of March 31, 1999, Marker Germany and Marker Austria, on a stand
alone unconsolidated basis, each had a net stockholder's deficit. Under the
applicable foreign laws and regulations, in order to avoid bankruptcy
proceedings, these entities require additional capital infusions. Marker and CT
Sports are in the process of negotiating the Asset Purchase Agreement and debt
restructuring arrangements with certain of Marker's creditors. If successful,
these negotiations will result in capital infusions which will increase the
stockholder's equity of these entities. There can be no assurance that the
Company will be successful in increasing stockholder's equity at a level
sufficient to avoid such bankruptcy proceedings.
As of March 31, 1999, the Company was not in compliance with a minimum
tangible net worth covenant under a $3.0 million Canadian Dollar (U.S. $2.0
million) line of credit agreement with the Royal Bank. The Company was also not
in compliance with margin requirements under the same line of credit as of March
31, 1999. On June 22, 1999, the Royal Bank notified the Company of several terms
and conditions that it requires the Company to meet in order for the Royal Bank
to continue to provide financing to the Company. The Company is currently in the
process of attempting to comply with the terms and conditions that the Royal
25
<PAGE>
Bank has outlined in its letter and is in the process of negotiating with a new
lender in order to obtain financing. In the event that non-compliance is not
cured or waived, the Royal Bank may exercise its rights to demand payment of all
amounts due and/or foreclose on the Company's assets which are pledged as
collateral under the agreement which could also lead to cross-defaults under the
Company's other credit arrangements. There can be no assurance that the Company
will be able to cure its non-compliance, reach a satisfactory agreement with
Royal Bank or secure financing from a new lender
On April 15, 1999, the Company did not make a required principal and
interest payment of DM 900,000 (U.S. $496,000) on a note payable to
HypoVereinsbank, New York. On April 16, 1999, HypoVereinsbank notified the
Company that the nonpayment of principal and interest constituted a default
under the terms of the note and that the entire balance of DM 6.4 million (U.S.
$3.5 million) was immediately due and payable. As a result, HypoVereinsbank
applied the proceeds of a time deposit that was held as security by the bank in
the amount of $2.0 million against the outstanding balance due on the note. The
Company is currently negotiating with HypoVereinsbank to restructure the
outstanding balance. In the event that an agreement is not reached,
HypoVereinsbank could proceed to obtain a judgment against the Company and force
the Company into an involuntary bankruptcy. There can be no assurance that the
Company will reach a satisfactory agreement with HypoVereinsbank.
The Company did not make the required interest payments of $125,000 due
in October 1998 and $125,000 due in April 1999 on the Series A Bonds. As a
result, the bondholder has the right to declare the Series A Bonds in default
and accelerate the entire outstanding balance of $11.4 million plus accrued
interest. On March 26, 1999, CT Sports entered into a restructuring agreement
with the bondholder which is contingent, among other things, Marker entering
into a definitive purchase agreement with CT Sports. Under the agreement the
Series A Bonds will be reduced to an aggregate principal amount of $5,750,000
and payable in four equal annual installments of $750,000 with $2,750,000
payable after 5 years. The agreement also requires interest payments at 2% per
annum during the first four years, and thereafter a variable rate not exceeding
the prime rate on commercial loans in Japan plus 0.5%. The agreement also
requires that certain personal guarantees of Eiichi Isomura on Marker Japan's
debt obligations be satisfied commencing on the sixth anniversary of the
bankruptcy court confirming a plan of reorganization. There can be no assurance
that the bondholder will not declare the Series A Bonds in default and
accelerate the outstanding balance.
Subsequent to March 31, 1999 the Company notified M&T Bank and KeyBank,
banks with which the Company had certain foreign exchange arrangements, that the
Company would be unable to utilize its foreign exchange contracts as originally
intended. As a result, on May 25, 1999 M&T Bank terminated the foreign exchange
netting agreement (the "Netting Agreement") dated May 1, 1997 with the Company.
Pursuant to its rights under the Netting Agreement, M&T Bank canceled and closed
out all outstanding foreign exchange contracts for a loss of $3.7 million as of
May 21, 1999 and demanded immediate payment of this amount. Although the Company
is currently negotiating with M&T Bank to restructure this obligation, there can
be no assurance that the Company will reach a satisfactory agreement with M&T
Bank. In the event that an agreement is not reached, M&T
26
<PAGE>
could proceed to obtain a judgment against the Company and force the Company
into an involuntary bankruptcy. As of June 30, 1999, the aggregate loss on
foreign exchange contracts with M&T Bank and KeyBank totaled approximately $5.1
million. The loss on the KeyBank contracts will continue to fluctuate as a
result of changes in the exchange rates.
The Company is not in compliance with several loan covenants under the
terms and conditions of the revolving credit agreement among the Company, its
U.S. subsidiaries and First Security Bank. On June 14, 1999, First Security Bank
notified the Company that the termination of the Netting Agreement with M&T Bank
constituted a default under the revolving credit facility. Also, as of June
30,1999, the Company's outstanding balance on its line of credit exceeded the
available borrowing base for a period greater than the ten day mandatory
repayment period allowed under the revolving credit agreement which also
constitutes a default. As of July 14, 1999, First Security Bank had not declared
the line of credit in default, but has reserved the right to do. In the event
that the bank declares the line of credit in default, the bank can exercise its
rights to demand payment of all amounts due under the revolving credit
agreement, foreclose on the Company's assets which are pledged as collateral
under the agreement, or force the Company into an involuntary bankruptcy. There
can be no assurance that the Company will be able to cure its non-compliance or
reach a satisfactory agreement with the bank.
On March 31, 1999, the Company's DM 58.7 million (U.S. $32.3 million)
line of credit with HypoVereinsbank, Deutsche Bank AG and BFG Bank expired.
HypoVereinsbank and Deutsche Bank AG have agreed to extend the credit line
through August 31, 1999 based on numerous conditions. Such conditions include,
but are not limited to, (i) the consummation of the transactions contemplated by
the Asset Purchase Agreement (ii) Marker and CT Sports entering into lockup
agreements with a majority of Marker's shareholders and acceptable
pre-bankruptcy agreements with key creditors, and (iii) product purchase
guarantees by CT Sports. There can be no assurance that the Company will be
successful in meeting these conditions. In the event that the Company is unable
to meet these conditions, the German banks could terminate the bank line
immediately and force the Company into an involuntary bankruptcy.
On January 14, 1999, the Company, in coordination with Zions First
National Bank ("Zions") disposed of its leased snowboard equipment through an
auction. The net proceeds of the auction were paid to Zions. The remaining
balance of $1.8 million was to be paid according to the original terms of the
lease. On March 17, 1999, the Company signed an agreement with Zions whereby the
Company would make a lump sum payment of $170,000 on or before July 1 as full
settlement of the remaining lease obligation of $1.7 million. On June 30, 1999,
the Company signed a revised agreement with Zions whereby the Company paid
$30,000 on June 30, 1999, and must pay the remaining $140,000 on or before
October 1, 1999. In the event this payment is not made, the Company remains
liable for the entire $1.7 million obligation. There can be no assurance that
the Company will be able to satisfy its obligation to pay the remaining $140,000
to Zions by October 1, 1999.
27
<PAGE>
Although the Company is seeking to alleviate its current fiscal
problems by, among other things, restructuring the Company's obligations,
obtaining additional financing, entering into the Asset Purchase Agreement with
CT Sports, and filing a voluntary petition for relief under Chapter 11 of the
United States Code, there can be no assurance that the Company will be
successful in such endeavors or that the Company will not be forced into an
involuntary bankruptcy.
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 five months, computer systems and/or software used by many companies may
need to be upgraded to comply with such "Year 2000" requirements. The Company
has assessed 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 discussions with its information systems vendors,
that Year 2000 issues will not have a material adverse effect on the Company.
The Company's 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 Company is
reviewing the Year 2000 compliance efforts of the Company's key suppliers and
other principal business partners.
The Company believes it has brought its systems into Year 2000
compliance and is in the process of testing the systems to ensure that they are
Year 2000 compliant. The Company has established a target date of August 1, 1999
to complete testing of all systems, which depending on the results of such tests
could result in additional modifications of the applicable systems and
additional Year 2000 testing. The Company's ability to meet the target date is
dependent upon the responsiveness of its suppliers and contractors to potential
problems that could be identified during the testing phase. 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.
The Company is in the process of developing contingency and business
continuity plans tailored for Year 2000-related occurrences. The Company
believes its significant hardware and software systems are Year 2000 compliant.
The Company believes that the most reasonably likely worst case scenario of
28
<PAGE>
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 cost of
personnel trained in this area, the ability to locate and correct all affected
computer codes, the timing and success of remedial efforts of the Company's
third party suppliers and similar uncertainties.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk, including various interest rate
and foreign currency exchange rate risks.
Foreign Currency Risk - The Company has international operations
resulting in receipts and payments in currencies that differ from the functional
currency of the Company. The Company's functional currency is the U.S. dollar.
Forward foreign exchange contracts historically have been used by the Company to
reduce the potential impact of unfavorable fluctuations in foreign exchange
rates. The Company has commitments to buy and sell foreign currencies relating
to foreign exchange contracts in order to hedge against future currency
fluctuations.
The Company holds forward foreign exchange contracts to purchase German
Marks with Japanese Yen and U.S. Dollars. The contracts mature at various dates
through April 2000. The outstanding forward exchange purchase and sale contracts
at March 31, 1999, are as follows:
<TABLE>
<CAPTION>
Selling Buying Contracted
Amount Amount Forward Rate Unrealized Loss Maturity
------ ------ ------------ --------------- --------
<S> <C> <C> <C> <C> <C>
Yen 1,833,190,000 DM 27,000,000 64.080 - 71.000 $ (576,492) 4/15/99-4/20/00
$ 37,809,651 DM 62,229,000 1.4969 - 1.7455 $(3,341,162) 4/19/99-12/29/99
</TABLE>
The US Dollar amount of the Yen contracts based upon the March 31, 1999
spot rate was approximately $15.4 million. Due to the Company's financial
29
<PAGE>
position, the Company determined that it would be unable to utilize the foreign
exchange contracts as originally intended. Accordingly, all contracts have been
accounted for as speculative and marked to market. This resulted in an
unrealized loss of $3.9 million as of March 31, 1999. In addition, the Company
realized a net gain of approximately $3.9, $0.8 million, and $1.0 million for
fiscal years 1999, 1998 and 1997, respectively, related to sold contracts that
were not accounted for as hedges.
Subsequent to year-end the Company notified the counterparties, M&T
Bank and KeyBank, that the Company would be unable to utilize the foreign
exchange contracts as originally intended. As a result, on May 25, 1999 M&T Bank
terminated the Netting Agreement. Pursuant to its rights under the Netting
Agreement, M&T Bank canceled and closed out all outstanding foreign exchange
contracts for a loss of $3.7 million as of May 21, 1999 and demanded immediate
payment of this amount. Although the Company is currently negotiating with M&T
Bank to restructure this obligation, there can be no assurance that the Company
will reach a satisfactory agreement with M&T Bank. In the event that an
agreement is not reached, M&T Bank could proceed to obtain a judgment against
the Company and force the Company into an involuntary bankruptcy. As of June 30,
1999, the aggregate loss on foreign exchange contracts with M&T Bank and KeyBank
totaled approximately $5.1 million. The loss on the KeyBank contracts will
continue to fluctuate as a result of changes in the exchange rates.
Interest Rate Risk - The Company's exposure to market risks for changes
in interest rates relate to its outstanding borrowings. The Company's borrowings
consists of operating line-of-credits with variable interest rates to finance
its operations and long-term debt with fixed interest rates to finance its
capital expenditures. Changes in the general level of interest rates can affect
the Company's interest expense incurred in connection with its interest-bearing
liabilities. The interest rates on the Company's variable rate debt ranged from
2.0% to 8.75% on an outstanding balance of $49.8 million as of March 31, 1999.
The interest rates on the Company's fixed rate debt ranged from 2.1% to 9.7% on
an outstanding balance of $5.7 million as of March 31, 1999.
Item 8. Consolidated Financial Statements and Supplementary Data
Refer to Consolidated Financial Statements included separately herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
30
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
Date
Appointed
to Present Other Business Experience
Name Title Age Position During Past Five Years
- -------------------- ----------------- --- ------------ ------------------------------------------
<S> <C> <C> <C>
Peter C. Weaver President, Chief 51 1998 President of Easton Technical Products
Executive Officer 1991-1998
and a Director of
Marker
International
Henry E. Tauber (1) Director of Marker 58 1984 Chief Executive Officer and President
International of Marker International, 1984 - 1998
Eiichi Isomura (2) Chairman of Marker 62 1981 President of Isomura Sangyo Kaisha Ltd.
Japan and President of Isomura Seisakusho
1990 KK. Director of Marker International
1990 - 1998
Dr. Wilhelm Fahrngruber (3) Chairman and 58 1990 Same
Managing Director
of Marker Germany
Otto H. Harsanyi Director of Marker 51 1992 Patent Engineer and General Manager of
Germany and Group Bernard Tapie, 1986-1992
Assistant
Secretary of
Marker
International
Kirk S. Langford Executive Vice 44 1994 Vice President of Marker USA,
President of 1992-1994; Director of Sales of Marker
Marker USA USA, 1990-1992
Daryl P. Santos (4) Vice President of 47 1985 Same
Marker
International
Premek Stepanek Managing Director 62 1991 Same
of Marker Germany
Kevin Hardy Chief Financial 35 1998 Chief Financial Officer Marker USA and
Officer of Marker Marker Ltd. 1991 - 1998
International
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Date
Appointed
to Present Other Business Experience
Name Title Age Position During Past Five Years
- -------------------- ----------------- --- ------------ --------------------------------------
<S> <C> <C> <C>
Graham S. Anderson Director of Marker 66 1985 Chairman and Chief Executive Officer of
International Pettit-Morry Co., 1987-1994. Director
of Commerce Bank Corporation, Gray
Harbor Paper Company (1992-1998),
Acordia Northwest, Inc. (1994-1997),
and Tully's Coffee Company Corporation.
Chairman of the National Association
of Insurance Brokers (1997), and Alberg
Holding Company (1990-1995).
John G. McMillian (5) Chairman of the 73 1998 Director of Marker International, 1990
Board of Marker - present. Chairman of the Board,
International President and Chief Executive Officer
of Allegheny & Western Energy
Corporation, 1987-1995; Director of
SunBank Miami N.A. (Sun Trust).
Vinton H. Sommerville Director of Marker 62 1990 Chief Executive Officer and Chairman of
International the Board of Slim Sommerville, Inc.,
1988-present.
</TABLE>
- ---------------------------------
(1) Resigned as the Company's Chief Executive Officer, President and
Chairman of its Board of Directors in fiscal 1999.
(2) Resigned as the Executive Vice President of Marker International in
fiscal 1999.
(3) Resigned as the Chairman and Managing Director of Marker Germany on
July 1, 1999.
(4) Resigned as the Vice President of Marker International on April 1,
1999.
(5) Mr. McMillian served as the Company's interim Chief Executive Officer
from June 23, 1998 until October 7, 1998.
Effective June 23, 1998, Robert Sind was temporarily acting as the
Company's Chief Operating Officer. Mr. Sind served in this role until September
1998. Mr. Sind is president and chief executive officer of Recovery Management
Corporation, a Delaware corporation ("RMC"), positions he has held for more than
five years. Mr. Sind also serves as a director of each of Leslie Fay Company,
Inc. and Kasper A.S.L. Ltd. RMC was engaged by the Company in May 1998 pursuant
to a four-month consulting contract (the "RMC Contract") to assist the Company
in developing and implementing a restructuring plan. Pursuant to the RMC
Contract, RMC received a consulting fee of $50,000 per month from the Company as
well as reimbursement of certain out-of-pocket expenses. In addition, RMC
received 10,000 shares of stock and a $200,000 bonus in September 1998.
Each executive officer is appointed by the Board of Directors and
serves the direction of the Board of Directors. Each member of the Board of
Directors receives reimbursement of expenses for each Board or committee meeting
32
<PAGE>
attended. Directors of the Company are eligible to participate in the Company's
1994 Non-Qualified and Incentive Stock Option Plan (the "Stock Option Plan").
Item 11. Executive Compensation
The following table sets forth the compensation paid or accrued by the
Company to or on behalf of its Chief Executive Officer and each of its other
four most highly compensated executive officers who earned over $100,000 in
fiscal years 1999, 1998 and 1997 (collectively, the "Named Executive Officers")
for services rendered during the fiscal years ended March 31, 1999, 1998 and
1997, respectively.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
------------------- Compensation
Awards
Other Annual -------
Name and Principal Fiscal Salary Bonus Compensation Options All Other (5)
Position Year $ $ $ # Compensation
- ------------------------ ------ ------- ------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter C. Weaver 1999 144,423 50,000 (4) 900,000 1,500
President and Chief 1998 -- -- (4) -- --
Executive Officer of 1997 -- -- (4) -- --
Marker International
Henry E. Tauber 1999 244,560 -- (4) -- 1,088
President and Chief 1998 287,500 -- (4) -- 2,500
Executive Officer of 1997 300,000 25,000 (4) -- 500
Marker International (1)
Premek Stepanek 1999 163,451 -- (4) -- --
Managing Director of 1998 157,785 -- (4) -- --
Marker Germany 1997 157,785 -- (4) -- --
Dr. Wilhelm Fahrngruber 1999 210,088 -- (4) -- --
Chairman and Managing 1998 198,258 -- (4) -- --
Director of Marker Germany 1997 198,258 -- (4) -- --
(2)
Brad Stewart 1999 208,236 -- (4) -- 4,164
Executive Vice President, 1998 167,137 -- (4) -- 3,250
Secretary and Treasurer of 1997 159,134 -- (4) -- 2,890
Marker International (3)
Kirk S. Langford 1999 150,000 -- (4) -- 1,333
Executive Vice President 1998 143,750 35,000 (4) -- 3,375
Marker USA 1997 121,250 50,000 (4) 20,000 3,425
Daryl P. Santos 1999 150,000 -- (4) -- 1,693
Vice President Marker 1998 143,750 35,000 (4) -- 3,350
International 1997 117,500 35,000 (4) 20,000 2,550
</TABLE>
(1) During fiscal 1999, Henry E. Tauber resigned as the Company's Chief
Executive Officer, President and Chairman of its Board of Directors.
33
<PAGE>
(Footnotes continued from previous page relating to Summary Compensation Table)
(2) The Company pays salaries to its employees in the applicable local
currency. The above salaries are translated into US Dollars based on
exchange rates of US $1 for DM 1.7405 and US $1 for Yen 128 with
respect to the employees employed by Marker Germany and Marker Japan,
respectively.
(3) During fiscal 1999, Brad Stewart resigned as the Company's Chief
Operating Officer, Executive Vice President, Secretary and Treasurer.
(4) The amount of perquisites and other personal benefits received by the
indicated officer did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus for the year.
(5) Amounts indicated pertain to Company contributions to the Company's
401(k) retirement plan.
The Company has entered into employment agreements with Premek
Stepanek, Managing Director of Marker Germany, Dr. Wilhelm Fahrngruber, Chairman
and Managing Director of Marker Germany and Otto H. Harsanyi, Director of Marker
Germany. Mr. Stepanek, Dr. Fahrngruber and Mr. Harsanyi receive base salaries of
$124,432, $186,681 and $94,676, respectively (based on an exchange of the German
Mark to the US Dollar of US $1 to DM 1.8159). Mr. Harsanyi's contract expired in
1998, Dr. Fahrngruber's contract expires in 2000, and Mr. Stepanek's contract
expires in 2002.
On October 8, 1998, the Company entered into a five year employment
agreement 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 became 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.
The Board of Directors has a standing Compensation Committee consisting
of Messrs. John G. McMillian and Graham S. Anderson. The Compensation Committee
met once during the fiscal year ended March 31, 1999. The Compensation
Committee's responsibilities are: (a) to determine and approve compensation
arrangements for executive officers of the Company and to review and oversee any
stock option, stock award plan and employee benefit plan or arrangement
established by the Board of Directors for the benefit of the executive officers
of the Company; and (b) to review and recommend director and officer nominees
for election by the Company's shareholders or the Board of Directors, as the
case may be. The Compensation Committee does not have a procedure for
considering nominees to the Board of Directors who have been recommended by the
shareholders.
Stock Option Grants in Last Fiscal Year
During the fiscal year ended March 31, 1999, the following stock
options grants were made to the directors and Named Executive Officers of the
Company:
34
<PAGE>
<TABLE>
<CAPTION>
Potential Relizable
Number of Value at Assumed
Securities Annual Stock
Underlying % of Total Price Appreciation
Options Granted in Exercise Expiration for Option Term (b)
Name Granted Fiscal 1999 Price (a) Date 5% 10%
- -------------------------- ------------- -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Peter C. Weaver 900,000 96.8% $0.50 October 2008 $282,960 $717,120
</TABLE>
(a) The exercise price was fixed at the date of the grant and represented
the fair market value per share of Common Stock on such date.
(b) In accordance with the rules of the Securities and Exchange Commission,
the amounts shown on this table represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the
option term. These gains are based on assumed rates of stock
appreciation of 5% and 10% compounded annually from the date the
respective options were granted to their expiration date and do not
reflect the Company's estimates or projections of future prices of the
Common Stock. The gains shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with
the exercise. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock, the option
holder's continued employment through the option period, and the date
on which the options are exercised.
There were no stock option grants made by the Company to any other of
the Named Executive Officers listed in the Summary Compensation Table.
Aggregated Stock Option Exercises in the Last Fiscal Year and Fiscal Year-End
Values
During the fiscal year ended March 31, 1999, none of the Named
Executive Officers exercised stock options to acquire shares of the Company's
Common Stock. The following table sets forth information with respect to the
aggregate number and value of unexercised options held by the Named Executive
Officers at March 31, 1999. In addition, none of the stock options held by the
Named Executive Officers at March 31, 1999 had a fair market value in excess of
the exercise price or base price.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Shares Options at March 31, 1999 Options at March 31, 1999
Acquired Value ---------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter Weaver - - - 900,000 $ - $ -
Kevin Hardy - - 22,500 2,500 - -
Dr. Wilhelm Fahrngruber - - 50,000 - - -
Kirk S. Langford - - 80,000 10,000 - -
Daryl P. Santos - - 80,000 10,000 - -
</TABLE>
35
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 30, 1999 by (i)
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock, (ii) each of the Company's Directors, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned (1) Class (2)
- ------------------------------- ---------------------- -------------
<S> <C> <C>
Ralano Family Partners, Ltd.
Attention: Louis M. Alpern
2201 N Stanton 1,070,800 7.84%
El Paso, TX 79902-3211
Directors and Executive Officers
Henry E. Tauber 5,659,388 41.42%
Peter Weaver 600,000 4.4%
John G. McMillian 182,140 1.3%
Eiichi Isomura 142,857 1.1%
Vinton H. Sommerville 86,836 *
Kirk S. Langford 86,500 *
Daryl P. Santos 85,823 *
Dr. Wilhelm Fahrngruber 75,200 *
Graham S. Anderson 64,500 *
Premek Stepanek 50,000 *
Kevin Hardy 22,500 *
Otto H. Harsanyi 5,000 *
Shigeo Kaneko 5,000 *
All directors and officers as a group (10) 7,065,744 48.2%
</TABLE>
* Denotes less than 1% of outstanding shares
(1) Shares shown include common shares of 2,243,333 which could be acquired
within 60 days of June 30, 1999 by the exercise of outstanding stock
options (910,000 shares) and the conversion of Redeemable Series B
Preferred Stock to common stock (1,333,333 shares).
(2) For the purpose of computing the percentage of common stock owned by
each person or group listed in this table, shares which are subject to
options or warrants exercisable within 60 days after June 30, 1999 have
been deemed to be outstanding for the purpose of computing the
percentage of the shares of Common Stock owned by any other person or
group.
Item 13. Certain Relationships and Related Transactions
All of the Company's outstanding Series A Bonds are held by Isomura
Sangyo Kaisha Ltd., a Japanese corporation ("Isomura Sangyo" or the
"Bondholder"), controlled by Eiichi Isomura, a former director of the Company,
36
<PAGE>
and his family. The Series A Bonds are subject to redemption upon not less than
30 days prior notice, in whole or in part, at the option of the Company.
The Series A-1 Bonds had an original aggregate face value amount of
$8.0 million and bear interest, payable semi-annually on September 30 and March
31, at the effective borrowing rate for the Bondholder (the "Japanese Bank
Rate") of approximately 4.75% and 7.97% for the fiscal years ending March 31,
1999 and 1998, respectively. During the fiscal years ended March 31, 1999 and
1998, none of the Series A-1 Bonds were redeemed.
The redemption price of the Series A-1 Bonds equals the face amount of
the portion of such bonds redeemed plus accrued, but unpaid interest thereon.
The Series A-2 Bonds have an original aggregate face value amount of
$10.0 million and bear interest, payable semi-annually on September 30 and March
31, at the Japanese Bank Rate plus three percent of the face value of the bonds
outstanding. The effective rate on Series A-2 Bonds at March 31, 1999 and 1998
was 7.75% and 10.97%, respectively. During the fiscal years ended March 31, 1999
and 1998, none of the Series A-2 Bonds were redeemed.
The redemption price of the Series A-2 Bonds equals the face amount of
the portion of such bonds redeemed plus accrued, but unpaid interest thereon.
The Series A-3 Bond has an aggregate face value amount of $1.0 million
and bears interest, payable semi-annually on September 30 and March 31, at the
Japanese Bank Rate plus three percent of the face value of the bond outstanding.
The effective rate on Series A-3 Bond at March 31, 1999 and 1998 was 7.75% and
10.97%, respectively.
37
<PAGE>
Series A Bonds - Issued to a Related Party
- ------------------------------------------
Pursuant to an extension agreement dated September 3, 1998, between the
Company and the Bondholder, payment terms of the Series A Bonds issued by the
Company were extended as follows: <TABLE> <CAPTION>
Bonds Payable Bonds 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 $ 2,280 October 1, 1998 October 1, 1999
Certificate #6 270,947 2,280 October 1, 1999 October 1, 2000
------------ -------------
Total Series A-1 Bonds 541,894 4,560
------------ -------------
Series A-2 Bonds
Certificate #3 338,683 2,850 December 16, 1998 December 15, 1999
Certificate #4 338,683 2,850 December 16, 1999 December 15, 2000
------------ -------------
Total Series A-2 Bonds 677,366 5,700
------------ -------------
Series A-3 Bonds
Certificate #1 135,473 1,139 December 16, 1999 December 16, 2001
------------ -------------
Total Series A Bonds 1,354,733 $11,399
============ =============
</TABLE>
The Bondholder 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 March 31, 1999, the Company recorded an
unrealized loss of approximately $1.4 million.
During fiscal years 1999, 1998 and 1997, Marker Japan purchased ski
bindings and services totaling approximately $66,000, $92,000, and $93,000,
respectively, from Isomura Seisakusho KK ("Isomura Seisakusho"), a company of
which Mr. Isomura is the president, director, and owner of more than ten percent
of the outstanding stock. At March 31, 1999, 1998 and 1997, the net account
receivable from Isomura Seisakusho was approximately $0.0 million, $0.4 million,
and $0.5 million, respectively.
38
<PAGE>
At March 31, 1999, the Company had outstanding notes in an aggregate
amount equal to approximately US $2.4 million payable to Japanese banks. Of
these amounts, approximately $1.5 million was secured by assets of Mr. Isomura,
a shareholder and former director of the Company.
Marker Japan leases office space in Tokyo, Japan and receives
distribution services from Isomura Sangyo. In connection therewith, for the
fiscal years 1999, 1998 and 1997, Marker Japan made payments to Isomura Sangyo
totaling approximately $238,000, $280,000, and $287,000, respectively.
Prior to February 1, 1999, the Company purchased insurance through an
insurance broker, Acordia Northwest Inc., of which Graham S. Anderson, a
director of the Company, is also a director. The Company incurred approximately
$684,000, $748,000, and $851,000 of premiums for such insurance during fiscal
1999, 1998 and 1997, respectively.
DNR purchased snowboards from an affiliated entity, of which Gregor
Furrer & Partner Holding AG, a minority shareholder of DNR, is a partner.
Snowboards purchased from the related party totaled approximately $0.9 million
and $5.9 million during 1999 and 1998, respectively.
On August 24, 1998, Henry E. Tauber, former president and chief
executive officer of Marker and a member of Marker's board of directors,
purchased 1,000,000 shares of the Company's Series B Preferred Stock, $0.01 par
value (the "Preferred Stock"), for a purchase price of $3,000,000. As a result
of such investment, Henry Tauber increased his percentage ownership in the
Company to 45.4%. As of June 30, 1999, Mr. Tauber beneficially owns 41.4% of the
Company's outstanding common stock. Allen & Company Incorporated gave an oral
report, concluding that the terms of the sale of the Preferred Stock were fair
and reasonable, and no less favorable to the Company than those that could be
obtained from an unrelated third party making a similar investment in the
Company. As part of the Company's overall restructuring plan, Mr. Tauber is
presently negotiating with CT Sports for the retirement of the Series B
Preferred Stock.
39
<PAGE>
<TABLE>
<CAPTION>
PART IV
-------
<S> <C>
Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports on
Form 8-K Page Reference (a) 1.Financial Statements
The following consolidated financial statements required by
Part II, Item 8, are included in Part IV of this report.
Marker International and Subsidiaries
Report of Independent Public Accountants ...............................................F-1
Consolidated Balance Sheets as of March 31, 1999 and 1998 ..............................F-2
Consolidated Statements of Operations for the Years Ended
March 31, 1999, 1998 and 1997 .....................................................F-4
Consolidated Statements of Shareholders' (Deficit) Equity for
the Years Ended March 31, 1999, 1998 and 1997 .....................................F-5
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1999, 1998 and 1997 .....................................................F-6
Notes to Consolidated Financial Statements .............................................F-7
2. Financial Statement Schedules
Report of Independent Public Accountants on Schedule 47
Schedule II - Valuation and Qualifying Accounts 48
3. List of Exhibits
2.1 Share Purchase and Shareholders Agreement among Lucio
Roffi, Gregor Furrer & Partner Holding AG and Marker
International, dated June 11, 1996 (Filed as exhibit
2(a) to the Company's Current Report on Form 8-K dated
June 19, 1996 and incorporated herein by reference).
2.2 Letter Agreement between Lucio Roffi and Marker
International, dated June 11, 1996 (Filed as exhibit
2(b) to the Company's Current Report on Form 8-K dated
June 19, 1996 and incorporated herein by reference).
</TABLE>
40
<PAGE>
2.3 Intentionally Omitted
2.4 Short-term Promissory Note for CHF 12,084,832.65
executed by the Company and payable in full to Gregor
Furrer & Partner Holding AG on or prior to August 31,
1996 (filed as exhibit 2(c) to the Company's Current
Report on Form 8-K dated July11, 1996 and incorporated
herein by reference).
2.5 Short-term Promissory Note for CHF 12,084,832.65
executed by the Company and payable in full to Lucio
Roffi on or prior to August 31, 1996 (filed as exhibit
2(d) to the Company's Current Report on Form 8-K dated
July 11, 1996 and incorporated herein by reference).
2.6 Stock Purchase Agreement, dated August 19, 1998
relating to the issuance and sale of 1,000,000 shares
of Series B Preferred Stock to Henry E. Tauber (Filed
as exhibit 4.1 to the Company's Current Report on Form
8-KA dated September 10, 1998).
2.7 Stock Purchase Agreement between Richard H. Novak Trust
and Marker AG for its 80% interest in DNR Sportsystem
Ltd. (Filed as exhibit 10 to the Company's Current
Report on Form 8-K dated December 24, 1998).
3.1 Form of Restated Articles of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's Form S-1
Registration Statement, Amendment No. 1 dated July 14,
1994 (File No. 33-80100) and incorporated herein by
reference).
41
<PAGE>
3.2 Form of Amended and Restated By-Laws of the Company
(filed as Exhibit 3.2 to the Company's Form S-1
Registration Statement, Amendment No. 1 dated July 14,
1994 (File No. 33-80100) and incorporated herein by
reference)
4.1 Form of Certificate representing Common Stock (filed as
Exhibit 4.1 to the Company's Form S-1 Registration
Statement, Amendment No. 1 dated July 14, 1994 (File
No. 33-80100) and incorporated herein by reference).
10.1 Employment Agreement for Premek Stepanek (filed as
Exhibit 10.1 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.2 Employment Agreement for Dr. Wilhelm Fahrngruber (filed
as Exhibit 10.2 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.3 Employment Agreement for Otto Harsanyi (filed as
Exhibit 10.3 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.4 Form of 1994 Stock Option Plan (filed as Exhibit 10.4
to the Company's Form S-1 Registration Statement dated
June 10, 1994 (File No. 33-80100) and incorporated
herein by reference).
10.5 401(k) Plan (filed as Exhibit 10.5 to the Company's
Form S-1 Registration Statement dated June 10, 1994
(File No. 33-80100) and incorporated herein by
reference).
10.6 Manufacturing Facility Lease Agreement (filed as
Exhibit 10.6 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.7 Second Amended and Restated Revolving Credit Agreement
with First Security Bank of Utah, N.A., including
Extension Agreement (filed as Exhibit 10.7 to the
Company's Form S-1 Registration Statement dated June
10, 1994 (File No. 33-80100) and incorporated herein by
reference).
10.8 Loan Agreement with First Interstate Bank (filed as
Exhibit 10.8 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.9 Agreement with Bayerischi Hypotheken-und Wechsel-Bank
("Hypo Bank") for a DM 60,000,000 Line of Credit (filed
as Exhibit 10.9 to the Company's Form S-1 Registration
Statement dated June 10, 1994 (File No. 33-80100) and
incorporated herein by reference).
10.10 Loan Agreement with Hypo Bank for a DM 4,000,000 loan
(filed as Exhibit 10.10 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
42
<PAGE>
10.11 Loan Agreement with Hypo Bank for a DM 1,863,333 loan
(filed as Exhibit 10.11 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
10.12 Loan Agreement with Hypo Bank for a DM 2,220,000 loan
(filed as Exhibit 10.12 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
10.13 Loan Agreement with Hypo Bank for a DM 3,000,000 loan
(filed as Exhibit 10.13 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
10.14 Loan Agreement with Hypo Bank for a DM 10,000,000 loan
(filed as Exhibit 10.14 to the Company's Form S-1
Registration Statement dated June 10, 1994 (File No.
33-80100) and incorporated herein by reference).
10.15 Loan Agreement with Hypo Bank for a DM 64,000,000 Line
of Credit (filed as Exhibit 10.15 to the Company's Form
S-1 Registration Statement dated June 10, 1994 (File
No. 33-80100) and incorporated herein by reference).
10.16 Loan Agreement with Hypo Bank for a DM 7,284,205 loan
(Filed as Exhibit 10.16 to the Company's Form 10-Q
dated August 11, 1995 and incorporated herein by
reference).
10.17 Pledge Agreement and Conditional Assignment with Hypo
Bank for a $3.5 million time deposit (Filed as exhibit
10.17 to the Company's Form 10-Q dated August 11, 1995
and incorporated herein by reference).
10.18 Line of Credit Agreement Between Marker Deutschland
GmbH and Hypo Bank for DM 70,000,000 and a Foreign
Exchange Line of Credit for DM 60,000,000 (Filed as
exhibit 10.18 to the Company's Form 10-Q dated November
13, 1995 and incorporated herein by reference).
10.19 Amended and Restated Revolving Credit Agreement with
First Security Bank for up to $18,000,000 (Filed as
exhibit 10.19 to the Company's Form 10-Q dated November
13, 1995 and incorporated herein by reference).
43
<PAGE>
10.20 Loan Agreement between Marker Deutschland and Hypo Bank
for a DM 1,180,100 loan (Filed as Exhibit 10.20 to the
Company's Form 10-Q dated August 13, 1996 and
incorporated herein by reference).
10.21 Second Restated and Amended Promissory Note Agreement
with Hypo Bank for a DM 7,284,205.42 loan. (Filed as
exhibit 10.21 to the Company's Form 10-Q dated February
13, 1997 and incorporated herein by reference).
10.22 Amended and Restated Conditional Pledge Agreement and
Assignment with Hypo Bank for a $2.0 million time
deposit. (Filed as exhibit 10.22 to the Company's Form
10-Q dated February 13, 1997 and incorporated herein by
reference).
10.23 Bond Payment Extension Agreement between Marker
International and Isomura Sangyo Kaisha Ltd. (the
Bondholder). (Filed as exhibit 10.23 to the Company's
Form 10-K dated June 27, 1997 and incorporated herein
by reference).
10.24 Loan Agreement between Marker International and Jackson
National Life Insurance Company for $2,250,000. (Filed
as exhibit 10.24 to the Company's Form 10-K dated June
27, 1997 and incorporated herein by reference).
10.26 Second Amended and Restated Conditional Pledge
Agreement and Assignment dated April 15, 1998, between
Marker International and Bayerische Hypotheken-und
Wechsel-Bank Aktiengesellschaft. (Filed as exhibit
10.26 to the Company's Form 10-Q dated August 19, 1998
and incorporated herein by reference).
10.27 Third Restated and Amended Promissory Note dated as of
April 15, 1998 executed by the Company and payable to
Bayerische Hypotheken-und Wechsel-Bank
Aktiengesellschaft. (Filed as exhibit 10.27 to the
Company's Form 10-Q dated August 19, 1998 and
incorporated herein by reference)
10.28 Revolving Credit Agreement dated October 30, 1998,
between Marker International and First Security Bank,
N.A. (without exhibits) (Filed as exhibit 10.28 to the
Company's Form 10-Q dated November 20, 1998 and
incorporated herein by reference)
44
<PAGE>
10.29 Bond Payment Extension Agreement between Marker
International and Isomura Sangyo Kaisha Ltd. (the
Bondholder) dated September 3, 1998.*
10.30 Employment Agreement between Peter Weaver and Marker
International dated October 8, 1998.*
10.31 License Agreement between Ski & Sports Recreation
Company, L.L.C. and Marker International and Marker
Ltd. dated March 8, 1999*
10.32 Agreement dated as of March 8, 1999 between Ski &
Sports Recreation Company, L.L.C. and Marker Ltd. and
Marker International.*
10.33 Shareholders Agreement between CT Sports Holding AG and
Marker International and Marker Canada dated June 18,
1999 (Filed as exhibit 10.1 to Form 8-K filed on July
2, 1999).
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP, independent public
accountants.*
27 Financial Data Schedule.*
(b) Reports Filed on Form 8-K:
--------------------------
Current Report on Form 8-K filed on March 12, 1999
reporting under Item 5 the execution of the letter of
intent with CT Sports Holding AG regarding the
restructuring of Marker.
- -----------------------------
* filed herewith
45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To Marker International:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Marker International included in this Form
10-K, and have issued our report thereon dated June 30, 1999. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. Schedule II is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
June 30, 1999
46
<PAGE>
<TABLE>
MARKER INTERNATIONAL
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED MARCH 31, 1999
(in thousands)
<CAPTION>
For the Year Ended:
Balance at
Beginning of Amounts Balance at End
Period Provisions Written Off Other (1) of Period
------ ---------- ----------- --------- ---------
March 31, 1999
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 1,697 $ 1,847 $ (1,691) $ (132) $ 1,721
March 31, 1998
Allowance for doubtful
accounts $ 2,139 $ 813 $ (1,176) $ (79) $ 1,697
March 31, 1997
Allowance for doubtful
accounts $ 2,173 $ 521 $ (431) $ (124) $ 2,139
</TABLE>
(1) The allowance for doubtful accounts is translated to U.S. Dollars at the
exchange rate at the end of a reporting period. The provision and amounts
written off are translated at the weighted-average rates of exchange prevailing
during the reporting period. Amounts classified as "other" represent the effects
of foreign currency translation on the allowance amount for the period.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Salt
Lake, and the State of Utah on July 14, 1999.
MARKER INTERNATIONAL
--------------------
By:/s/ Kevin Hardy
---------------------
Kevin Hardy
Chief Financial Officer
<TABLE>
<CAPTION>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Peter C. Weaver Chief Executive Officer and President (Principal July 14, 1999
-------------------------- -------------
Peter C. Weaver Executive Officer)
/s/ Kevin Hardy Chief Financial Officer July 14, 1999
-------------------------- -------------
Kevin Hardy (Principal Financial and
Accounting Officer)
/s/ John G. McMillian Chairman of the Board, Marker International July 14, 1999
-------------------------- -------------
John G. McMillian
/s/ Graham S. Anderson Director July 14, 1999
-------------------------- -------------
Graham S. Anderson
/s/ Vinton H. Sommerville Director July 14, 1999
-------------------------- -------------
Vinton H. Sommerville
/s/ Henry E. Tauber Director July 14, 1999
-------------------------- -------------
Henry E. Tauber
</TABLE>
48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Marker International:
We have audited the accompanying consolidated balance sheets of Marker
International (a Utah corporation) and subsidiaries (the "Company") as of March
31, 1999 and 1998, and the related consolidated statements of operations,
shareholders' (deficit) equity and cash flows for each of the three years in the
period ended March 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marker International and
subsidiaries as of March 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred a net loss of $48.0 million for
the year ended March 31, 1999, and as of March 31, 1999 had a shareholders'
deficit of $29.8 million. The Company currently has inadequate working capital
to fund operations and service repayment of debt. The Company is not in
compliance with certain financial covenants and in default under its obligations
to certain creditors. All of these and other matters raise substantial doubt as
to the Company's ability to continue as a going concern. Management's plans in
regards to these matters are also described in Note 1. The accompanying
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
June 30, 1999
F-1
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 and 1998
(Dollars in Thousands)
- --------------------------------------------------------------------------------
ASSETS
1999 1998
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 5,547 $ 4,241
Accounts receivable, net of allowance for doubtful
accounts of $1,721 and $1,697, respectively 22,392 31,710
Inventories 18,752 37,223
Prepaid and other current assets 391 4,440
--------- ---------
Total current assets 47,082 77,614
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 386 1,050
Building and improvements 4,645 7,581
Machinery and equipment 20,096 21,222
Furniture, fixtures and office equipment 4,797 4,582
--------- ---------
29,924 34,435
Less accumulated depreciation (18,725) (16,733)
--------- ---------
Net property, plant and equipment 11,199 17,702
--------- ---------
INTANGIBLE ASSETS, net of accumulated amortization 244 8,322
--------- ---------
OTHER ASSETS 448 1,482
--------- ---------
$ 58,973 $105,120
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-2
<PAGE>
<TABLE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
AS OF MARCH 31, 1999 and 1998
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
- -----------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
1999 1998
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks $ 46,062 $ 48,645
Current maturities of long-term debt 5,595 3,512
Current maturities of Series A Bonds, issued to a
related party 11,399 4,500
Accounts payable 5,948 6,381
Other current liabilities 12,937 7,830
----------- -----------
Total current liabilities 81,941 70,868
----------- -----------
LONG-TERM DEBT, net of current maturities 3,821 14,898
----------- -----------
SERIES A BONDS, net of current maturities, issued
to a related party -- 5,500
----------- -----------
REDEEMABLE SERIES B PREFERRED STOCK, $ 0.01 par
value, 2,000,000 shares authorized, 1,000,000 shares
issued and outstanding, liquidation value of $3,169 3,000 --
----------- -----------
MINORITY INTEREST -- 1,447
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 1, 2, 5 and 9)
SHAREHOLDERS' (DEFICIT) EQUITY:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized and none issued -- --
----------- -----------
Common stock, $0.01 par value, 30,000,000
shares authorized and issued, shares outstanding
11,140,577 and 11,130,577, respectively 111 111
Additional paid-in capital 36,311 36,299
Accumulated deficit (64,658) (16,471)
Accumulated other comprehensive loss (1,553) (7,532)
----------- -----------
Total shareholders' (deficit) equity (29,789) 12,407
----------- -----------
$ 58,973 $ 105,120
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
<
F-3
<PAGE>
<TABLE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1999, 1998 and 1997
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
- ------------------------------------------------------------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES $ 74,167 $ 81,401 $ 83,076
COST OF SALES 54,638 54,460 50,441
-------- -------- --------
GROSS PROFIT 19,529 26,941 32,635
-------- -------- --------
OPERATING EXPENSES:
Selling 15,275 13,065 14,730
General and administrative 15,401 7,475 8,616
Research and development 2,756 3,003 2,996
Warehousing and shipping 2,020 1,660 1,617
-------- -------- --------
35,452 25,203 27,959
-------- -------- --------
OPERATING (LOSS) INCOME (15,923) 1,738 4,676
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (6,637) (5,746) (5,109)
Other, net 1,508 33 2,814
-------- -------- --------
(5,129) (5,713) (2,295)
-------- -------- --------
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (21,052) (3,975) 2,381
PROVISION FOR INCOME TAXES (1,458) (1,158) (700)
-------- -------- --------
(LOSS) INCOME FROM CONTINUING
OPERATIONS (22,510) (5,133) 1,681
-------- -------- --------
DISCONTINUED OPERATIONS:
(Loss) income from operations of discontinued snowboard
business, net of income taxes (1,484) (12,196) 2,921
Loss on disposal of snowboard business (24,024) -- --
-------- -------- --------
(LOSS) INCOME FROM DISCONTINUED OPERATIONS (25,508) (12,196) 2,921
-------- -------- --------
NET (LOSS) INCOME $(48,018) $(17,329) $ 4,602
======== ======== ========
PER SHARE INFORMATION (Basic and Diluted):
(Loss) income from continuing operations $ (2.04) $ (0.46) $ 0.16
-------- -------- --------
(Loss) income from operations of discontinued
snowboard business (0.13) (1.10) 0.29
Loss on disposal of snowboard business (2.16) -- --
-------- -------- --------
(Loss) income from discontinued operations (2.29) (1.10) 0.29
-------- -------- --------
Net (loss) income $ (4.33) $ (1.56) $ 0.45
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-4
<PAGE>
<TABLE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED MARCH 31, 1999, 1998 and 1997
(Dollars in Thousands)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Accumulated Other Total
--------------------- Accumulated Earnings Comprehensive Shareholder'
Shares Amount Paid-in (Deficit) Income (Loss) Equity (Deficit)
--------- ---------- ------------ ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996 8,447,877 $ 84 $ 21,531 $ (1,293) $ 446 $ 20,768
Comprehensive Loss:
Net income -- -- -- 4,602 -- 4,602
Foreign currency translation -- -- -- -- (6,011) (6,011)
Total comprehensive loss -- -- -- -- -- (1,409)
Secondary public offering of common stock, net 2,680,000 27 14,753 -- -- 14,780
Common stock options exercised 1,250 -- 9 -- -- 9
Adjustment for change in reporting period of
consolidated subsidiary -- -- -- (2,451) -- (2,451)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1997 11,129,127 111 36,293 858 (5,565) 31,697
Comprehensive Loss:
Net loss -- -- -- (17,329) -- (17,329)
Foreign currency translation -- -- -- -- (1,967) (1,967)
Total comprehensive loss -- -- -- -- -- (19,296)
Common stock options exercised 1,450 -- 6 -- -- 6
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1998 11,130,577 111 36,299 (16,471) (7,532) 12,407
Comprehensive Loss:
Net loss -- -- -- (48,018) -- (48,018)
Foreign currency translation -- -- -- -- 5,979 5,979
Total comprehensive loss -- -- -- -- -- (42,039)
Preferred stock dividends -- -- -- (169) -- (169)
Common stock issued for services 10,000 -- 12 -- -- 12
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1999 11,140,577 $ 111 $ 36,311 $ (64,658) $ (1,553) $ (29,789)
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE>
<TABLE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999, 1998 and 1997
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(48,018) $(17,329) $ 4,602
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Minority interest -- (183) 1,521
Depreciation and amortization 5,151 5,200 4,386
Equity in loss of unconsolidated subsidiary -- -- 281
Loss from consolidated subsidiary resulting from change in
reporting period -- -- (3,063)
Loss from write down of goodwill and intangibles 8,000 8,000 --
Loss (gain) on sale of property, plant and equipment 959 (92) 444
Change in assets and liabilities (net of amounts acquired):
Accounts receivable, net 9,912 (6,302) (3,109)
Inventories 19,464 (5,721) (3,596)
Prepaid and other assets 5,521 131 2,876
Accounts payable 214 842 (1,015)
Other current liabilities 3,756 (369) 875
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,959 (15,823) 4,202
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (3,635) (7,138) (10,269)
Majority purchase of DNR, net of cash acquired ($5,263)
-- -- (14,560)
Proceeds from disposition of equipment 4,579 3,898 143
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 944 (3,240) (24,686)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on notes payable to banks (1,912) 11,860 12,060
Issuance of preferred stock 3,000 -- --
Issuance of common stock, net of issuance costs 12 -- 14,780
Proceeds from common stock options exercised -- 6 9
Proceeds from issuance of long-term debt 393 3,094 10,385
Redemption of Series A Bonds -- -- (3,500)
Principal payments on long-term debt (10,443) (3,299) (3,176)
-------- -------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (8,950) 11,661 30,558
-------- -------- --------
Effect of foreign exchange rate changes on cash 4,353 (1,889) (2,731)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,306 (9,291) 7,343
Cash and cash equivalents at beginning of year 4,241 13,532 6,189
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,547 $ 4,241 $ 13,532
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE>
NOTE 1. NATURE OF OPERATIONS, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
Marker International ("Marker" or the "Company") is a holding company
which operates through its subsidiaries, Marker Deutschland GmbH ("Marker
Germany"), Marker USA, Marker Japan Co., Ltd. ("Marker Japan"), Marker Austria
GmbH ("Marker Austria") and Marker Canada, Ltd. ("Marker Canada") (see "Sale of
Marker Canada Interest" below). 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. Effective April 1, 1999, the Company licensed Ski and
Sports Recreation Company, L.L.C. to manufacture and sell apparel, luggage and
glove utilizing the Marker name. The principal markets for the Company's
products are North America, Europe and Asia.
During fiscal 1999, the Company decided to discontinue its snowboard
business which was primarily operated through DNR Sportsystem Ltd., an 80% owned
subsidiary of Marker AG, a wholly owned subsidiary of the Company, and Marker's
wholly-owned subsidiaries, DNR USA, Inc. DNR North America, Inc. and DNR Japan
Co. Ltd. (See "Discontinued Operations" below).
The Company's financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. The Company
incurred a net loss of approximately $48.0 million for the year ended March 31,
1999 and as of March 31, 1999 had a shareholders' deficit of approximately $29.8
million. The Company was not in compliance with covenants of various debt and
other obligations and has insufficient working capital to fund operations (See
Notes 2, 3 and 9 for a discussion of obligations in default). These factors
among others, raise substantial doubt about the Company's ability to continue as
going concern. The accompanying consolidated financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
Management's plans with respect to these matters include, among other
things, restructuring the Company's obligations, obtaining additional financing,
entering into the Asset Purchase Agreement with CT Sports Holding AG and filing
a voluntary petition for relief under Chapter 11 of the United States Code.
Management is actively pursuing these plans as discussed below. There can be no
F-7
<PAGE>
assurance that the Company will be successful in such endeavors or that the
Company will not be forced into an involuntary bankruptcy in the near term.
Letter of Intent with CT Sports Holding AG - On March 7, 1999, the
Company signed a letter of intent with CT Sports Holding AG, a Swiss company
("CT Sports"), pursuant to which the Company will transfer substantially all of
its assets and certain liabilities under a confirmed chapter 11 plan of
reorganization to a newly formed entity ("Newco"). In exchange, Marker will
receive a 15% equity interest in Newco, subject to possible adjustment. The
remaining 85% equity interest in Newco will be issued to CT Sports in exchange
for $15 million in cash (subject to reduction by $1,025,501 as a result of the
consummation of the transactions under the Marker Canada, Ltd. ("Marker Canada")
Shareholders Agreement described below). CT Sports is a newly formed entity
owned by Tecnica S.p.A. and H.D. Cleven, the principal shareholder of the Volkl
Group.
Under the letter of intent, Marker International, DNR USA, Inc. ("DNR
USA"), and DNR North America, Inc. ("DNR North America") are required to file a
petition for relief under Chapter 11 of the United States Bankruptcy Code
("Chapter 11") within 14 days of the execution of a definitive purchase
agreement. Following the execution of the purchase agreement, Marker will be
obligated to pay a $1.0 million break-up fee to CT Sports if the acquisition is
not consummated and (i) Marker consummates any plan of reorganization other than
the plan agreed upon by CT Sports, or (ii) Marker consummates any sale of its
stock or assets other than as contemplated by the purchase agreement upon terms
more favorable to the shareholders of Marker (an "Alternative Sale"). Marker
will not be obligated to pay the break-up fee if Marker's failure to consummate
the acquisition is due to (i) circumstances beyond its control, Marker is not in
material breach of the purchase agreement and Marker has not consummated an
Alternative Sale, or (ii) a material breach by CT Sports of the purchase
agreement. Marker is also required to reimburse CT Sports and its affiliates for
actual costs and expenses incurred by them in connection with the acquisition
unless (i) either the letter of intent or the purchase agreement is terminated
in accordance with terms or as a result of a material breach by CT Sports, or
(ii) CT Sports elects to abandon the acquisition.
The letter of intent requires a period of exclusivity and cooperation
from Marker. There are numerous conditions to CT Sport's obligation to
consummate the acquisition. Such conditions include, but are not limited to, (a)
Newco entering into employment agreements with key members of Marker's
management, (b) satisfactory due diligence, (c) there not being any material
adverse change in the business of the Company, (d) Marker and CT Sports entering
into lockup agreements with a majority of Marker's shareholders and (e)
acceptable pre-bankruptcy agreements with key creditors.
F-8
<PAGE>
Marker is currently in the process of negotiating the terms and
conditions of a definitive purchase agreement with CT Sports and is negotiating
with certain of its creditors in order to satisfy certain of the conditions
precedent to the acquisition. There can be no assurance that Marker will enter
into a definitive purchase agreement with CT Sports on the terms contemplated in
the letter of intent or that Marker will be able to satisfy the conditions
precedent under any such agreement.
The transaction does not require the Company's other subsidiaries,
including Marker USA, Marker Japan, Marker Ltd., Marker Austria , Marker Canada
and Marker Germany, to file a voluntary petition for relief under Chapter 11
and, therefore, the Company currently does not anticipate filing voluntary
petitions for these subsidiaries.
Sale of Marker Canada Interest - On June 18, 1999, CT Sports, Marker
International, Marker Canada and Lapointe Rosenstein, as escrow agent, entered
into a shareholders agreement (the "Shareholders Agreement") pursuant to which
CT Sports purchased 200 class "A" shares of Marker Canada for a purchase price
of Cdn $1.5 million (U.S. $1.0 million). The 200 class "A" shares represent
66.66% of the outstanding voting and participating shares of Marker Canada. The
remaining 100 class "A" shares, representing 33.33% of the outstanding and
voting shares, are held by the Company. The purpose of this transaction was to
provide working capital to Marker Canada.
CT Sports will hold its 200 shares in the name of and on the behalf of
Marker International GmbH (in foundation), which upon formation will be deemed
to be the shareholder of such shares. The purchase price of Cdn $1.5 million
(U.S. $1.0 million) will be deducted from the U.S. $15 million required to be
contributed by CT Sports to Newco pursuant to the purchase agreement between the
Company and Newco (the "Asset Purchase Agreement"). CT Sports has the option
(the "Option") to require Marker to sell to CT Sports all of Marker's 100 shares
of Marker Canada for a purchase price of Cdn $750,000 ($0.5 million), less all
amounts then payable by Marker or any of its subsidiaries to Marker Canada, CT
Sports or any subsidiary or affiliate of CT Sports. The Option is exercisable if
(i) the transactions contemplated by the Asset Purchase Agreement are not
consummated on or before December 31, 1999, (ii) Marker or any of its
subsidiaries is acquired by, merges with or sells all or a substantial part of
its assets or securities to a person other than CT Sports, its subsidiaries or
affiliates, (iii) Marker makes a motion or application in the bankruptcy court
to reject the Option, or (iv) Marker contests the validity or enforceability of
the Option or denies it has any obligations under the Shareholders Agreement.
In connection with the Shareholders Agreement, each of Marker, Tecnica
S.p.A. and the Volkl Group entered into distribution agreements with Marker
Canada granting Marker Canada the exclusive right to distribute certain products
in Canada for a period of five years.
F-9
<PAGE>
License of Apparel Business - On March 8, 1999, the Company and Marker
Ltd., entered into a license agreement granting Ski & Sports Recreation Company,
L.L.C. ("SSRC") an exclusive, worldwide right to manufacture, market and sell
the Company's clothing, gloves and luggage products (the "Apparel Business")
utilizing the Marker tradename in return for royalty payments equal to a
percentage of net sales which ranges from 3% to 5%. The initial term of the
agreement is from April 1, 1999 through March 31, 2009 and is automatically
extended for additional one year periods unless sooner terminated by either
party in accordance with the agreement. The Company has the right to terminate
the license agreement in the event annual sales fall below a certain level. In
addition, the Company has an option for the 24 month period commencing on April
1, 1999 and ending on March 31, 2001 to acquire by assignment all of the rights
of SSRC under the license agreement for a formula price based upon earnings
before interest and taxes as set forth in the Option and Right of First Refusal
Agreement dated March 8, 1999 between the Company and Marker Ltd. and SSRC.
Further, the Company has a right of first refusal through March 31, 2002 as to
any sale or transfer of the business and assets used by SSRC for the
manufacture, sale and marketing of the Apparel Business. In connection with the
license agreement, SSRC agreed to purchase certain assets of Marker Ltd. for
$859,000, of which $450,000 was paid at closing, $204,500 is due on July 10,
1999 and $204,500 is due on August 31, 1999. With respect to certain Olympic
inventory, SSRC agreed to pay 60% to 75% of the net sales price to the Company
as the sales price is received.
Marker Germany and Marker Austria Stockholder's Deficit - As of March
31, 1999, Marker Germany and Marker Austria, on a stand alone unconsolidated
basis, each had a net stockholder's deficit. Under the applicable foreign laws
and regulations, in order to avoid bankruptcy proceedings, these entities
require additional capital infusions. Marker and CT Sports are in the process of
negotiating the Asset Purchase Agreement and debt restructuring arrangements
with certain of Marker's creditors. If successful, these negotiations will
result in capital infusions which will increase the stockholder's equity of
these entities. There can be no assurance that the Company will be successful in
increasing stockholder's equity at a level sufficient to avoid such bankruptcy
proceedings.
Non-compliance with Debt Covenants / Defaults / Debt Restructuring - In
connection with the letter of intent, Marker and CT Sports are in the process of
negotiating restructuring arrangements with Marker's key creditors. CT Sports
has entered into an agreement with the Series A bondholder whereby the Series A
Bonds will be reduced to an aggregate principal amount of $5,750,000 and payable
in four equal annual installments of $750,000 with $2,750,000 payable after 5
years. The agreement also requires interest payments at 2% per annum during the
first four years, and thereafter a variable rate not exceeding the prime rate on
commercial loans in Japan plus 0.5%. The agreement also requires that certain
personal guarantees of Eiichi Isomura on Marker Japan's debt obligations be
satisfied commencing on the sixth anniversary of the bankruptcy court confirming
a plan of reorganization. The agreement with the Series A bondholder is
conditioned upon, among other things, Marker entering into a definitive purchase
agreement with CT Sports. In addition, the Company has reached a restructuring
agreement with its equipment lessor, Zions Bank (see Note 5). To date, Marker
and CT Sports have not entered into a definitive purchase agreement or
definitive agreements with any of the Company's other creditors. There can be no
assurance that the Company will reach satisfactory agreements with CT Sports or
the Company's creditors. In addition, many of the Company's debt agreements are
in technical default (see Notes 2 and 3). The Company's creditors may demand
immediate payment of amounts due, foreclose on the Company's assets which are
pledged as collateral under the agreements or exercise other legal remedies,
including forcing the Company into an involuntary bankruptcy.
F-10
<PAGE>
Discontinued Operations
On September 10, 1998, the Board of Directors authorized the
disposition of the snowboard operations of the Company. The Company has
substantially completed the process of exiting the snowboard business through
dissolution and sale of its snowboard subsidiaries and related assets. On
December 14, 1998, the Company sold its 80% interest in DNR Sportsystem for
nominal consideration and the elimination of all outstanding intercompany
balances. On December 31, 1998, the Company sold the building and land that
housed the Company's snowboard manufacturing operations for $3.1 million. On
January 14, 1999, the Company's leased snowboard manufacturing equipment was
disposed of through an auction and the net proceeds of the auction were paid to
the equipment lessor. The Company has a remaining obligation of $1.7 million to
the lessor, which is included in the liabilities of continuing operations. The
Company is currently in the process of collecting its remaining outstanding
snowboard receivables of $171,000, net of allowance for doubtful accounts, as of
March 31, 1999, which will complete the Company's exit from the snowboard
business.
The components of net assets of discontinued operations included in the
consolidated balance sheets at March 31, 1999 and 1998, respectively, were as
follows:
March 31, March 31,
1999 1998
-------- ---------
(in thousands)
Accounts receivable, net $ 171 $ 3,781
Inventories -- 4,995
Prepaid and other current assets 9 1,611
Current portion of long-term debt -- (806)
Accounts payable (8) (2,276)
Other current liabilities (2,032) (1,650)
------- -------
Net current assets $(1,860) $ 5,655
======= =======
Net property, plant and equipment $ -- 4,538
Intangible assets, net -- 7,909
Other assets -- 273
Long-term liabilities -- (2,320)
Minority interest -- (1,447)
------- -------
Net long-term assets $ -- $ 8,953
======= =======
F-11
<PAGE>
As of March 31, 1999, 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 consolidated statements
of operations under "loss (income) from operations of discontinued snowboard
business." Revenues from the discontinued operations were approximately $3.3
million, $12.9 million and $43.3 million for the fiscal years ended March 31,
1999, 1998 and 1997, respectively. The (loss) income from operations of
discontinued snowboard business has been reflected net of income tax benefit
(provision) of $134,000, $636,000 and $(956,000) for the fiscal years ended
March 31, 1999, 1998 and 1997, respectively. The loss on disposal of the
snowboard business reflected in the 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, the loss on the sale 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
non-cancelable 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.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Consolidation
The consolidated financial statements include the accounts of Marker
International and its subsidiaries. All material inter-company accounts and
transactions have been eliminated in consolidation.
Foreign Currency Translation
The functional currency for the Company's foreign operations is the
applicable local currency: Marker Germany - Deutsche Marks, Marker Japan and DNR
Japan - Japanese Yen, Marker Canada - Canadian Dollars, Marker Austria -
Austrian Schillings and DNR Sportsystem - Swiss Francs. The financial statements
of foreign subsidiaries are translated into U.S. Dollars in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52. Assets and
liabilities of foreign subsidiaries are translated into U.S. Dollars at the
F-12
<PAGE>
applicable rates of exchange at the end of the reporting period. Income and
expense items are translated at the weighted average rates of exchange
prevailing during the period. Translation gains and losses are reflected as a
separate component of shareholders' (deficit) equity as "accumulated other
comprehensive loss."
Cash and Cash Equivalents
Cash and cash equivalents include investments in certificates of
deposit with original maturities of less than 30 days. As of March 31, 1999, 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, which totaled
$3.5 million at March 31, 1999. On April 19, 1999, pursuant to an amended
promissory note, the bank applied the proceeds of the time deposit to the
outstanding balance on its note due to the nonpayment of a principal and
interest payment due on April 15, 1999. The Company is currently in the process
of restructuring the remaining balance of $1.5 million. In the event that an
agreement is not reached, the bank could proceed to obtain a judgment against
the Company and force the Company into an involuntary bankruptcy.
Accounts Receivable - Seasonality
The Company has certain sales programs, which result in the majority of
the annual net sales occurring in the second and third fiscal quarters. The
balance of the annual net sales occurs primarily during the fourth fiscal
quarter. In accordance with industry practice, the Company grants payment terms
to its customers in excess of 30 days. As of March 31, 1999, the Company had
certain accounts receivable from customers which are not due for over ten
months.
Inventories
Inventories include direct materials, direct labor and manufacturing
overhead costs and are recorded at the lower of cost (using the first-in,
first-out method) or market. The major classes of inventories are as follows (in
thousands):
March 31,
-----------------------------
1999 1998
------- -------
Raw materials $ 542 $ 1,411
Work in process 1,821 2,306
Finished goods 16,389 33,506
---------- ----------
$ 18,752 $ 37,223
========== ==========
F-13
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Major additions and
improvements are capitalized, while costs for minor replacements, maintenance
and repairs that do not increase the useful life of an asset are expensed as
incurred.
For financial reporting purposes, the provision for depreciation and
amortization is determined using the straight-line method based on the expected
remaining economic useful lives of the assets as follows:
Description Useful Lives
----------- ------------
Machinery and equipment 2 - 10 years
Furniture, fixtures and office equipment 2 - 10 years
Building and improvements 2 - 40 years
For the year ended March 31, 1997, the Company capitalized interest
costs totaling approximately $237,000, related to the construction of corporate
facilities. No interest was capitalized during fiscal 1998 or 1999.
Accounting for the Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment when events or
changes in circumstances indicate that the book value of an asset may not be
recoverable. The Company evaluates, at each balance sheet date, whether events
and circumstances have occurred that indicate possible impairment. The Company
uses an estimate of future undiscounted net cash flows of the related asset over
the remaining life in measuring whether the assets are recoverable.
The Company has evaluated the recoverability of its net property, plant
and equipment at March 31, 1999 assuming that the Company will be successful in
restructuring the Company's obligations, obtain additional financing and
continue as a going concern. Net property, plant and equipment consists
primarily of the Company's manufacturing equipment in Germany of $7.5 million
and its U.S. corporate headquarters and distribution facility of $3.0 million at
March 31, 1999. The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
property, plant and equipment carrying amounts that might result should the
Company be unsuccessful in restructuring its obligations and be unable to
continue as a going concern.
F-14
<PAGE>
Intangible Assets
As of March 31, 1999, intangible assets consisted of the distribution
rights for Tecnica and Volkl products that were purchased in January 1998 as
part of the process of establishing a new distribution entity in Canada. These
assets are amortized using the straight-line method over 3 years. At March 31,
1999, accumulated amortization on intangible assets was approximately $173,000.
Intangible assets as of March 31, 1998 also consisted of goodwill, trade names
and licenses resulting from the Company's acquisition of a snowboard business
(See Note 8).
During fiscal 1998, the Company recorded an impairment loss of $8.0
million related to the intangible assets of its snowboard business. In addition,
as part of the Company's exit from the snowboard business in fiscal 1999, the
Company wrote-off the remaining intangible assets of $8.0 million. These
write-offs have been classified as part of the loss on discontinued operations.
Revenue Recognition
Revenue is recognized when products are shipped to the customer.
Advertising
The Company expenses advertising costs the first time the advertising
takes place. For the years ended March 31, 1999, 1998 and 1997, advertising
expenses totaled approximately $3.9 million, $4.4 million and $3.3 million,
respectively.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for
expected future tax consequences of events that have been recognized in the
financial statements or tax returns in different periods. Under this method,
deferred income tax assets or liabilities are determined based upon the
difference between the financial and income tax bases of assets and liabilities
using enacted tax rates expected to apply when differences are expected to be
settled or realized.
Fair Value of Financial Instruments
The Company believes that the fair value of its long-term debt and
preferred stock could be less than its book value due to the current financial
position of the Company. Information relating to carrying amount, interest rate
F-15
<PAGE>
and maturity dates is disclosed in Notes 2 and 3. It was not practicable for the
Company to estimate the fair value of its long-term debt and preferred stock,
for which a quoted market price was not available, because the cost of
determining fair value would be unreasonable. The Company believes that the book
value of all other financial instruments approximates fair value except for
derivatives (see Note 9).
Per Share Information
Basic net income (loss) per common share (Basic EPS) excludes dilution
and is computed by dividing net income (loss) applicable to common shareholders
by the weighted average number of common shares outstanding during the year.
Diluted net income (loss) per common share (Diluted EPS) reflects the potential
dilution that could occur if stock options were exercised or converted into
common stock. The computation of Diluted EPS does not assume exercise of stock
options and conversion of preferred stock that would have an anti-dilutive
effect on net income (loss) per common share.
The following is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------- ----------------------------- -------------------------------
(Loss) Shares Per-Share Income Shares Per-Share Income Shares Per-Share
(Num.) (Denom.) Amount (Num.) (Denom.) Amount (Num.) (Denom.) Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS $(48,187) 11,136 $ (4.33) $(17,329) 11,130 $(1.56) $ 4,602 10,285 $ 0.45
Dilutive options -- -- -- -- -- -- -- 51 --
-------- -------- -------- -------- -------- ---------- -------- -------- -------
Diluted EPS $(48,187) 11,136 $ (4.33) $(17,329) 11,130 $(1.56)$ $ 4,602 $ 10,336 $ 0.45
======== ======== ======== ======== ======== ========== ======== ======== =======
</TABLE>
The net loss used in the numerator of Basic and Diluted EPS for fiscal
1999 was adjusted for redeemable Series B Preferred Stock dividends of $169,000.
For the years ended March 31, 1999 and 1998, there were outstanding options and
warrants to purchase a total of 1,763,300 and 1,076,300 shares of common stock,
respectively, that were not included in the computation of Diluted EPS. In
addition, the assumed conversion of Series B Preferred Stock is not considered
in the computation of Diluted EPS for fiscal 1999. For fiscal year 1997, certain
options and warrants were not included because the exercise prices of such
options and warrants were greater than the average market price of common
shares. For fiscal years 1999 and 1998, the options and warrants were not
included because the Company incurred a net loss.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to reduce the
potential impact of unfavorable fluctuations in foreign exchange rates.
Contracts that are intended to hedge firm commitments are deferred and
recognized as part of the
F-16
<PAGE>
cost of the underlying transaction being hedged. Gains and losses on foreign
exchange contracts that do not qualify as hedges are reported currently in
income. During fiscal 1999, given the financial position of the Company, the
Company determined that all gains and losses on foreign exchange contracts
should be reported in income (see Note 9).
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes new accounting and
reporting standards for companies to report information about derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
This statement is effective for financial statements issued for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company has not
determined if it will adopt SFAS 133 prior to its effective date. The Company is
unable to determine if this pronouncement will have a material impact on the
Company's result of operations, financial position or liquidity.
Reclassifications
Certain reclassifications have been made in prior years' consolidated
financial statements to conform to the current year's presentation.
F-17
<PAGE>
NOTE 2. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT
<TABLE>
Notes payable to banks at March 31, 1999 and 1998, consisted of the
following:
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Credit arrangement with three German banks, with maximum borrowing of DM
58,659,000 ($32.3 million). The arrangement provides for maximum borrowings
at the bank's base rate or a combination of borrowings at the bank's base
rate. Amounts outstanding at March 31, 1999 consisted of Euroloans of DM
45,000,000 ($24.8 million), bearing interest rates ranging from 3.7% to 4.17%
subject to an interest cap for DM 5,000,000 ($2.8 million), which limits the
interest rate to a maximum rate of 6%, and current accounts of DM 13,659,000
($7.5 million). Borrowings are secured by the accounts receivable, inventory
and equipment of Marker Germany and are guaranteed by Marker International
and Marker USA. The agreement with the banks extends through March 31, 1999. $ 32,304 $ 19,379
Credit arrangements with three Japanese banks, with maximum borrowing of YEN
1,450,000,000 ($10,884,000), subject to approval by the bank. At March 31,
1999, YEN 189,000,000 ($1,590,000) of borrowings were outstanding with the
interest rate at 2.0%, due in installments at various dates through March
2000; YEN 89,000,000 ($749,000) secured by the assets of a former director of
the Company and YEN 100,000,000 ($841,000) guaranteed by Marker
International. 1,590 3,153
Line of credit with First Security Bank, maximum borrowings of $33,600,000,
subject to a borrowing base limitation. Interest at the bank's prime rate
plus 0.5% (8.75% at March 31, 1999) secured by the accounts receivable and
inventory of Marker USA and Marker Ltd. and by the land and buildings of
Marker International. The line of credit agreement expires, as extended, on
July 31, 1999. 10,636 24,901
Credit arrangement with Royal Bank of Canada, maximum borrowings of
CND$3,000,000 ($1,988,400).At March 31, 1999, CND$2,312,000 ($1,532,000) was
outstanding. Interest accrues at the bank's prime rate plus 1.25% (8.00% at
March 31, 1999). Amounts are secured by inventory of Marker Canada and
guaranteed by Marker International and Marker USA. The line of credit
agreement expires August 1999. 1,532 1,212
---------- ----------
$ 46,062 $ 48,645
========== ==========
</TABLE>
For the years ended March 31, 1999 and 1998, the weighted average
interest rate on short-term borrowings outstanding at year end was 5.4 percent
and 6.5 percent, respectively, the maximum short-term borrowing amount
outstanding during such years was $78.9 million and $74.2 million, respectively,
the average amount outstanding during the years was $64.4 million and $58.8
million, respectively, and the weighted average interest rate during such years
was 6.3 percent and 6.1 percent, respectively.
At March 31, 1999, the Company had approximately $47.0 million
available borrowings under lines of credit, of which it had borrowed
approximately $46.1 Million.
F-18
<PAGE>
On March 31, 1999, the Company's DM 58.7 million (U.S. $32.3 million)
line of credit with HypoVereinsbank, Deutsche Bank AG and BFG Bank expired.
HypoVereinsbank and Deutsche Bank AG have agreed to extend the credit line
through August 31, 1999 based on numerous conditions. Such conditions include,
but are not limited to, (i) the consummation of the Asset Purchase Agreement
(ii) Marker and CT Sports entering into lockup agreements with a majority of
Marker's shareholders and acceptable pre-bankruptcy agreements with key
creditors, and (iii) product purchase guarantees by CT Sports. There can be no
assurance that the Company will be successful in meeting these conditions. In
the event that the Company is unable to meet these conditions, the German banks
could terminate the bank line immediately and force the Company into an
involuntary bankruptcy.
The Company is not in compliance with several loan covenants under the
terms and conditions of the revolving credit agreement among the Company, its
U.S. subsidiaries and First Security Bank. On June 14, 1999, First Security Bank
notified the Company that the termination of the Netting Agreement with M&T Bank
constituted a default under the revolving credit facility. Also, as of June
30,1999, the Company's outstanding balance on its line of credit exceeded the
available borrowing base for a period greater than the ten day mandatory
repayment period allowed under the revolving credit agreement which also
constitutes a default. As of July 14, 1999, First Security Bank had not declared
the line of credit in default, but has reserved the right to do so. In the event
that the bank declares the line of credit in default, the bank can exercise its
rights to demand payment of all amounts due under the revolving credit
agreement, foreclose on the Company's assets which are pledged as collateral
under the agreement, or force the Company into an involuntary bankruptcy. There
can be no assurance that the Company will be able to cure its non-compliance or
reach a satisfactory agreement with the bank.
As of March 31, 1999, the Company was not in compliance with a minimum
tangible net worth covenant under a $3.0 million Canadian Dollar (U.S. $2.0
million) line of credit agreement with the Royal Bank of Canada ("Royal Bank").
The Company was also not in compliance with margin requirements under the same
line of credit as of March 31, 1999. On June 22, 1999, the Royal Bank notified
the Company of several terms and conditions that it requires the Company to meet
in order for the Royal Bank to continue to provide financing to the Company. The
Company is currently in the process of attempting to comply with the terms and
conditions that the Royal Bank has outlined in its letter and is in the process
of negotiating with a new lender in order to obtain financing. In the event that
non-compliance is not cured or waived, the Royal Bank may exercise its rights to
demand payment of all amounts due and/or foreclose on the Company's assets which
are pledged as collateral under the agreement which could also lead to
cross-defaults under the Company's other credit arrangements. There can be no
assurance that the Company will be able to cure its non-compliance, reach a
satisfactory agreement with Royal Bank or secure financing from a new lender.
F-19
<PAGE>
As of June 30, 1999, the Company had not been formally notified that it
is in current default on the credit arrangements with its German and Japanese
banks. However, given the defaults on the other agreements, it is possible that
these agreements could be declared in default in the near term.
<TABLE>
Long-term debt at March 31, 1999 and 1998 consisted of the following:
<CAPTION>
1999 1998
-------- -------
(in thousands)
<S> <C> <C>
Notes payable to two German banks, interest rates ranging from 4.95% to 7.50%,
due in installments through June 2007, secured by accounts receivable,
inventory and equipment of Marker Germany and guaranteed
by Marker International and Marker USA $ 3,733 $ 5,518
Note payable to a U.S. bank, interest at 8.25% due October 1999, secured by the
inventory and accounts receivable of Marker USA and Marker Ltd.
and guaranteed by Marker International - 4,500
Note payable in German Marks (DM 6.4 million) to a U.S. branch of a German bank,
HypoVerinsbank, interest at 4.64%, due in installments through April 2001,
secured by a $2,000,000 time deposit held in the
Company's name at the bank (see Note 1) 3,523 3,941
Note payable to a U.S. bank, interest at 9.7%, due in monthly
installments through July 2004, secured by a building 1,162 1,318
Notes payable to an insurance company, paid in full during fiscal 1999. - 2,184
Note payable to Royal Bank of Canada, interest at prime rate plus 1.25% (8.0% at
March 31, 1999) due on March 31, 2000, secured by a standby
letter of credit issued by Marker International, currently in default 166 -
Note payable to a Japanese bank, interest at 2.13%, due in installments through
November 2000, secured by the assets of a former director of the Company 801 562
Other 31 387
---------- ---------
9,416 18,410
Less current maturities (5,595) (3,512)
--------- ---------
$ 3,821 $ 14,898
========= =========
</TABLE>
The following are scheduled principal maturities of long-term debt as
of March 31, 1999 (in thousands):
Year Ending March 31, Amount
--------------------- -------
2000 $ 5,595
2001 1,575
2002 759
2003 453
2004 448
Thereafter 586
---------
$ 9,416
=========
F-20
<PAGE>
On April 15, 1999, the Company did not make a required principal and
interest payment of DM 900,000 (U.S. $496,000) on a note payable to
HypoVereinsbank, New York. On April 16, 1999, HypoVereinsbank notified the
Company that the nonpayment of principal and interest constituted a default
under the terms of the note and that the entire balance of DM 6.4 million (U.S.
$3.5 million) was immediately due and payable. As a result, HypoVereinsbank
applied the proceeds of a time deposit that was held as security by the bank in
the amount of $2.0 million against the outstanding balance due on the note. The
Company is currently negotiating with HypoVereinsbank to restructure the
remaining balance. In addition the Company's note payable to Royal Bank of
Canada is in default as part of the Company's noncompliance with the line of
credit agreement. Accordingly, the amounts under these notes are classified as
current maturities at March 31, 1999. There can be no assurance that the Company
will reach a satisfactory agreement with HypoVereinsbank.
Total cash paid for interest during the years ended March 31, 1999,
1998 and 1997 was approximately $6,358,000, $5,492,000, and $5,276,000,
respectively. Included in total cash payments for interest are Series A Bond
(See Note 3) interest payments which totaled approximately $472,000, $936,000
and $1,253,000 for the years ended March 31, 1999, 1998 and 1997, respectively.
NOTE 3. SERIES A BONDS
All of the Company's outstanding Series A Bonds are held by Isomura
Sangyo Kaisha Ltd., a Japanese corporation ("Isomura Sangyo" or the
"Bondholder"), controlled by Eiichi Isomura, a former director of the Company,
and his family. The Series A Bonds are subject to redemption upon not less than
30 days prior notice, in whole or in part, at the option of the Company.
The Series A Bonds consist of the Series A-1, A-2 and A-3 Bonds and
require semiannual interest payments on September 30, and March 31. The Series
A-1 Bonds bear interest at the effective borrowing rate for the Bondholder (the
"Japanese Bank Rate") which was approximately 4.75% and 7.97% for the fiscal
years 1999 and 1998, respectively. The Series A-2 and A-3 Bonds bear interest at
the Japanese Bank Rate plus three percent which was approximately 7.75% and
10.97% for fiscal years 1999 and 1998, respectively.
F-21
<PAGE>
<TABLE>
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:
<CAPTION>
Bonds Payable Bonds 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 $ 2,280 October 1, 1998 October 1, 1999
Certificate #6 270,947 2,280 October 1, 1999 October 1, 2000
------- -----
Total Series A-1 Bonds 541,894 4,560
------- -----
Series A-2 Bonds
Certificate #3 338,683 2,850 December 16, 1998 December 15, 1999
Certificate #4 338,683 2,850 December 16, 1999 December 15, 2000
------- -----
Total Series A-2 Bonds 677,366 5,700
------- -----
Series A-3 Bonds
Certificate #1 135,473 1,139 December 16, 1999 December 16, 2001
------- -----
Total Series A Bonds 1,354,733 $11,399
========= =======
</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 of the Bonds from $10.0
million U.S. Dollars 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 are
recorded in income. As of March 31, 1999, the Company recorded an unrealized
loss of approximately $1.4 million.
During fiscal year 1999, the Company did not make the required interest
payments of $125,000 due in October 1998 and $125,000 due in April 1999 on the
Series A Bonds. As a result, the bondholder has the right to declare the Series
A Bonds in default and accelerate the entire outstanding balance of $11.4
million plus accrued interest of $0.7 million. As a result, the Series A Bonds
have been classified as a current liability. On March 26, 1999, CT Sports
entered into a restructuring agreement with the bondholder which is contingent,
among other things, Marker entering into a definitive purchase agreement with CT
Sports (see Note 1). There can be no assurance that the bondholder will not
declare the Series A Bonds in default and accelerate the outstanding balance.
F-22
<PAGE>
NOTE 4. SERIES B PREFERRED STOCK
On August 24, 1998, Henry E. Tauber, former president and chief
executive officer of Marker and a member of Marker's board of directors,
purchased 1,000,000 shares of the Company's Series B Preferred Stock, $0.01 par
value (the "Preferred Stock"), for a purchase price of $3,000,000.
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. For fiscal 1999, accrued and unpaid dividends
were approximately $169,000.
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
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.
As part of he Company's overall restructuring plan, Mr. Tauber is
presently negotiating with CT Sports for the retirement of the Series B
Preferred Stock. There can be no assurance that the Company will be able to
reach a satisfactory agreement with the holder of the Series B Preferred Stock.
F-23
<PAGE>
NOTE 5. COMMITMENTS AND CONTINGENCIES
Leases
The Company is committed under various long-term non-cancelable
operating leases requiring minimum annual rentals as follows (in thousands):
Year Ending March 31, Amount
-------------------- ------
2000 $ 1,602
2001 1,170
2002 1,044
2003 950
2004 839
Thereafter 7,156
----------
$ 12,761
==========
Rent and lease expense was approximately $2,217,000, $2,791,000, and
$3,176,000 for the years ended March 31, 1999, 1998 and 1997, respectively.
During June 1997, the Company entered into an agreement for the sale
and leaseback of the Company's machinery and equipment of its snowboard
facility. The Company had an option to purchase such facility for $790,000 at
expiration of the lease. The lease was classified as an operating lease. On
January 14, 1999, the leased snowboard manufacturing equipment was disposed of
through an auction and the net proceeds of the auction were paid to the
equipment lessor. The Company has a remaining lease obligation of $1.7 million
to the lessor, which is included in the other current liabilities as of March
31, 1999. The lessor has agreed to settle and release the Company of the $1.7
million obligation for a payment of $30,000 (which was made on June 30, 1999)
and an additional payment of $140,000 on or before October 1, 1999. In the event
these payment are not made, the Company remains liable for the entire $1.7
million obligation. There can be no assurance that the Company will be able to
satisfy its obligation to pay the remaining $140,000 to Zions by October 1,
1999.
Discounted Notes Receivable
Marker Japan was contingently liable for discounted trade notes
receivable on a full recourse basis of approximately $2,863,000 at March 31,
1999. These notes receivable mature in various amounts through July 1999.
F-24
<PAGE>
Royalty Agreement
On April 1, 1999, Marker Ltd. renewed its agreement with the Salt Lake
Organizing Committee for the 2002 Olympic Winter Games as a licensee for the
sale of apparel with the imprint of the 2002 Olympic Winter Games. On March 8,
1999, Marker Ltd. completed a licensing agreement SSRC. Effective April 1, 1999,
SSRC acquired the license rights for both winter and summer apparel for the 2002
Olympic Winter Games to be held in Salt Lake City.
Legal Matters
On March 22, 1999, Pierro G. Ruffinengo filed a breach of contract
lawsuit against the Company and certain of its officers and directors in the
Third Judicial District Court in Salt Lake City, Utah. The plaintiff, who
provided legal and consulting services to the Company from 1982 to 1998, is
claiming monetary damages and also claiming an ownership interest in several
patents. The Company is currently involved in settlement negotiations with Mr.
Ruffinengo. Based on a review of the current facts and circumstances, management
has provided for what is believed to be a reasonable estimate of the exposure to
loss associated with this matter. There can be no assurance that the Company
will reach a satisfactory settlement with the plaintiff.
On May 11, 1999, Marker was served with a subpoena to provide documents
and records to a Grand Jury in the United States District Court, Northern
Division for District of Utah. The subpoena requests documents and records to be
produced regarding certain individuals with respect to The Salt Lake City
Olympic Organizing Committee, Salt Lake City Olympic Bid Committee and the
International Olympic Committee. The Company believes that it has submitted all
the required documentation. Although to date the Company has not received
additional correspondence from either The Salt Lake City Olympic Organization
Committee, the Salt Lake City Olympic Bid Committee, the International Olympic
Committee or the Grand Jury regarding this matter, there can be no assurance
that these matters will not be pursued further.
In September 1995, the Company, along with other significant companies
in its business, received a letter from the Department of Justice (the "DOJ")
explaining that the pricing practices of the various companies in the ski
industry were being reviewed. Although to date the Company has not received
additional correspondence from the DOJ, there can be no assurance that the DOJ
will not pursue these matters further.
In the opinion of the Company, neither the Company nor any of its
subsidiaries is currently a party to or subject to any other material pending
legal proceedings. However, the Company is not in compliance with certain
financial covenants and in default under its obligations to certain creditors
(see Notes 2,3, and 9). Any legal proceeding resulting from such defaults would
F-25
<PAGE>
have a material adverse effect on the Company's ability to continue its
operations.
The nature of the sport of skiing entails inherent risks of injury. It
is expected that the Company from time to time will be subject to claims and
lawsuits as a result of the nature of its businesses. The Company maintains
insurance that it believes meets industry standards to protect itself against
product liability claims. The adequacy of the insurance coverage and reserves
established by the Company to cover known, as well as incurred but unknown,
product liability claims are evaluated at the end of each fiscal year. There can
be no assurance, however, that such coverages or reserves will be sufficient
protection against any future legal proceedings (including any related payments,
settlements or costs).
NOTE 6. INCOME TAXES
The Company's subsidiaries file tax returns in their applicable
jurisdictions. U.S. income tax is not provided on unrepatriated foreign earnings
because management considers such amounts to be permanently invested abroad.
Management has deemed it impracticable to determine the amount of unrecognized
deferred tax liability on earnings which are considered permanently invested
abroad.
The Company's provision or (benefit) for income taxes has been
allocated between continuing operations and discontinued operations for the
years ended March 31, 1999, 1998 and 1997 as follows (in thousands):
1999 1998 1997
---------- ---------- -------
Continuing Operations $ 1,458 $ 1,158 $ 700
Discontinued Operations (134) (636) 956
---------- ---------- --------
$ 1,324 $ 522 $1,656
========== ========== ========
The portion of the provision or (benefit) for income taxes allocable to
discontinued operations has been netted against the income or loss from
discontinued operations in the financial statements.
The domestic and foreign components of income (loss) from continuing
operations before provision for income taxes for the years ended March 31, 1999,
1998 and 1997 were as follows (in thousands):
1999 1998 1997
--------- --------- --------
Domestic $(10,497) $ (2,865) $(1,711)
Foreign (10,555) (1,110) 4,092
---------- ----------- ---------
$(21,052) $ (3,975) $ 2,381
========= ========== =======
F-26
<PAGE>
The Company's (benefit) provision for income taxes related to income
(loss) from continuing operations for the years ended March 31, 1999, 1998 and
1997 consisted of the following (in thousands):
1999 1998 1997
--------- --------- -------
Current:
Federal $ - $ - $ 15
State 4 4 30
Foreign 108 261 989
--------- --------- ---------
112 265 1,034
Deferred 1,346 893 (334)
--------- --------- ---------
$ 1,458 $ 1,158 $ 700
========= ========= =========
For the year ended March 31, 1997, the federal and state current
provision for income taxes is presented net of the benefits realized from
operating loss carryforwards which totaled approximately $166,000.
The (benefit) provision for income taxes as a percentage of income
(loss) from continuing operations before provision for income taxes differed
from the statutory federal rate due to the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
Statutory federal income tax rate (34.0%) (34.0%) 34.0%
State income taxes net of federal income taxes - 0.1 0.9
Change in deferred tax asset valuation allowance 38.7 56.6 (13.7)
Foreign earnings taxed at different rates - 4.7 8.2
Other 2.2 1.7 -
---- ---- ---------
6.9% 29.1% 29.4%
========= ========= =========
</TABLE>
F-27
<PAGE>
The components of the net deferred tax assets and liabilities at March
31, 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Deferred tax assets:
Intercompany profit $ 735 $ 1,028
Domestic net operating loss carryforwards 15,245 852
Unrealized foreign exchange loss 1,214 -
Foreign net operating loss carryforwards 4,398 673
Allowance for doubtful accounts 662 278
Accrued expense reserves 1,516 795
Foreign tax credits and tax attribute carryforwards 296 435
Other 286 274
------- --------
Total deferred tax assets 24,352 4,335
Valuation allowance (24,233) (3,085)
------- --------
119 1,250
------- -------
Deferred tax liabilities:
Equity investment - (139)
Other (119) (154)
-------- --------
Total deferred tax liabilities (119) (293)
-------- --------
Net deferred tax assets $ - $ 957
======= ========
</TABLE>
The recognition of deferred tax assets is based upon judgments
regarding the potential realization of such assets in the future. As of March
31, 1999, management believes that none of the net deferred tax assets will be
realized, and therefore, the valuation allowance has been increased accordingly.
As of March 31, 1999, the Company has domestic tax net operating loss
carryforwards of approximately $41.0 million which begin to expire in 2006 and
foreign tax net operating loss carryforwards of approximately $10.0 million
which begin to expire in 2003. Additionally, as of March 31, 1999, the Company
has domestic foreign tax credits, general business credits, charitable
contribution carryforward and alternative minimum tax credits of $164,000,
$32,000, $82,000 and $72,000, respectively.
Cash paid for income taxes in the years ended March 31, 1999, 1998 and
1997 was approximately $70,000, $1,569,000 and $1,216,000, respectively.
F-28
<PAGE>
NOTE 7. COMMON STOCK TRANSACTIONS
Stock Offering
On July 23, 1996, the Company closed its secondary public offering of
the Company's common stock. In connection therewith, the Company issued
2,680,000 shares of common stock. The Company received aggregate net proceeds of
approximately $14.8 million. The Company utilized such net proceeds to partly
finance the purchase of additional shares of DNR Sportsystem.
Warrants
In connection with the Company's initial public offering held during
fiscal 1995, the Company issued to the representative of the underwriters
nontransferable warrants to purchase 231,500 shares of the common stock,
exercisable for a period of four years commencing in August 1995 at an exercise
price of $8.75. Accordingly, at March 31, 1999, 173,625 warrants were
exercisable. The warrants provide for registration rights, anti-dilution
protection and other customary terms. No warrants were exercised during the
fiscal year ended March 31, 1999.
Stock Option Plan
During fiscal 1995, the Company established a nonqualified and
incentive stock option plan (the "Stock Option Plan"). The Stock Option Plan
provides for the issuance of a maximum of 2,500,000 shares of common stock to
officers, directors, consultants and other key employees. The Stock Option Plan
allows for the grant of incentive or nonqualified options and is administered by
the Board of Directors. Incentive options are granted at not less than 100
percent of the fair market value of the underlying common stock on the date of
the grant. The aggregate fair market value of shares which may be purchased for
the first time during any calendar year pursuant to an incentive stock option
grant may not exceed $100,000 per individual. Nonqualified stock options will be
granted at a price as determined by the Board of Directors. No stock options
granted are exercisable after ten years from the date of grant.
F-29
<PAGE>
For the years ended March 31, 1999, 1998 and 1997, the Company had the
following stock option activity:
Weighted
Avg.
Year Ended March 31, 1999 Amount Exercise Price
------------------------- ------ --------------
Options Granted 930,000 $.50
Options Exercised - -
Options Expired/Forfeited (243,000) 4.56
Options Repriced 631,800 .56
Options Outstanding 1,531,800 .53
Options Exercisable 519,297 .56
Year Ended March 31, 1998
Options Granted 22,500 $ 4.08
Options Exercised (1,450) 4.13
Options Expired/Forfeited (53,750) 4.46
Options Outstanding 844,800 4.86
Options Exercisable 476,172 4.63
Year Ended March 31, 1997
Options Granted 236,000 $ 5.42
Options Exercised (1,250) 7.13
Options Expired/Forfeited (44,250) 6.83
Options Canceled (169,000) 5.75
Options Outstanding 877,500 4.85
Options Exercisable 277,750 6.96
On April 15, 1997, the Board of Directors amended the exercise price of
468,500 options originally granted on November 1, 1994 at an option price of
$7.13 per share to $4.13 per share, which was the closing price for Marker
common stock on April 15, 1997. Effective November 1, 1998, the Board of
Directors amended the exercise price of 631,800 options from their original
grant exercise of between $6.00 to $2.50 to $.5625 per share, which was the
closing price for Marker common stock on October 22, 1998.
The Company has adopted the disclosure-only provisions of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" for
F-30
<PAGE>
options issued to employees. Accordingly, no compensation expense has been
recognized for the Stock Option Plan. Had compensation cost for the Company's
stock option awards been determined in accordance with the provisions of SFAS
No. 123, the Company's net income (loss) and per share amounts would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net (Loss) Income - As Reported (in thousands) $ (48,018) $ (17,329) $ 4,602
Net (Loss) Income - Pro Forma (in thousands) $ (48,188) $ (18,495) $ 4,190
Net (Loss) Income per Share - As Reported $ (4.33) $ (1.56) $ 0.45
Net (Loss) Income per Share - Pro Forma $ (4.34) $ (1.66) $ 0.41
</TABLE>
The following information applies to the options outstanding and
exercisable at March 31, 1999: 631,800 of the 1,531,800 options outstanding at
March 31, 1999 have exercise prices of $.5625, and a weighted average remaining
contractual life of 8.1 years of which approximately 519,297 of these options
are exercisable, and the remaining 900,000 options have exercise prices of $.50
and a weighted average remaining contractual life of 9.6 years of which none of
these options are exercisable; their weighted average exercise price is $.50.
Because the Statement 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The
weighted average fair value of options granted under the Company's stock option
plans during fiscal years ended March 31, 1999, 1998, and 1997 were estimated at
$0.50, $2.44 and $4.27, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in fiscal 1999, 1998 and 1997, respectively: dividend
yield of 0%, expected volatility of 100.0%, 77.4% and 78.0% respectively, and
expected lives of 6 years for all grants; and a risk free rate of return of
6.6%, 6.7% and 6.3%, and an assumed forfeiture rate of 1.5%, 1.2% and 2.3%,
respectively. The estimated fair value of options granted is subject to the
assumptions made and if the assumptions were to change, the estimated fair value
amounts could be significantly different. The weighted average fair value of the
options exercised during fiscal 1999, 1998 and 1997 was $2.42 for all years.
NOTE 8. INVESTMENT IN DNR SPORTSYSTEM
On June 30, 1995, the Company acquired 25% of the common shares of DNR
Sportsystem, a Swiss Corporation, for approximately $5.4 million in cash. On
June 26, 1996, the Company acquired an additional 55% of the common shares of
F-31
<PAGE>
DNR Sportsystem for approximately $19.8 million. In connection with the 55%
purchase, the Company acquired the following: assets at fair value of $24.1
million (including cash of $5.3 million) and assumed liabilities of $4.2
million. This acquisition has been accounted for using the purchase method. As a
result of the acquisition, Marker's total ownership of DNR Sportsystem increased
to 80%. Prior to its 80% ownership, the Company accounted for its then 25%
investment in DNR Sportsystem using the equity method of accounting.
Prior to March 31, 1997, DNR Sportsystem had a calendar year end, and
as a foreign entity did not have the same reporting requirements as the Company.
Consistent with prior reporting periods, the Company used a 90-day lag in
reporting DNR Sportsystem's financial information. As such, DNR Sportsystem's
operating results for its year ended December 31, 1996 were included in Marker's
fiscal year ended March 31, 1997. On March 31, 1997, Marker elected to eliminate
the 90-day reporting lag and, as such, recorded a one time adjustment to
retained earnings relating to DNR Sportsystem's operating results for the period
January 1, 1997 to March 31, 1997, effectively making DNR Sportsystem's current
reporting period the same as that of the Company and its other consolidated
subsidiaries. For the period January 1, 1997 through March 31, 1997, Marker's
adjustment to retained earnings was $2.45 million, which represented 80% of DNR
Sportsystem net loss for that same period. DNR Sportsystem had net sales of $1.3
million for the period January 1, 1997 through March 31, 1997.
For the period January 1, 1996 through December 31, 1996, DNR
Sportsystem reported net sales of $49.7 million, operating income of $6.7
million and net income of $6.4 million. However, the Company's actual benefit
from the 1996 DNR Sportsystem operating results was reduced by its proportional
share of non-ownership (minority interest) which varied throughout the reporting
period, amortization expense resulting from goodwill created by the purchase of
DNR Sportsystem and significant interest expense incurred by the Company
relating to the purchase.
NOTE 9. DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments held by the Company are generally used
to manage well-defined foreign exchange and interest rate risks which occur in
the normal course of business. From time to time the Company has entered into
derivatives that require speculative accounting treatment.
Foreign Exchange Contracts
The Company and its subsidiaries have numerous intercompany receivables
and payables and commitments denominated in foreign currencies that create
exposure to fluctuations in foreign currency rates. The Company entered into
F-32
<PAGE>
forward foreign exchange contracts to reduce the potential impact of unfavorable
fluctuations in foreign exchange rates. The Company has commitments to buy and
sell foreign currencies relating to foreign exchange contracts in order to hedge
against future currency fluctuations.
The Company holds forward exchange contracts to purchase German Marks
with Japanese Yen and U.S. Dollars. The contracts mature at various dates
through April 2000. The outstanding forward exchange purchase and sale contracts
at March 31, 1999, are as follows:
<TABLE>
<CAPTION>
Selling Buying Contracted
Amount Amount Forward Rate Unrealized Loss Maturity
-------------- -------------- ------------- --------------- --------
<S> <C> <C> <C> <C> <C>
Yen 1,833,190,000 DM 27,000,000 64.080 - 71.000 $ (576,492) 4/15/99-4/20/00
$ 37,809,651 DM 62,229,000 1.4969 - 1.7455 $(3,341,162) 4/19/99-12/29/99
</TABLE>
The U.S. Dollar amount of the Yen contracts based upon the March 31,
1999 spot rate was approximately $15.4 million. Due to the Company's financial
position, the Company determined that it would be unable to utilize the foreign
exchange contracts as originally intended. Accordingly, all contracts have been
accounted for as speculative and marked to market. This resulted in an
unrealized loss of $3.9 million as of March 31, 1999. In addition, the Company
realized a net gain of approximately $3.9, $0.8 million, and $1.0 million for
fiscal years 1999, 1998 and 1997, respectively, related to sold contracts that
were not accounted for as hedges.
Subsequent to March 31, 1999 the Company notified M&T Bank and KeyBank,
banks with which the Company had certain foreign exchange arrangements, that the
Company would be unable to utilize its foreign exchange contracts as originally
intended. As a result, on May 25, 1999 M&T Bank terminated the foreign exchange
netting agreement (the "Netting Agreement") dated May 1, 1997 with the Company.
Pursuant to its rights under the Netting Agreement, M&T Bank canceled and closed
out all outstanding foreign exchange contracts for a loss of $3.7 million as of
May 21, 1999 and demanded immediate payment of this amount. Although the Company
is currently negotiating with M&T Bank to restructure this obligation, there can
be no assurance that the Company will reach a satisfactory agreement with M&T
Bank. In the event that an agreement is not reached, M&T could proceed to obtain
a judgment against the Company and force the Company into an involuntary
bankruptcy. As of June 30, 1999, the aggregate loss on foreign exchange
contracts with M&T Bank and KeyBank totaled approximately $5.1 million. The loss
on the KeyBank contracts will continue to fluctuate as a result of changes in
the exchange rates.
F-33
<PAGE>
Interest Rate Cap Agreement
The Company has entered into an interest rate cap agreement to reduce
the impact of changes in interest rates on its variable rate revolving credit
agreement (See Note 2). The differential to be paid or received on the agreement
is recognized over the term of the agreement as either an increase or decrease
of interest expense. The interest rate cap agreement expires July 31, 1999 and
at March 31, 1999, the estimated fair value was zero.
NOTE 10. RELATED PARTY TRANSACTIONS
During fiscal years 1999, 1998 and 1997, Marker Japan purchased ski
bindings and services totaling approximately $66,000, $92,000, and $93,000,
respectively, from Isomura Seisakusho KK ("Isomura Seisakusho"), a company of
which Eiichi Isomura, a shareholder and former director of the Company, is the
president, director and owner of more than ten percent of the outstanding stock.
At March 31, 1999, 1998 and 1997, the net account receivable from Isomura
Seisakusho was approximately $0.0 million, $0.4 million and $0.4 million,
respectively.
At March 31, 1999, the Company had outstanding credit arrangements in
an aggregate amount equal to approximately U.S. $2.4 million payable to Japanese
banks. Of these amounts, approximately $1.5 million was secured by assets of Mr.
Isomura.
Marker Japan leases office space in Tokyo, Japan and receives
distribution services from Isomura Sangyo, a company of which Eiichi Isomura, a
shareholder and former director of the Company, is the president, director and
owner of more than ten percent of the outstanding stock. In connection
therewith, for the fiscal years 1999, 1998 and 1997, Marker Japan made payments
to Isomura Sangyo totaling approximately $239,000, $280,000 and $287,000
respectively.
The Company purchased insurance through an insurance broker, Acordia
Northwest Inc., of which Graham S. Anderson, a director of the Company, is also
a director. The Company incurred approximately $684,000, $745,000, and $851,000
of premiums for such insurance during fiscal 1999, 1998 and 1997, respectively.
DNR Sportsystem purchased snowboards from an affiliated entity, of
which Gregor Furrer & Partner Holding AG, a minority shareholder of DNR
Sportsystem, is a partner. Snowboards purchased from the related party totaled
approximately $0.9 and $5.9 million during 1999 and 1998, respectively.
On August 24, 1998, Henry E. Tauber, former president and chief
executive officer of Marker and a member of Marker's board of directors,
F-34
<PAGE>
purchased 1,000,000 shares of the Company's Series B Preferred Stock, $0.01 par
value (the "Preferred Stock"), for a purchase price of $3,000,000. Allen &
Company Incorporated gave an oral report, concluding that the terms of the sale
of the Preferred Stock were fair and reasonable, and no less favorable to the
Company than those that could be obtained from an unrelated third party making a
similar investment in the Company.
NOTE 11. BENEFIT PLAN
The Company sponsors a qualified retirement plan under Section 401(k)
of the Internal Revenue Code which covers substantially all eligible domestic
employees. Under the terms of the plan, each participant may elect to defer up
to the annual statutory limit of eligible compensation. The Company matches 50
percent of each participant's contribution up to 4 percent of the participant's
eligible compensation. During the years ended March 31, 1999, 1998 and 1997,
employer contributions totaled approximately $51,000, $56,000 and $47,000,
respectively.
NOTE 12. SEGMENT REPORTING
The Company's reportable segments are strategic business units that
offer different products and services. The information for fiscal years 1998 and
1997 have been restated from the prior year's segment presentation in order to
conform to the fiscal year 1999 presentation.
The accounting policies of the reportable segments are the same as
those described in Note 1. Summarized financial information concerning the
Company's reportable segments is shown in the following tables.
While the major portion of the Company's operations is derived from the
ski bindings and other hardgoods segment, the Company also has a clothing and
other softgoods segment. 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.
F-35
<PAGE>
Information concerning continuing operations by industry segment as of
and for each of the three years ended March 31, is as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Revenues from Unrelated Entities:
Bindings and Other Hard Goods $ 60,416 $ 69,788 $ 75,048
Clothing and Other Soft Goods 13,751 11,613 8,028
- -------------------------------------------------------------------------------------------------------------
$ 74,167 $ 81,401 $ 83,076
- -------------------------------------------------------------------------------------------------------------
Operating Income (Loss):
Bindings and Other Hard Goods $ (9,523) $ 1,235 $ 5,257
Clothing and Other Soft Goods (1,832) 348 447
Unallocated Corporate (4,568) 155 (1,028)
- -------------------------------------------------------------------------------------------------------------
$(15,923) $ 1,738 $ 4,676
- -------------------------------------------------------------------------------------------------------------
Depreciation and Amortization:
Bindings and Other Hard Goods $ 4,201 $ 3,152 $ 2,702
Clothing and Other Soft Goods 213 106 134
Unallocated Corporate 345 305 355
Discontinued Operations 392 1,637 1,195
- -------------------------------------------------------------------------------------------------------------
$ 5,151 $ 5,200 $ 4,386
- -------------------------------------------------------------------------------------------------------------
Interest Expense:
Bindings and Other Hard Goods $ 5,250 $ 3,855 $ 3,427
Clothing and Other Soft Goods 4 1 -
Unallocated Corporate 1,383 1,898 1,682
- -------------------------------------------------------------------------------------------------------------
$ 6,637 $ 5,754 $ 5,109
- ------------------------------------------------------------------------------------------------------------
Capital Expenditures:
Bindings and Other Hard Goods $ 3,205 $ 6,213 $ 3,884
Clothing and Other Soft Goods 74 104 156
Unallocated Corporate 16 138 2,685
Discontinued Operations 340 683 3,544
- -------------------------------------------------------------------------------------------------------------
$ 3,635 $ 7,138 $ 10,269
- -------------------------------------------------------------------------------------------------------------
Total Assets:
Bindings and Other Hard Goods $ 49,133 $ 66,038 $ 62,262
Clothing and Other Soft Goods 2,631 7,136 5,602
Unallocated Corporate 7,030 7,745 12,770
Discontinued Operations 179 24,201 36,506
- -------------------------------------------------------------------------------------------------------------
$ 58,973 $ 105,120 $ 117,140
- -------------------------------------------------------------------------------------------------------------
</TABLE>
F-36
<PAGE>
Geographical Segment Information:
Financial information relating to the Company's operations by
geographic area was as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Revenues from Unrelated Entities:
United States of America $ 31,910 $ 39,768 $ 37,135
Germany 11,529 10,996 12,651
Japan 8,852 11,150 12,991
All Other Countries 21,876 19,487 20,299
- -------------------------------------------------------------------------------------------------------------
$ 74,167 $ 81,401 $ 83,076
- -------------------------------------------------------------------------------------------------------------
Long-Lived Assets:
United States of America $ 3,472 $ 8,075 $ 8,834
Germany 7,540 8,741 6,759
Japan 454 717 1,161
All Other Countries 425 543 5
Discontinued Operations - 9,430 22,110
- -------------------------------------------------------------------------------------------------------------
$ 11,891 $ 27,506 $ 38,869
- -------------------------------------------------------------------------------------------------------------
</TABLE>
F-37
Series A Bonds
Extension Agreement
September 3, 1998
Mr. Eiichi Isomura
Chairman and President
Isomura Sangyo Kaisha Ltd.
Dear Eiichi:
This letter sets forth the agreement of Isomura Sangyo Kaisha Ltd. (the "Bond
Holder") to extend the payment terms on the Variable Rate A- I Bonds, Variable
Rate A-2 Bonds and Variable Rate A-3 Bond ("the Bonds") which it holds from
Marker International.
The extension of the Bonds is outlined in detail as follows:
Variable Rate A-1 Bonds ( the "A-1 Bonds")
- ------------------------------------------
The A- I Bonds were issued in 6 certificate numbers and had an original
aggregate value of $8,000,000, of which $4,000,000 has been repaid. At the date
of this agreement the A-1 Bonds Certificate Number 5 for $2,000,000 has an
amended due date of October 1, 1998 and Certificate Number 6 for $2,000,000 has
an amended due date of October 1, 1999. Each of the two A-1 Bonds pay interest
at the Japanese Bank Rate as defined on the Bond Certificate.
This agreement extends the payment due dates of Certificate Number 5 for
$2,000,000 to October 1, 1999 and Certificate Number 6 for $2,000,000 to October
1, 2000.
Variable Rate A-2 Bonds ( the "A-2 Bonds")
- ------------------------------------------
The A-2 Bonds were issued in 4 certificate numbers and had an original aggregate
value of $10,000,000, of which $5,000,000 has been repaid. At the date of this
agreement the A-2 Bonds Certificate Number 3 for $2,500,000 has an amended due
date of December 16, 1998 and Certificate Number 4 for $2,500,000 has an amended
due date of December 16, 1999. Each of the two outstanding A-2 Bonds pay
interest at the Japanese Bank Rate plus 3% as defined on the Bond Certificate.
This agreement extends the payment due dates of Certificate Number 3 for
$2,500,000 to December 15, 1999, and Certificate Number 4 for $2,500,000 to
December 15, 2000.
Variable Rate A-3 Bond ( the "A-3 Bond")
- ----------------------------------------
The A-3 Bond was issued in I certificate and had an original value of
$1,000,000. At the date of this agreement the A-3 Bond Certificate Number I for
$1,000,000 has an amended due date of December 16, 1999. The A-3 Bond pays
interest at the Japanese Bank Rate plus 3% as defined on the Bond Certificate.
<PAGE>
Page 2
Bond Extension Agreement
This agreement extends the payment due dates of the A-3 Bond, Certificate Number
I for $1,000,000 to December 16, 2001.
Upon demand of the Bond Holder, the Bonds may be converted from United States
dollar denominated bonds to Japanese yen denominated bonds (the "Bond
Conversion"). The Bond Holder must notify Marker International to enable Marker
International to secure foreign exchange contract to enable Marker International
to convert Untied States dollars to Japanese yen at the scheduled maturity of
the Bonds.
The interest rate for the Bonds shall reflect the Bond Conversion, in that the
rate of interest paid on the Bonds shall be adjusted to reflect the Japanese yen
borrowing rate (the "Japanese Yen Bank Rate") not the current Japanese Bank Rate
as defined on the Bonds. The A-2 Bonds and the A-3 Bond shall continue to
include a 3% premium over the Japanese Yen Bank Rate.
Each of the Bonds shall accrue interest at the defined rate on the outstanding
principal amount of the Bonds. Marker International shall pay interest to the
Bond Holder semi-annually of $125,000 ("the Interest Payment"). Such Interest
Payment by Marker International shall be applied to the accrued interest on the
Bonds pro-rata to the amount of interest accrued on the Bonds. In as much as the
Interest Payment made by Marker International is less than the accrued interest
on the applicable bond, the remaining accrued but unpaid interest shall become
due and payable only upon the payment of the principal amount of the applicable
bond. In as much as the Interest Payment made by Marker International is more
than the accrued interest on the applicable bond, the excess interest shall be
applied to pro-rata to the to the 3% premium on the A-2 Bonds and the A-3 Bond.
Except as specifically set forth herein, the terms of the Bonds remain
unchanged.
If this letter is consistent with your understanding of our arrangement, please
indicate by signing this agreement in the space provided below whereupon this
letter shall be an agreement between us.
Sincerely,
/s/ Brad L. Stewart
Brad L. Stewart
Executive Vice President
Marker International
Agreed to: /s/ Eiichi Isomura Agreed to: /s/ Brad L. Stewart
------------------- -------------------
Eiichi Isomura Brad L.Stewart
Isomura Sangyo Kaisha Ltd. Mark International
Date: September 4, 1998 Date: September 4, 1998
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is made as of this 8th day
of October, 1998, by and between Peter Weaver (the "Executive") and Marker
International, a Delaware corporation (the "Corporation").
WITNESSETH:
-----------
WHEREAS, the Corporation desires to employ the Executive, and the
Executive desires to accept such employment, under the terms and conditions of
this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, and for other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:.
1. Employment. The Corporation hereby employs the Executive, and the
Executive hereby accepts employment as the Corporation's President and Chief
Executive Officer, under the terms and conditions set forth herein.
2. Term. Subject to paragraph 8, the Executive shall be employed hereunder
for a period of five (5) years commencing on October 8, 1998 and ending on
October 7, 2003 (the "Term").
3. Duties. During the Term, the Executive shall report to the
Corporation's Board of Directors (the "Board") and perform such duties and
responsibilities commensurate 'with his position of President and Chief
Executive Officer as the Board may determine. Executive shall devote his entire
working time to the business of the Corporation and its affiliates and shall use
his best efforts, skills and abilities in his diligent and faithful performance
of his duties and responsibilities hereunder. During the Term, Executive shall
not engage in any other business activities or hold any office or position,
regardless of whether any such activity, office or position is pursued for
profit or other pecuniary advantage, without the prior consent of the Board;
however, Executive may own, solely as an investment, one percent (1%) or less of
the securities of any publicly traded corporation.
4. Principal Place of Performance. During the Term, the Executive shall be
based at the principal executive offices of the Corporation or any of its
subsidiaries, as may be determined from time to time by the Board, including,
without limitation, the Corporation's production facility in Eschenlohe,
Germany; provided further the Executive acknowledges that he will be required to
travel in connection with the business of the Corporation and its affiliates.
5. Compensation and Related Matters. As full compensation for the
Executive's performance of his duties and responsibilities hereunder during the
Term, the Corporation shall pay the Executive the compensation and provide the
benefits set forth below:
<PAGE>
a. Base Salary. The Corporation shall pay the Executive an annual
salary ("Base Salary") of Three Hundred Thousand Dollars ($300,000), less
required deductions, payable in -accordance with the Corporation's payroll
practices. The Board shall review the Executive's Base Salary on an annual basis
and may, at its sole discretion, increase same.
b. Signing Bonus. The Corporation shall pay the Executive a one-time
signing bonus of Fifty Thousand Dollars ($50,000), less required deductions,
payable upon the execution of this Agreement on behalf of the Executive and the
Corporation.
C. Bonus. The Executive shall be eligible to receive an annual
performancebased bonus as the Board may, in its sole discretion, award.
d. Options. On or prior to December 31 , 1998, the Corporation shall
grant the Executive options to purchase 900,000 shares of the Corporation's
Common Stock, par value $.01 per share, at an exercise price equal to the
closing price of such common stock on the date of the grant. Such options shall
be issued pursuant to, and subject to the terms of, the Corporation's Stock
Option Plan. The shares shall vest in the following manner: (i) 600,000 shares
on the date of grant (the "Issue Date"); (ii) 200,000 shares on the first
anniversary of the Issue Date; and (iii) 100,000 shares on the second
anniversary of the Issue Date. Anything herein or elsewhere to the contrary
notwithstanding, all 900,000 shares shall vest immediately upon a "Change in
Control". A "Change in Control" as used herein shall be deemed to have occurred
if:
(i) a third person, including a ",group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), but excluding any employee benefit plan
or plans of the Corporation and its subsidiaries and
affiliates and any current shareholders of the Corporation,
becomes the beneficial owner, directly or indirectly, of
fifty-one percent (51%) or more of the combined voting power
of the Corporation's outstanding voting securities ordinarily
having the right to vote for the election of directors of the
Corporation; or
(ii) the individuals who, as of the date hereof, constitute the
Board (and as of the date hereof the "Incumbent Board") cease
for any reason to constitute at least one-half (1/2) of the
Board, or in the case of a merger or consolidation of the
Corporation, do not constitute or cease to constitute at least
one-half (1/2) of the board of directors of the surviving
company (or in a case where the surviving corporation is
controlled, directly or indirectly, by another corporation or
entity, do not constitute or cease to constitute at least
one-half (1/2) of the board of such controlling corporation or
do not have or cease to have at least one-half (1/2) of the
voting seats on any body comparable to a board of directors of
such controlling entity); provided that any person becoming a
director (or, in the case of a controlling non-corporate
entity, obtaining a position comparable to a director or
obtaining a voting interest in such entity) subsequent to the
date hereof whose election, or nomination for election, was
approved by a vote of the persons comprising at least one-half
-2-
<PAGE>
(1/2) of the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office
is in connection with an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall be, for purposes
of this Agreement, considered as though such person were a
member of the Incumbent Board; or
(iii) there is a liquidation or dissolution of the Corporation or a
sale of all or substantially all of the assets of the
Corporation; or
(iv) if the Corporation enters into an agreement or series of
agreements or the Board passes a resolution which will result
in the occurrence of any of the matters described in
subsections (i), (ii) or (iii), and the Executive's employment
is terminated (other than by the Executive) subsequent to the
date of execution of such agreement or series of agreements or
the passage I of such resolution, but prior to the occurrence
of any of the matters described in subsections (i), (ii) or
(iii) then, upon the occurrence of any of the matters
described in subsections (a), (a) or (air), a Change of
Control shall be deemed to have retroactively occurred on the
date of the execution of the earliest of such agreement(s) or
the passage of such resolution.
e. Benefits. The Executive shall be eligible to receive medical and
life insurance and such other benefits and perquisites under terms and
conditions no less favorable than those under which the Corporation generally
makes such benefits and perquisites available to its senior executives.
f. Vacation. The Executive shall be entitled to four (4) weeks paid
vacation which will be accrued monthly on a pro-rata basis during each full
calendar year and acknowledges that such vacation must be used in the calendar
year in which it is accrued and may not be accumulated or carried over into
subsequent years. The Executive may schedule the vacation as he elects, subject
to the Corporation's business needs.
6. Expenses. The Executive shall be reimbursed for reasonable and
necessary outof-pocket expenses, including for travel and entertainment, upon
presentation of appropriate receipts in accordance with the policies and
procedures established by the Corporation.
7. Offices. During the Term, the Executive agrees to serve without
additional compensation, if elected or appointed thereto, as a director of the
Corporation or any of its subsidiaries or affiliates, and in one or more
executive positions for any of the Corporation's subsidiaries or affiliates.
8. Termination. Anything herein to the contrary notwithstanding, the
Executive's employment shall terminate immediately upon:
a. his death; or
-3-
<PAGE>
b. his "disability". For purposes of this Agreement, the term
"disability" shall mean that the Executive has been unable to perform the duties
and responsibilities required of him hereunder due to a physical and/or mental
disability for a period of ninety (90) consecutive days or one hundred twenty
(120) non-consecutive days during any twelve (12) month period. During the first
sixty (60) days of any such period of disability, the Executive shall continue
to receive his Base Salary provided that he assigns to the Corporation any
insurance benefits that he receives or is eligible to receive, such as short
term disability and workers compensation, during such period; or
C. the existence of "cause." For purposes of this Agreement, the term
"cause" shall mean that the Corporation, in the reasonable judgment of the
Board, has determined that:
(i) Executive has failed to perform his duties and/or
responsibilities under this Agreement in a satisfactory
manner and such failure shall be continuing for the fifteen
(15) day period following his receipt of a written notice
from the Board notifying him of the Board's determination; or
(ii) Executive has engaged in dishonesty or unethical conduct in
his dealings with or on behalf of the Corporation, has
committed fraud, or has committed or been convicted of (or
entered a plea of guilty or nolo contendere to) any crime
involving dishonesty or moral turpitude; or
(iii) Executive has materially breached any of the provisions of
this Agreement; or
(iv) Executive has engaged in any act or omission which is
materially injurious to the financial condition or business
reputation of the Company.
d. If the Executive's employment is terminated, he or his
beneficiaries or estate, as appropriate, shall, in full satisfaction of the
Corporation's obligations under this Agreement, be entitled to receive (i) the
Base Salary provided for herein up to and including the effective date of
termination, prorated on a daily basis, (ii) payment for any accrued, unused
vacation, (iii) medical benefit continuation at Executive and/or his dependent's
expense as provided by law and (iv) benefits, if any, payable upon his death or
disability (as defined herein), respectively.
9. Confidential and Proprietary Information: Non-Competition:
Non-Solicitation.
a. Confidentiality. Except in the performance of Executive's duties
hereunder, at no time during the Term or any time thereafter, shall Executive,
individually or jointly with others, for his benefit or the benefit of any third
party, publish, disclose, use or authorize anyone else to publish, disclose or
use, any secret or confidential and proprietary information relating to any
aspect of the business or operations of the Corporation or its subsidiaries or
affiliates including, without limitation, any trade secret, marketing or
-4-
<PAGE>
business plans, suppliers, trade or industrial practices or subsidiaries or
technology of the Corporation or its affiliates, whether or not the Corporation
and/or its subsidiaries or affiliates have a patent (or applied for- a patent)
regarding same. The Executive acknowledges and agrees that such information is a
valuable asset of the Corporation and/or its subsidiaries or affiliates and is
the sole exclusive proprietary of each of them, respectively. Upon the
termination of Executive's employment, regardless of the reason for or
circumstances giving rise to such termination or at any other time at the
request of the Corporation, he shall immediately return to the Corporation all
of the property of the Corporation or its subsidiaries or affiliates,
including-, all such confidential and proprietary information, in his possession
or control. Notwithstanding the foregoing, confidential and proprietary
information shall not include information which (i) is or becomes generally
available to the public or trade other than as a result of a disclosure by the
Executive or any other person who directly or indirectly receives such
information from the Executive or at his direction, or (ii) the Executive is
required to disclose in accordance with his duties hereunder or by law in the
course of any legal or administrative proceeding; provided, however, the
Executive shall provide the Corporation with written notice of any such
disclosure request and a copy of any related documents, such as a subpoena,
within forty eight (48) hours of the Executive's receipt of same and before he
discloses same.
b. Non-Competition. During the Term and for two (2) years thereafter,
the Executive agrees that he shall not, directly or indirectly, with or without
remuneration, either as an employee, employer, consultant, agent, principal,
partner, shareholder, corporate officer, director, manager, investor, advisor or
in any other individual or representative capacity, engage or participate in any
business or business activity that competes with the business of the Corporation
or its subsidiaries or affiliates.
c. Non-Solicitation. During the Term and for two (2) years thereafter,
the Executive agrees that he shall not, directly or indirectly, engage, employ,
or solicit for employment for himself or for any firm, person, corporation,
partnership or otherwise, any person who is then an employee of the Corporation
or its affiliates or was an employee of the Corporation or its subsidiaries or
affiliates during the Term.
d. Injunctive Relief The Executive acknowledges that a breach or
threatened breach of any of the terms set forth in this paragraph 9 shall result
in an irreparable and continuing, harm to the Corporation and/or its
subsidiaries or affiliates for which there shall be no adequate remedy of law.
The Corporation and/or its subsidiaries or affiliates shall, without posting a
bond, be entitled to obtain injunctive and other equitable relief, in addition
to any other remedies available to the Corporation and/or its affiliates.
e. Survival of Terms: Representations. The Executive's obligations
under this paragraph 9 hereof shall remain in full force and effect
notwithstanding the termination of Executive's employment. The Executive
acknowledges that he is sophisticated in business, and that the restrictions and
remedies set forth in this paragraph 9 do not create an undue hardship on the
Executive and will not prevent Executive from earning a livelihood. Executive
and Corporation agree that the restrictions and remedies contained in this
paragraphs 9 are reasonable and necessary to protect Corporation's legitimate
-5-
<PAGE>
business interests regardless of the reason for or circumstances giving rise to
such termination and that Executive and Corporation intend that such
restrictions and remedies shall be enforceable to the fullest extent permissible
by law. Executive agrees that given the sophistication of the information
highway, any geographic limitation on such remedies and restrictions would deny
Corporation the protection to which it is entitled hereunder. If it shall be
found by a court of competent jurisdiction that any such restriction or remedy
is unenforceable but would be enforceable if some part thereof were deleted or
modified, then such restriction or remedy shall apply with such modification as
shall be necessary to make it enforceable to the fullest extent permissible
under law.
10. Successors. This Agreement and Executive's performance hereunder are
personal to the Executive and shall not be assignable by the Executive. This
Agreement shall inure to the benefit of and be binding upon the Corporation and
its successors and assigns. The Corporation shall require any successor to all
or substantially all of the business and/or assets of the Corporation, whether
directly or indirectly, by purchase, merger, consolidation, acquisition of
stock, or otherwise, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent as the Corporation would be required to
perform if such succession had not taken place.
11. Miscellaneous.
a. Modification and Waiver. Any term or condition of this Agreement
may be waived at any time by the party hereto that is entitled to the benefit
thereof-, provided, however, that any such waiver shall be in writing and signed
by the waiving party, and no such waiver of any breach or default hereunder is
to be implied from the omission of the other party to take any action on account
thereof A waiver on one occasion shall not be deemed to be a waiver of the same
or of any other breach on a future occasion. This Agreement may be modified or
amended only by a writing signed by all of the parties hereto.
b. Governing Law. The validity and effect of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Utah. In any action or proceeding arising out of or relating to this
Agreement (an "Action"), each of the parties hereby irrevocably submits to the
non-exclusive jurisdiction of any federal or state court sitting in the State of
Utah, Salt Lake Country, and further agrees that any Action may be heard and
determined in such federal court or in such state court. Each party hereby
irrevocably waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum to the maintenance of any Action in the State of Utah,
Salt Lake Country. It is understood and agreed that this provision for
jurisdiction and venue is part of the value consideration given by the Executive
and relied upon by the Corporation in connection with the Executive's employment
as contemplated hereby.
C. Tax Withholding. The payments and benefits under this Agreement may
be compensation and as such may be included in either the Executive's W-2
earnings statements or 1099 statements. The Corporation may withhold from any
amounts payable under this Agreement such federal, state or local taxes as shall
be required to be withheld pursuant to any applicable law or regulation.
-6-
<PAGE>
d. Paragraph Captions. Paragraph and other captions contained in this
Agreement are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
e. Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity of the
remainder of this Agreement.
f. Integrated Agreement. This Agreement constitutes the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof, and supersedes any other employment agreements executed
before the date hereof. There are no agreements, understandings, restrictions,
representations or warranties between the parties other than those set forth
herein or herein provided for.
g. Interpretation: Counterparts. No provision of this Agreement is to
be interpreted for or against any party because that party or that party's legal
representative drafted such provision. For purposes of this Agreement: "herein,"
hereby," "hereinafter," "herewith," "hereafter" and "hereinafter" refer to this
Agreement in. its entirety, and not to any particular subsection or paragraph.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, and all of which shall constitute one and the same
instrument.
h. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand
delivery, or by facsimile (with confirmation of transmission), or by overnight
courier, or by registered or certified mail, return receipt requested, postage
prepaid, in each case addressed as follows:
If to the Executive:
--------------------
Peter Weaver
P.O. Box 981418
Park City, Utah 84098
If to the Corporation:
----------------------
Marker International
1070 West 2300 South
Salt Lake City, Utah 84119
Attention: John McMillian
Chairman of the Board of Directors
-7-
<PAGE>
Copy To:
--------
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: Mark Rosenbaum, Esq.
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by addressee.
i. No Limitations. The Executive represents his employment by the
Corporation hereunder does not conflict with, or breach any confidentiality,
non-competition or other agreement to which he is a party or to which he may be
subject.
I. WAIVER OF JURY TRIAL: COST OF ENFORCEMENT. THE PARTIES HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY DOCUMENT CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. IN THE EVENT IT
IS NECESSARY FOR EITHER PARTY TO COMMENCE AN ACTION IN ANY WAY CONNECTED WITH
THIS AGREEMENT, THE PREVAILING PARTY SHALL BE ENTITLED TO RECOVER FROM THE NON
PREVAILING PARTY, ALL COSTS OF SUCH ACTION, INCLUDING REASONABLE ATTORNEYS FEES
AND INCLUDING TRIAL AND APPELLATE PROCEEDINGS. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS AGREEMENT.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of
the date first above written.
MARKER INTERNATIONAL
/s/ Peter Weaver
------------------------------------- -------------------------------------
By: John McMillian Peter Weaver
Chairman of the Board of Directors
-8-
LICENSE AGREEMENT
-----------------
AGREEMENT dated the 8th day of March 1999 by and between marker, Ltd.
and Marker International, Inc., each a Utah corporation ("ML" and "MI",
respectively, and, collectively, the "Licensor") , on the one hand, and Ski &
Sports Recreation Company, LLC, a Utah limited liability company ("Licensee"),
an the other.
WITNESSETH
----------
WHEREAS, the Licensor is in the business of manufacturing and selling
apparel and sportswear and accessories and Licensee is in the business of
selling these products;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Representations of Licensor and ML and MI.
------------------------------------------
(a) Licensor represents that:
(i) it is the owner of the trademark, "Marker" insofar as it
pertains to the Licensed Products (as hereinafter defined) as well as for other
products including ski bindings, ski boot- and skis, all of which other products
are specifically excluded from this Agreement;
(ii) to the best of their knowledge, there are no pending suits or
actions or threatened suits or actions to which Licensor is a party which, if
resolved adversely, may affect the status of Licensor's title to the trademark
"Marker" or have an adverse effect on the ability of Licensor to perform its
obligations hereunder or the ability of Licensee to exercise its rights as
contemplated hereby;
(iii) to the knowledge of Licensor, the trademark "Marker" does not
infringe any trademark right of any third party with respect to the Licensed
Products in the Territory;
<PAGE>
(iv) set forth on Exhibit A hereto is a list of each country in
which the trademark "Marker" is registered and the category of its
classification.
(b) Each of ML and MI represents that:
(i) it is a duly organized corporation, validly existing and in
good standing under the laws of the state of its incorporation;
(ii) it has the requisite corporate power to execute and deliver
and perform this agreement and has taken all necessary action co execute and
deliver this agreement.
2. Representations of Licensee.
----------------------------
Licensee represents that:
(a) it is A duly organized limited liability company, validly existing
and in good standing under the laws of the state Of its incorporation;
(b) it has the requisite corporate power to execute and deliver and
perform this agreement and has taken all necessary action to execute and deliver
this agreement.
3. Grant of License: Territory; Duties of Licensor.
------------------------------------------------
(a) Subject to the terms of this agreement, the Licensor hereby grants
to the Licensee the' exclusive right, to manufacture, market and sell the
Licensed Products (as defined on Exhibit 3 hereto) throughout the world (the
"Territory") and to use the mark "Marker" in connection therewith.
(b) Licensor shall provide the Licensee with all information regarding
the marketing and sale of the Licensed Products in the Territory co Licensor at
the date hereof generally including the list of existing customers as well as
the list of customers indebted to Licensor.
4. Manufacture and Sale of Products.
---------------------------------
Licensee agrees (i) to manufacture, promote, market, distribute and
sell the Licensed Products in accordance with standards of style, quality and
workmanship consistent with those of similar products sold into similar markets
and substantially similar to chose previously employed by Licensor as to such
products, (ii) to comply with all relevant codes of practice and statutory
requirements as to manufacture of the Licensed Products and (iii) to provide the
Licensee, at its request, free of charge, pre-production samples of the Licensed
Products and access co the Licensee's place of manufacture of the Licensed
Products. 2
2
<PAGE>
5. Term.
-----
(a) The initial term of this Agreement (the "Term") shall commence on
April 1, 1999 and shall terminate on March 31, 2009.
(b) Thereafter, provided Licensee is in compliance with the terms
hereof, this Agreement shall be automatically extended on all of its same terms
and conditions (including this automatic right of renewal) for additional
periods of one year unless either party within 90 days of September 30, 2006, or
on any subsequent anniversary date thereafter, shall have given the other two
years' written notice of. its intent to terminate as of September 30 of any
particular year in which event this Agreement shall terminate at such date.
(c) Licensor shall have the right to cancel this agreement in the event
that average annual Net Sales (as hereinafter defined) in the two-year period
ending March 31, 2001 fall. below $6,000,000 or average annual Net Sales in the
two year period ending March 31, 2003 fall below $6,500,000 or average annual
Net Sales fall below $7,000,000 for any two year period thereafter; provided,
however, if Licensee pays to Licensor an amount equal to the difference between
royalties actually earned and paid and what Licensor would have received had
Licensee achieved the minimum Net Sales contemplated by this paragraph, then
this license shall continue.
6. Ownership and Use of Trademark.
-------------------------------
Licensee covenants, warrants and agrees that it shall use its best
efforts to create, promote and retain goodwill in connection with the
manufacture, promotion, marketing, distribution and sale of the Licensed
Products.
7. Royalties: Definitions.
-----------------------
(a) Licensee shall pay to Licensor royalties equal to 3% of Net sales
(as defined below) of Licensed Products made by or on behalf of Licensee in the
Territory during the first Payment Year (as defined below) during the Term, 4%
for the second Payment Year and 5% for each Payment Year thereafter.
(b) For purposes of this Agreement, the following terms shall have the
meanings set forth below;
(i) "Net Sales" shall mean amounts actually received or
receivable by Licensee from sales of Licensed Products shipped by and on its
behalf, net of returns, discounts or other allowances arid after deduction for
sales or use or similar taxes.
3
<PAGE>
(ii) "Payment Year" shall mean each twelve (12) month period from
April I through the following March 31 (or to the date this Agreement is earlier
terminated) during the term of this Agreement.
8. Reports and-Payment of Royalties.
---------------------------------
(a) Within sixty (60) days of the end of each quarter commencing with
the quarter ending June 30, 1999, during the term of this Agreement, Licensee
shall deliver to Licensor its good check payable to Licensor in an amount equal
to the aggregate royalties payable to Licensor for such period together with a
full, accurate and complete written statement, certified to he correct by the
chief executive or chief financial officer of Licensee, setting forth (i)
aggregate Net Sales of Licensed Products sold by it and on its behalf during the
three-month period then ended; (ii) the aggregate royalties due to Licensor
from, Licensee for such period; and (iii) such other information as Licensor
shall reasonably request. In addition. within sixty (GO) days after the date of
termination of this Agreement, Licensee shall deliver to Licensor a full,
accurate and complete written statement, certified to be correct by the chief
executive or chief financial officer of Licensee, setting forth the information
required by clauses (i), (ii) , and (iii) of this Section 8 (a) , but covering
only those periods tip to the date of termination for which reports shall not
have been submitted under this Section 8(a).
(b) Licensee shall maintain true, complete and correct books and
records of all sales within the scope of this Agreement, in accordance with
generally accepted accounting principles, to enable Licensor to readily
ascertain all amounts payable hereunder and the information to be set forth in
the statements required by this Section 8. Licensor, its agents or
representatives, shall have the right, on reasonable written notice to Licensee,
(luring Licensee's normal business hours, at any time and from time to time
during the Term and for a period of two (2) years thereafter, to inspect,
examine and copy all or any part or parts of such books and records arid all
other documents arid materials, relating to the transactions contemplated by
this Agreement. All such books and records shall be kept available by Licensee
for it. least two (2) years after the Term.
(c) All royalty payments which are not paid when due shall bear
interest from the due date of such payment.-, until paid at an interest raze
equal to the lesser of (i) the rare of interest publicly announced from time to
time by The Chase Manhattan Bank, N.A. as its prime rate of interest, plus two
(211) percent, and (ii) the maximum rate of interest permitted by applicable
law.
4
<PAGE>
(d) Receipt or acceptance by Licensor of any documents or reports
furnished, or of any amounts paid, pursuant to this Agreement shall not preclude
Licensor, its agents, representatives or assigns, from questioning the
correctness of any or all such documents, reports and amounts at any time.
9. Promotional Activities; Advertising.
------------------------------------
Licensee shall use its best efforts to exploit the trademark
"Marker" in the Territory and to create and develop markets for the Licensed
Products and to promote, distribute and sell Licensed Products in the Territory
so as to maximize royalties, and to secure and make use of adequate personnel
for the manufacture, promotion, marketing, distribution and sale of Licensed
Products in the Territory.
10. Indemnity.
----------
(a) Licensor agrees to defend, indemnify and hold Licensee harmless
against any claims, demands, causes of action and judgments arising out of
claims made by any third party with respect to infringement of the trademark
"Marker" used in connection with the Licensed Products in accordance with this
Agreement.
(b) Licensee agrees to defend, indemnify and hold Licensor harmless
against any claims, demands, causes of action and judgments arising out of both
Licensee's failure to comply with the terms of this Agreement and Licensee's
manufacture, distribution, sale, promotion and advertisement of the Licensed
Products other than any claims arising out of Licensor's breach of any
representations herein.
(c) Each of the parties shall bring to the other's any unauthorized use
of a mark which is the same or similar to the trademark "Marker" that comes to
its attention.
(d) Licensor shall have the right to determine whether any demand, suit
or other action shall be taken on account of or with respect to any infringement
or suspected infringement of the trademark "Marker". Licensor may commence or
prosecute any such suit or action or make any such demand in its own name, and
Licensee agrees to assist and cooperate with Licensor, as Licensor may
reasonably request, in connection with any such demand, suit or other action. If
Licensor prosecutes any such demand, suit or other action, Licensor shall be
entitled to all proceeds and recoveries resulting therefrom.
If Licensor chooses not to take any action with respect to any
infringement or suspected infringement of the trademark "Marker", Licensee may
commence or prosecute any such suit or action or make any such demand in its own
5
<PAGE>
name, and Licensor agrees to assist and cooperate with Licensee, as Licensee may
reasonably request, including being named as a party plaintiff to the action. In
connection with any such demand, suit or other action, Licensee shall be
entitled to all of the proceeds and recoveries resulting therefrom.
(f) In all instances, Licensor shall reimburse Licensee's expenses with
respect to any infringement claim referenced in Sections 10(a) and (d).
11. Termination.
------------
This Agreement and the rights granted to Licensee hereunder (A) shall
immediately terminate if Licensee fails to make any payment of license fee
required hereunder and such breach continues for a period of ten (10) days after
notice to Licensee of such breach and (B) shall immediately terminate if
Licensee commences any case or proceeding under any applicable national, state
or foreign bankruptcy or insolvency laws, (ii) a receiver,, liquidator,
assignee, trustee or custodian is appointed to administer the affairs of
Licensee, (iii) Licensee makes an assignment for the benefit of its creditors,
or (iv) Licensee dissolves, liquidates, winds-up, sells or otherwise disposes of
all or substantially all of its business or assets or takes any action or
furtherance of the foregoing except in connection with a sale merger or other
transfer or any similar business combination of the Licensee and (C) may, at
Licensor's option, terminate within sixty (60) days after Licensor shall give
Licensee written notice of the alleged breach if Licensee breaches any of its
obligations, representations, covenants or warranties under this Agreement and
Licensee shall fail to cure such breach (or commence curing such breach and
diligently continue its efforts to cure such breach it cure cannot be
accomplished within such sixty (60) day period provided that, in all cases, such
breach must be cured within one hundred and eighty (180) days of such notice)
within sixty (60) days after Licensor shall give Licensee written notice of the
alleged breach.
12. Effect of Termination.
----------------------
(a) Subject to the provisions of subsection 12(c) hereof, upon
termination of this Agreement, for any reason, rights to the trademark "Marker",
shall forthwith terminate and Licensee promptly thereafter shall cease and
desist from the manufacture, promoting, advertising, marketing, distribution and
sale of Licensed Products.
(b) Upon termination of this Agreement, Licensor shall have the option
to purchase all, but not less than all, of Licensee's existing inventory as to
Licensed Products for a period of sixty (60) days on such terms as the parties
6
<PAGE>
shall mutually agree and, if this Agreement is terminated by Licensor for any
reason other than due to an uncured breach by Licensee, Licensor shall purchase
such inventory within sixty (90) days of termination at the lower of Licensee's
net wholesale price or market and on its customary terms or such other value as
shall be reasonably determined by a qualified inventory appraiser. If such
determination by such an appraiser shall indicate a value lower than Licensee's
net wholesale price for such inventory, Licensee shall have the right for the
sixty day period commencing with delivery of such determination to it to dispose
of such inventory on such terms as it wishes-.
(c) Notwithstanding the provisions of subsection 12 (a) hereof, upon
the termination of this Agreement for any reason except for Licensee's breach of
Section 4 or Section 6 hereof and failure to cure same, Licensee shall have the
right, on a nonexclusive basis, to dispose of its existing inventory of Licensed
Products in the ordinary course and to use the trademark "Marker" in connection
with such sale and the promotion, advertising, marketing and distribution and
sale of such products for a period of six months after the effective date of
termination of this Agreement; provided however , that Licensee shall not be
relieved from its obligation to pay royalties to Licensor which royalties shall
be payable within thirty (30) days after the completion of such a period.
13. Relationship between the Parties.
---------------------------------
Nothing contained herein shall be construed to constitute either party,
a partner, employee, joint venturer or agent of the other, nor shall either be
entitled to bind or obligate the other in any manner whatsoever, it being
intended by the parties hereto that each shall be an independent contractor
responsible for its own actions.
14. Expenses and Indemnity.
-----------------------
Except as otherwise expressly set forth herein, each party will pay and
discharge, at it- own expense, any and all claims, expenses, charges, fees and
taxes arising out of or incidental to the carrying on of its business.
15. Assignment.
-----------
(a) Upon written notice to Licensee, Licensor shall have the right to
assign this Agreement, and all of its rights and privileges hereunder, to any
other person, firm, corporation or entity. This Agreement shall be binding upon
and inure to the benefit of any firm or corporation into which Licensor shall be
merged, or which shall otherwise purchase, acquire or become the successor in
interest of Licensor, subject to the rights of the Licensee hereunder. 7
7
<PAGE>
(b) During the period from April 1, 1999 to March 31, 2001, Licensee
may assign this Agreement or any part hereof or assign or otherwise transfer any
or all of its rights in and to the trademark "Marker", subject to the rights of
Licensor hereunder, but only after written notice to the Licensor and only with
the prior written consent of the Licensor in its sole discretion.
(c) After April 1, 2001, Licensee may assign this Agreement or any part
hereof or assign or otherwise transfer any or all of its rights in and to the
trademark "Marker", subject to the rights of Licensor hereunder but only after
written notice to the Licensor and only with the prior written consent of the
Licensor, which consent shall not be unreasonably withheld.
(d) Because this Agreement is being entered into in reliance upon and
in consideration of the experience, knowledge, skills and qualifications of
Licensee, and the trust and confidence reposed by Licensor in Licensee, in
the-event of a dispute between the parties as to whether Licensor's consent has
been unreasonably withheld under Section 15(c) hereof, such dispute shall be
resolved by arbitration as provided in Section 18 hereof and the arbitrators
shall consider the following factors, among others, in reaching a decision;
i) the comparative financial strength of the proposed assignee
and the Licensee;
ii) the capability of the proposed assignee to manage the
business in a manner consistent both with both good business practices and the
prior business practices of Licensee;
iii) the status of the proposed assignee as a competitor of
Licensor;
iv) the capacity of the proposed assignee to invest in the future
growth and development of the business; and
v) the capacity of the proposed assignee to maintain the quality
of the Licensed Products and the goodwill in the Marker name.
(e) This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns.
16. Notices.
--------
All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed to have been given which delivered
personally, or when mailed, if sent by certified or registered mail, return
8
<PAGE>
receipt requested, addressed as follows, or to such other address as any party
shall have designated by notice to the other given pursuant hereto.
To Licensor:
Attention:
To Licensee: Ski & Sports Recreation
Company LLC
With a copy to: Howard G. Seitz, Esq.
O'CONNOR, MURPHY, RYAN & SEITZ
230 Park Avenue, Suite 1567
New York, New York 10017
(212) 687-6950
17. Law Governing.
--------------
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard to principles
of conflicts or choice of law.
18. Arbitration.
------------
Any controversy or claim arising out of or relating co this contract
shall be settled by arbitration administered by the American Arbitration
Association under its Commercial Arbitration Rules and held in the City, County
and State of New York, and judgment upon any award entered by the arbitrator may
he entered in any court having jurisdiction thereof.
19. Severability of Provision.
--------------------------
If any provision or paragraph of this Agreement shall be found co be
illegal or a violation of public policy or, for any other reason, unenforceable
in law, such finding shall in no way invalidate any other provision or sections
of this Agreement.
20. Waiver.
-------
No omission or delay of either party hereto in requiring due and
punctual performance by the other party of the obligations of such other party
9
<PAGE>
hereunder, including the acceptance of any payment hereunder by Licensor, shall
be deemed to constitute a waiver if its right to require such due and punctual
performance thereafter or a waiver of any of its remedies hereunder.
21. Entire Agreement.
-----------------
This Agreement constitutes the entire Agreement between the parties
hereto with respect to the subject matter hereof and this Agreement may not be
amended, modified or terminated except by a writing signed by each of the
parties hereto.
22. Headings.
---------
All headings used in this Agreement are for reference purposes only and
shall not be deemed to have any substantive effect.
IN WITNESS WHEREOF, the. parties hereto have duly executed this
Agreement as of the day and year first above written.
MARKER, LTD.
BY: /s/ Peter C. Weaver
-------------------------------------
MARKER INTERNATIONAL
BY: /s/ Peter C. Weaver
-------------------------------------
SKI & SPORTS RECREATION ON COMPANY, LLC
By: /s/ Stephen W. Crisafulli
-------------------------------------
10
<PAGE>
Country, Trademark No. and Classification
(to be prepared by Seller)
EXHIBIT A
<PAGE>
Licensed Products shall be:
Men's, Ladies, and Children's
Outerwear
Skiwear
suits
shells
Vests
Pants
Bib Pants
Fleece Jackets and Vests
Velour Jackets, Vests and Pants
Sweaters
Pile Jackets and Vests
T Necks
Shirts
Underwear
Hats, Caps and Head Gear
Gloves
Luggage
Bags and Packs
Other Accessories
EXHIBIT B
<PAGE>
MARKER
March 15, 1999
Mr. Stephen W. Crisafulli
Ski & Sports Recreation Company, LLC
2321 Circadian Way
Santa Rosa, California 95407
Re: Addendum to March 8, 1999 License Agreement
Between Marker International, Marker Ltd.
And Ski & Sports Recreation Company, LLC
Dear Mr. Stephen Crisafulli,
It is our undemanding that Ski & Sports Recreation Company, LLC ("Licensee"),
'Wishes to utilize and record with the appropriate governmental authorities, a
trading name or "dba" which includes the "'Marker" name and trademark. In order
to formalize this understanding, please review the following addendum and, if
acceptable, please sign both copies of this letter agreement and return one copy
to me.
In accordance with paragraph 21 of the License Agreement dated March 8, 1999, by
and between Marker Ltd. and Marker International (collectively, "Licensor), and
Licensee, the License Agreement is amended as follows:
* In addition to the existing grants in the License Agreement,
paragraph 3 (a) of the License Agreement is amended to permit Licensee
to use the name "Marker" as a trading name or "dba" for Ski & Sports
Recreation Company, LLC and to register said trading name or "dba" with
the appropriate governmental officials as is necessary in order to do
business within the Territory as defined in and in accordance with the
License Agreement.
* In addition to the existing requirements that a-rise upon termination
of the License Agreement, Licensee agrees to take all steps to remove
the word "Marker" from Licensee's trading name and/or "dba" promptly
upon termination including, but not limited to, filing all documents
necessary to amend all governmental records, with written confirmation
of compliance to be provided by Licensee to Licensor within thirty (30)
days of termination.
<PAGE>
MARKER
Mr Stephen Crisafulli
March 15, 1999
Page 2
This addendum does not alter any of the existing terms and conditions in the
License AgreementAD terms of the License Agreement remain in full force and
effect. Furthermore, the parties agree that this addendum agreement is effective
as of the date of this letter.
ACKNOWLEDGED AND AGREED TO:
MARKER LTD.
By:
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MARKER INTERNATIONAL
By:
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SKI & SPORTS RECREATION COMPANY, LLC
By: /s/ Stephen W. Crisafulli
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OPTION AND RIGHT OF FIRST REFUSAL AGREEMENT
FOR VALUE RECEIVED, Ski and Sports Recreation Company, L.L.C. (the
"Company") hereby grants to Marker, Ltd. and Marker International (the
"Licensor") (a) an option, for the 24 month period commencing on April 1, 1999
and ending on March 31, 2001, to acquire by assignment all of the rights of the
company in the license agreement (the "License Agreement") of even date between
(the "Company"), on the one hand, and the Licensor, on the other and (b) a right
of first refusal as to any sale or transfer of all or substantially all of the
business and assets used by the Company for the manufacture, sale and marketing
of Licensed Products as defined in the License Agreement for the 36 month period
commencing on April 1, 1999 and ending on March 31, 2002, all on the following
terms and conditions:
1. Exercise of Option. The Licensor may, at any Time, between the date
hereof and March 31, 2001, exercise this option by delivering to the Company a
written notice (the 'Option Notice") of its election co exercise the option.
2. Purchase Price for Option. The purchase price (the "Purchase
Price") shall be five times the earnings before interest and taxes ("EBIT") of
the Company from the manufacture marketing and sale of Licensed Products as
defined in the License Agreement (hereinafter, the "Business") for the fiscal
year ending March 31, 1999 or March '31, 2000, depending on the date of exercise
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of the option, less in each instance (i) all long term debt outstanding as to
the Business as at March 31, 1999 or March 31, 2000, as the case may be, and
(ii) $1,842,000.1
Upon receipt of the Option Notice, the Company shall instruct its
auditors to determine the EBIT for the Business for the relevant period by
applying generally accepted accounting principals on a consistent period for the
fiscal year then ended to the results of operations of the Business for such
fiscal year.
The Purchase Price will be determined by the Company Is EBIT as to the
Business for the year ended March 31, 2000 If such notice is given on or before
March 31, '41000 and for the year ended March 31, 2001 if such notice is given
after April 1, 2000 and before March 31, 2001.
d) Example:
Licensor exercises the option on July 15, 2000.
The price to be paid is based on EBTT of the Company for the fiscal
year ending March 31, 2001. EBIT for that Period is $1,000,000.
$1,000,000
X 5
----------
$5,000,000
- -------------------------
1 The amount Of $1, 842, 000 was calculated by multiplying by five the
aver-age EBIT of the Licensor as to the Business for the three fiscal
years ending March 31, 1996, 1997 and 1998, respectively.
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Long term debt outstanding on March 31, 2001 is $500,000.
$5,000,000
- 500, 000
----------
$4,5OO,000
-1,842,440
----------
$2,657,560
The purchase price is $2,657,560.
3. Additional Transaction. Simultaneous with the assignment of the
License Agreement and as a condition to such assignment, Licensor shall purchase
from the company (a) its accounts receivable arising out. of bona fide sales oh
Licensed Products (b) those of its fixed assets devoted to the manufacture and
sale of Licensed Products (c) its prepaid expenses and other current assets to
the extent allocable to Licensed Products and (d) all of its existing inventory
as to Licensed Products at the lower of its net wholesale price or market arid
on its customary terms or at such other value as shall be reasonably determined
by a qualified inventory appraiser. If such determination by such an appraiser
shall indicate a value lower than the Company's net wholesale price for such
inventory, the Company shall have the right for the sixty day period
commencing with delivery of such determination to it to dispose of such
inventory on such terms as it wishes.
4. Payment of Purchase Price. Amount payable hereunder shall be paid
by Licensor to the company by wire transfer ten days after delivery to the
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Licensor of the calculation by the Company's auditors of the Purchase Price,
such date being hereinafter referred to as the "Closing Date".
5. Conduct of Business Prior to the Closing Date. During the period
from the date of the Option Notice until the Closing Date, the Company agrees to
operate the Business in a manner consistent with the operating practices of
prior years and consistent with customary business practices in the industry, so
that the Business will be a going concern with no loss in the continuity of
operations.
6. Right of First Refusal. The Company hereby grants to Licensor a
right, of, first refusal to acquire the Business during the period beginning
April 1, 1999 and ending on March 31, 2002.
If during such period, the Company shall. receive an offer to acquire
the Business which it is prepared to accept, it shall promptly notify Licensor
in writing of such event and the terms arid conditions of such offer. Licensor
shall then have the right for the one hundred twenty (120) days from the date of
its receipt of the Company's notice to acquire the Business for cash at a price
equal to the present value of the consideration being offered to the company for
the Business provided Licensor shall give the Company nor-ice of its intent to
exercise this option within thirty (30)days of receipt of such notice. If
Licensor shall. nor elect within such thirty day period to acquire the Business,
then, for a sixty day period thereafter, the Company may sell the Business an
the terms and conditions described in its notice. If the Company does not sell
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the Business within such sixty day period, this right of first refusal provided
for in this agreement shall again apply.
7. Deliveries at Closing. At closing, the Company shall deliver to
Licensor an instrument of assignment as to the License Agreement and a bill of
sale and such other instruments of conveyance as Licensor shall reasonably
request to accomplish the assignment of the License Agreement or the sale of the
Business to Licensor, as the case may be, all on substantially the same terms
and conditions as those provided for in the purchase agreement of even date
between the Company and the Licensor with appropriate modification to reflect
the fact that the Company will. now be the seller and the Licensor the buyer.
Ski & Sports, Recreation Company, L.L.C
BY: /s/ Stephen W. Crisafulli
----------------------------------------
Date: March 8, 1999
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AGREEMENT dated as of March 8, 1999 between Ski Sports Recreation
Company, L.L.C. a Utah limited liability company (the "Buyer"), on the one hand,
and Marker, Ltd. and Marker International, each a Utah corporation (each a
"Seller" and, collectively, the "Sellers").
WHEREAS, the parties hereto have agreed to enter into a license
agreement of even date (the "License Agreement") pursuant to which the Buyer
will have the exclusive, world wide right to use the name "Marker" owned by the
Sellers for the purposes (the "Licensed Purposes") set forth in such agreement;
and
WHEREAS, such agreement is conditioned upon the Buyer purchasing
certain assets of the Sellers including but not limited to certain inventory and
realizable accounts receivable not later than March 31, 1999;
NOW, THEREFORE, in consideration of the premises and the respective
agreements the parties hereto agree as follows:
1. Agreement to Sell. (a) The Sellers, at the Closing (as defined in
Section 4 hereof, the *Closing"), will grant, sell, convey, assign, transfer and
deliver to the Buyer, upon the terms and conditions of this Agreement, certain
of their accounts receivable, inventories and supplies, fixed assets, and
prepaid expenses and other current assets, all as set forth on Exhibits A, B, C
and D, respectively, hereto to be affixed to this agreement as at the date of
Closing together with all rights under franchises, patents, licenses, permits,
leases, contracts and agreements, all purchase orders, customer orders, lists,
<PAGE>
books and records with respect to the Licensed Purposes and such other
properties as the parties shall agree to; including customer and inventory
records and ledgers with respect thereto.
(C) The properties, assets and business which the Sellers agree to sell
and transfer to the Buyer hereunder are hereinafter sometimes called the "Assets
to be Acquired". The Assets to be Acquired shall he sold and transferred to the
Buyer at the Closing free and clear of all mortgages, liens, pledges, charges or
other encumbrances whatsoever.
2. Agreement to Purchase. The Buyer hereby agrees to purchase from the
Sellers upon the terms and conditions of this Agreement the Assets to be
Acquired, and, as consideration therefore, the Buyer will pay to the Sellers a
purchase price determined an the basis set forth an Exhibit E hereto. The Buyer
shall have no obligation whatsoever with respect to the application by the
Sellers of the proceeds of sale. Amounts payable hereunder shall be paid by
delivery to the Sellers of the Buyer Is note in the form set forth on Exhibit F
hereto which note shall be payable on July 10, 1999.
3. Investigation and option to Cancel Agreement. Pending the Closing,
the Sellers will give to the Buyer and to their counsel, accountants and other
representatives (the "Buyer's Auditors") full access during normal business
hours to all of the properties, books, contracts, commitments and records of the
sellers which relate to the Assets to be Acquired, and will furnish to the Buyer
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all such documents and copies of documents (certified if requested) and
information as the Buyer, from time to time, reasonably may request.
4. The Closing The Closing shall take place at the offices of O'Connor,
Murphy, Ryan & Seitz or at such other place as the parties shall determine at
12:00 Noon on or before March 31, 1999 (the "Closing Date") provided, however,
that the Closing may be postponed for not more than 60 days if necessary to
allow the Buyer's Auditors to complete their examination of the records of the
Sellers.
5. Assumption of Liabilities. The Buyer hereby agrees to assume at the
Closing only those liabilities and obligations of the Sellers under contracts
and commitments which are open as of the Closing Date for the purchase or
production of materials or supplies which relate to the Assets to he Acquired
which contracts or commitments shall be listed on Exhibit G hereto and such
other liabilities as the Buyer shall specifically assume.
6. Specific Performance. The parties acknowledge that the Assets to be
Acquired by the Buyer hereunder are unique and that they could not be
compensated by money damages for not receiving delivery of such assets at the
Closing. Accordingly, the Sellers agree that, in addition to all other rights
and remedies available to the Buyer at law or in equity, this Agreement may be
specifically enforced against the Sellers.
7. Representations, Warranties and Covenants. The Sellers, jointly and
severally, represent, warrant and covenant as follows:
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(a) organization and Business. Each of the Sellers is duly organized,
validly existing and in good standing under the laws of the state of its
creation. Each of the Sellers is qualified to do business as a foreign
corporation in all states where the nature or conduct of its business makes such
qualification necessary, except for those in which failure to be so qualified
which will not have a material adverse effect on the sellers. The business
conducted by the Sellers is not in violation of any law or regulation applicable
to it except where failure to comply would not have a material adverse effect on
the business, financial condition, operations, results of operations or future
prospects of the Sellers, respectively, and no Seller is aware of any official
currently taking a contrary position or raising a question concerning the same.
The Sellers have delivered or will deliver to the Buyer true and complete copies
of their certificates of incorporation and by-laws with all amendments thereto.
(b) Taxes. Each of the Sellers has filed all tax returns required by
law and paid all taxes required by all governments when due including any taxes
required to be paid by it except as set forth on Exhibit H which lists those
taxes which it is, in good faith, contesting (the "Contested Taxes"). Such
returns are true and correct in all material respects. No agreements are
currently in effect as to the extension of time for the payment of any taxes by
any such entity.
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(C) Inventories. The inventories to be shown on Exhibit B as to each
Seller will consist of raw materials and currently merchantable items salable in
the ordinary course of business and will be free and clear of liens and security
interests
(d) Contracts, Leases, Obligations, etc. Except for
(i) commitments for the purchase' of merchandise in the ordinary
course; and
(ii) contracts listed on other exhibits hereto; no Seller has any
existing material contract, agreement, lease, or other obligation or commitment
(including, without limitation, contracts or other arrangements with
distributors, or customers), oral or written, as to the Assets to be Acquired,
except those listed on Exhibit 1. All of the items listed an Exhibit I are in
good standing, have been complied with fully by all parties thereto and no
default with respect to any of the same is existing or threatened. No Seller has
any material obligation of any nature as to the Assets to he Acquired except as
is disclosed in or permitted by this Agreement or the Exhibits annexed hereto.
(e) Title to Assets; State of Condition. As of the date hereof, the
Sellers have good and marketable title to all of the properties and assets, real
and personal, tangible and intangible, constituting the Assets to be Acquired,
subject to no mortgage, pledge, lien, conditional sale agreement, lease or
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rental arrangement or other encumbrance or charge except those listed an Exhibit
J. As of the date of the Closing, the Assets to be Acquired will not be subject
to any mortgage pledge, lien, conditional sale agreement, lease or rental
arrangement or other encumbrance or charge
(f) Accounts Receivable. The accounts receivable of each Seller as to
the Assets to be Acquired to be shown on Exhibit A existing on the Closing Date
(i) will have each arisen out of sales transactions in the ordinary course of
business and no payor shall have any defense to its obligation to make payment
as to such receivable or any right of set-off against such receivable and (ii)
shall be free and clear of liens, encumbrances and security interests except as
set forth on Exhibit J.
(g) Fixed Assets. The fixed assets to be described on Exhibit C will be
in good operating condition, order and repair, ordinary wear and tear excepted.
(h) Prepaid Expense. The prepaid expenses and other current assets to
be described on Exhibit D will constitute all of such classes of assets properly
allocable to the Assets to be Acquired and will not be allocable to anything
other than the Assets to be Acquired.
(i) Absence of Certain Changes. Except as set forth an Exhibit K,
no Seller has
(i) incurred any material liability or obligation (absolute,
accrued, indirect, contingent or otherwise) except current liabilities incurred,
and obligations under contracts entered into in the ordinary course of business
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as to the Assets to be Acquired;
(ii) mortgaged, pledged or subjected to lien, charge, security
interest or any other encumbrance, any of the Assets to be Acquired;
(iii) sold, assigned, transferred or encumbered any trademarks,
trade names, patents or other intangible assets as to the Assets to be Acquired;
(iv) suffered any extraordinary losses not covered by insurance,
or knowingly waived any rights of substantial value as to the Assets to be
Acquired;
(v) entered upon any transaction or into any contracts or
agreements other than in the ordinary course of business as to the Assets to be
Acquired;
(vi) experienced any event or condition of any character
materially and adversely affecting its business or tax liabilities or any change
in the condition of the Assets to he Acquired, except changes in the ordinary
course of business, none of which has been materially adverse and all of which
together are not, in the aggregate, materially adverse.
(j) Litigation. There are no actions, suits, litigation proceedings or
investigations pending or, to Sellers I knowledge, threatened against or
relating to or affecting any Seller or which question the validity of any action
taken or to be taken by the Sellers pursuant to or in connection with the
provisions of this Agreement, nor does either Seller know or have any reasonable
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grounds to know of any basis for any such actions, suits, litigation proceedings
or investigations except as set forth on Exhibit L. There are no unsatisfied
judgments against either Seller.
(k) Patents, Trademarks, Trade Names. Licenses, ,etc. The Sellers,
together, have all rights to the trademarks, trade names and copyrights known as
"Marker" to the extent it relates to the manufacture, sale and marketing of the
Licensed Products as defined in the License Agreement and possess all rights
necessary for the continued operation of its business as operated currently as
to such manufacture, sale and marketing. No default either as to existing rights
or renewal thereof is existing or threatened.
(1) Conduct of Business. No part of the business of either Seller as to
the Licensed Purposes is conducted, directly or indirectly, through the medium
of any corporation, firm organization or person other than such entity that is
not a wholly-owned subsidiary of Marker International. To the extent any part of
the business of either Seller as to the Licensed Purposes is so conducted
through any wholly owned subsidiary of Marker International, the Buyer may
terminate any relationship with such subsidiary at any time without premium or
penalty.
(m) No violation. Except as set forth on Exhibit M, neither the
consummation of the transactions contemplated hereby nor the performance of this
Agreement by the Sellers requires the consent of any other person or persons or
will violate or result in any breach of, or constitute a default under, any
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indenture, contract, agreement, or other instrument to which either Seller is a
party or by which either of them may be bound or by which the Assets to be
Acquired may he affected.
(n) Authorization. The execution, delivery and performance of this
agreement by each of the Sellers have been duly and effectively authorized and
approved by all requisite action of their boards of directors, shareholders,
partners and executors, as the case may be. This agreement constitutes the valid
and legally binding obligation of the Sellers, respectively, enforceable in
accordance with its terms and conditions.
(o) Olympic Agreement. A true and complete copy of the agreement
between the Sellers and the Salt Lake City Organizing Committee (the
"Committee,,) for the 2002 Olympics dated February 8, 1996 with all amendments
thereto and extensions thereof is attached hereto as Exhibit N and such
agreement, as so modified and amended and extended, is in full force and effect
and the Seller entered into such agreement in the ordinary course of business
and the Committee has no right whether with notice or passage of time or
otherwise to modify, amend or cancel such agreement except in accordance with
the terms provided for on Exhibit N. The Sellers will take all reasonable steps
necessary or appropriate to keep it in full force and effect and will assign
their rights with respect thereto to the Buyer to the extent they relate to or
can be fulfilled by the Assets to be Acquired provided the Buyer will agree to
(i) fulfill the requirements under such agreement as to the Assets to be
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Acquired and (ii) indemnify the Sellers against any and all claims against or
liabilities of the Sellers arising from breach by the Buyer of its obligations
hereunder as to such agreement; provided, however, any such assignment shall be
subject to the consent of the Committee.
(p) Payment of Payables. From and after the Closing, the seller will
pay or cause to be paid all its accounts payable in accordance with the terms
thereof to the extent the failure to make such payment on such terms could
adversely affect the Buyer's ability to manufacture, sell or market Licensed
Products.
8. Further Assurances. The Sellers will, upon the request of the Buyer
,execute and deliver to the Buyer all such further documents of all kinds and
descriptions (in recordable form if requested) as the Buyer may reasonably
request in order to effect the transfer of Assets to be Acquired and to
establish the rights of the Sellers to effect such transfer. All parties will
use their reasonable best efforts to take all action and do all things
necessary, proper or advisable in order to consummate and.'make effective the
transactions contemplated in this Agreement.
9. Conduct of Business Pending Closing. Except as otherwise provided
or contemplated in this agreement, or with the Buyer's prior written consent,
the Sellers, jointly and severally, covenant, warrant and agree that, pending
the Closing:
(a) The business of each Seller as to its operations with respect
to the Licensed Purposes shall be conducted only in the ordinary course
(b) No change shall be made in the certificate of incorporation or
by-laws of either Seller.
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(c) No Seller shall mortgage, pledge, or subject to lien, security
interest, charge or any other encumbrance, any of the Assets to be Acquired.
(d) No Seller shall sell, assign, transfer or encumber any of the
tangible Assets to be Acquired, except in the ordinary course of business.
(e) No Seller shall sell, assign, transfer or encumber any
franchise or contract rights, trademarks, tradenames, patents or other
intangible assets to the extent they relate to the Licensed Purposes
(f) Except as otherwise requested by the Buyer, but without making
any commitment on behalf of the Buyer, each Seller will use its reasonable best
efforts to preserve the goodwill of the suppliers and customers and others
having business relations with it as they relate to the Licensed Purposes.
10. Representations and Warranties of the Buyer. The Buyer represents,
warrants and covenants that it is a limited liability company duly organized and
validly existing under the laws of the State of Utah whose net worth is not less
than $1,000,000 and it has full power and authority to execute and deliver this
agreement and to perform the obligations hereunder. This agreement constitutes a
valid, legal and binding obligation of the Buyer and is enforceable in
accordance with its terms and conditions.
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Neither the consummation of the transactions contemplated hereby nor
the performance of this agreement by the Buyer requires the consent of any other
person or persons or will violate or result in any breach or constitute a
default under, any indenture, contract, agreement, or other instrument to which
the Buyer is a party or by which it may be bound.
11. Conditions Precedent to the Buyer's Obligations. All obligations of
the Buyer under this Agreement are subject to the fulfillment, at the option of
the Buyer, prior to or at the Closing, of each of the following conditions:
(a) The Representations and Warranties of the Sellers at Closing.
The representations and warranties by, or on behalf of the Sellers contained in
Paragraph 7 of this Agreement or in any certificate or document delivered
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby after the date hereof shall be substantially true in all
material respects at and as of the time of Closing as though such
representations and warranties were made at and as of such time.
(b) Performance by the Sellers. The sellers shall have performed
and complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by them prior to or at the Closing.
The performance of this Agreement by them shall not have been in violation of
any agreement to which either of them is a party.
(c) Compliance Certificate. The Sellers shall have delivered to the
Buyer a certificate appropriately signed and dated the Closing Date, certifying
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in such detail as the Buyer may reasonably request, to the fulfillment of the
conditions specified in paragraphs (a) and (b) of this Section.
(d) Extraordinary Event. So Seller shall have suffered any
extraordinary event or casualty substantially and adversely affecting its assets
or business operation. None of the contracts, leases or other instruments listed
on the various Exhibits hereto shall have been terminated or shall be in
default.
(e) Opinion of Sellers, Counsel. The Sellers shall have delivered to
the Buyer an opinion of Stroock, Stroock & Lavan, L.L.P. in form and substance
reasonably acceptable to Buyer and its counsel.
(f) Consent of Lenders. All lenders to the Sellers shall have consented
to the transaction if and to the extent failure to obtain their consent shall be
an event under their respective loan agreements permitting them, or any of them,
to accelerate the debt of any Seller or to the extent any of the Assets to he
Acquired are subject to any claim of any such lender. Any other third party
consents necessary to transfer the Assets to be Acquired shall be obtained by
the Sellers.
(g) Instruments to be Delivered to Buyer. Each Seller shall have
delivered to the Buyer:
(i) Such deeds, bills of sale, endorsements, assignments and other
good and sufficient instruments of conveyance and transfer, in form reasonably
satisfactory to Buyer's counsel, as shall be effective to vest in Buyer all of
the Sellers, right, title and interest in the Assets to be Acquired;
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(ii) All of the books and records, and all other data relating to
its Assets to be Acquired, business and operations of Marker, Ltd. arid, to the
extent they relate to the Licensed Purposes of Marker International, and
simultaneously with such delivery, all steps will be taken as may be necessary
to put Buyer in actual possession and operating control of the Assets to be
Acquired;
(iii) Certificate or confirmatory, telegram in customary form of
the Secretary of State of the State of Utah dated not more than ten (10) days
prior to the Closing date to the effect that each of the Sellers is a
corporation in good standing under the laws of Utah;
(iv) A list of all inventory of the Sellers as to the Assets to be
Acquired as of the close of business on the day preceding the Closing;
(v) A list of all accounts receivable of the Sellers as to the
Assets to be Acquired as of the close of business on the day preceding the
Closing, together with an aging thereof;
(vi) A list of all fixed assets of the sellers as to the Assets to
be Acquired as of the close of business on the day preceding the Closing;
(vii) A list of all prepaid expenses and other current assets
allocable to the Licensed Products as of the close of business on the day
preceding the Closing;
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(viii) A list of all open orders of the Sellers for the production
and sale of inventory included within the Assets to be Acquired; and
(ix) Such other documents , instruments , certifications and
further assurances as counsel for Buyer may reasonably request.
12. Conditions Precedent to thesellers, obligations. All
obligations of the Sellers under this Agreement are, at their option, subject to
the fulfillment, prior to or at the Closing of each of the following conditions;
(a) The Buyer's Representations and Warranties True at closing. The
representations and warranties by the Buyer contained in this Agreement shall be
substantially true at and as of the time of Closing as though such
representations and warranties were made at and as of such time.
(b) Performance of the Buyer. The Buyer shall have substantially
performed and complied with all covenants, agreements and conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing.
(c) officers, Certificate,. The Buyer shall have delivered to the
Sellers a certificate signed by its President or any Vice President, dated the
Closing Date, certifying in such detail as they may reasonably request to the
fulfillment of the conditions specified in paragraphs (a) and (b) of this
Section.
(d) Opinion of Counsel. The Buyer shall have delivered to the Sellers
an opinion of O'Connor, Murphy, Ryan & Seitz dated the Closing Date in form and
substance reasonably acceptable to Sellers and their counsel.
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(e) Instruments to be Delivered to Sellers. The Buyer shall have
delivered to the sellers such other documents, instruments, certifications and
further assurances as counsel for the Sellers may reasonably request, including
an indemnity by the Buyer to the Sellers regarding obligations assumed by the
Buyer or arising after the Closing.
13. Indemnification. A. The Sellers (the "Indemnitors"), jointly and
severally, agree to indemnify fully and hold harmless the Buyer against and in
respect of:
(a) any and all liabilities of or claims against the Sellers or the
Buyer arising out of:
(i) the conduct of the business of the Sellers from the date hereof
to the Closing otherwise than in the ordinary course or as otherwise expressly
permitted by this Agreement;
(ii) any presently existing material contract, commitment or
obligation of the Sellers as to the Assets to be Acquired of any kind not set
forth in this Agreement or listed on any Exhibit annexed;
(iii)any contract, commitment or obligation of any kind entered
into by any Seller between the date hereof and the Closing and not permitted by
the terms of this Agreement; and
(iv) The Contested Taxes.
(b) any and all lose, damage or deficiency resulting from any
misrepresentations, breach of any warranty or nonfulfillment of Any agreement or
covenant on the part of the Sellers contained in this Agreement or in any
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statement or certificate furnished or to be furnished to the Buyer pursuant
hereto or in connection with the transactions contemplated hereby, including,
without limitation, breach of its warranty under Section 7(b) hereof;
(c) any and all actions, suits, proceedings, demands, assessments,
judgments, costs and expenses (including reasonable attorneys, fees) incident to
any of the foregoing; provided, however, that no indemnitee shall be entitled to
recover under paragraphs (a) and (b) above with respect to any inaccuracy in or
breach of any representation, warranty, 'covenant or agreement, if at any time
prior to the Closing, such indemnitee (and, in the case of the Buyer, any
representative of the Buyer) had knowledge of such inaccuracy or breach.
B. Any claim for idemnity under this paragraph 13 shall be made by
written notice to the Sellers, specifying in reasonable detail the basis of the
claim. The Buyer agrees to give prompt written notice (the "Notice") to the
Sellers of any claim by a third party against it or any Seller which might give
rise to a claim hereunder, stating the nature of the basis of such claim and if
ascertainable, the amount thereof. In connection with any such claim, the
Indemnitors may, at their election and expense, have the right to take over the
defense of such claim with counsel or accountants of their choice, reasonably
acceptable to the Buyer or to participate in the defense of such third party
claim by notice in writing to the Buyer within twenty (20) days of receipt of
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the Notice. If either Seller shall have acknowledged in writing the obligation
to indemnify in respect of such claim, the Buyer agrees not to settle such third
party claim without the consent of the Indemnitors which shall not be
unreasonably withheld or delayed.
If, within 20 days 'of receipt of the Notice, the Indemnitors shall not
assume the defense of the claim or acknowledge in writing their obligation to
indemnify, the Buyer may defend or settle on such terms as it chooses and
Sellers shall he liable for the damages but only if and to the extent the
Sellers or either of them would have been liable for indemnification hereunder.
If the Sellers or either of them shall elect, after receipt of the Notice, to
assume the defense of the claim or acknowledge in writing their obligation to
indemnify and there shall subsequently be either a determination that they are
so liable whether as a consequence of a decision by a court from which no appeal
shall or may be taken or as a consequence of any settlement between the Buyer
and Sellers then, in either instance, the Sellers shall pay to the Buyer, in
addition to the amount owed as such indemnification, all costs and expenses
incurred by Buyer in connection therewith including, without limitation,
reasonable counsel fees.
14. Nature and Survival of Representations, eta. All representations,
warranties and covenants made by any party in this agreement shall survive the
Closing hereunder and any investigation at any time made by or on behalf of any
party for two years. The obligations of the Indemnitors hereunder shall be joint
18
<PAGE>
and several. This agreement supersedes any and all other agreements between the
parties.
15. Brokerage. The Sellers agree to indemnify and hold harmless the
Buyer against any and all claims arising out of any activities of any party
acting an behalf of sellers in the nature of a brokerage commission or finder's
fee. The Buyer agrees to indemnify and hold harmless the Sellers against any and
all claims arising out of any activities of any. party acting on behalf of the
Buyer in the nature of a brokerage commission or finder's fee.
16. Bulk Sales Law.The Sellers shall comply with the provisions of any
applicable Bulk Sales Law
17. Sales and Transfer Taxes. The Buyer shall pay all transfer and
sales taxes, if any, due as the result of the transfer of the Assets to be
Acquired to the Buyer hereunder.
18. Access to Records. For a period of six (6) years following the
Closing, the Sellers shall have access at any reasonable time to all books of
account and records held by the Buyer relating to the Assets to be Acquired and
the operations of the Sellers with respect thereto prior to the Closing Date and
shall have the right to make copies thereof, to the extent such access or copies
may reasonably be required by the Sellers. if the Buyer shall desire to dispose
of any of such books and records prior to the expiration of such period, the
Buyer shall, before making such disposition, give the Sellers a reasonable
opportunity, at their cost and expense, to segregate and remove such books and
records as they may select.
19
<PAGE>
and several. This agreement supersedes any and all other agreements shall bind
and inure to the benefit of the executors, personal representatives, successors
and assigns of the parties and may be assigned by the Buyer to any affiliate
provided the Buyer shall guarantee all obligations of such affiliate to the
Sellers, with the consent of the Sellers which will not be unreasonably
withheld.
20. Law to Govern, Miscellaneous. Amendments. This Agreement shall be
governed. by and construed and enforced in accordance with the laws of New York.
This agreement cannot be changed or terminated orally.
21. Notices, etc. All notices, requests, demands and other
communications hereunder shall be in writing and sent by registered or certified
mail to the following addresses:
The Sellers, [ ]
with copy to: Mark A. Rosenbaum, Esq.
Stroock, Stroock & Lavan, L.L.P.
180 Maiden Lane
New York, New York 10038
The Buyer:
Attention: Stephen Crisafulli
with copy to: Howard G. Seitz, Esq.
O'Connor, Murphy, Ryan & Seitz
230 Park Avenue
New York, New York 10017
Any party may send any notice, request, demand, claim or other
communication hereunder to be intended recipient at the address set forth above
20
<PAGE>
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such notice
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
party may change the address to which notice is requested, demand, claims or
other communications hereunder are to be delivered by giving the other party
notice in the manner set forth herein.
22. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the parties and the respective
successors and permitted assigns.
23. Entire Agreement. This agreement (including the documents referred
to herein) constitutes the entire agreement between the parties and supersedes
any prior understandings, agreements or representations by or between the
parties, written or oral, to the extent they related in any way to the subject
matter hereof.
24. Headings. The section headings contained in this agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this agreement.
25. Severability. Any term or provision of this agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction
21
<PAGE>
26. Incorporation of Exhibits. The exhibits identified in this
agreement are incoporated herein by reference and made part hereof.
27. Countax-parts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day first written above.
BUYER:
SKI & SPORTS RECREATION COMPANY, L.L.C.
By:
--------------------------------------------------
SELLERS:
MARKER, LTD.
By: /s/ Peter Cebeava
--------------------------------------------------
MARKER INTERNATIONAL
By: /s/ Peter Cebeava
--------------------------------------------------
22
<PAGE>
EXHIBIT E - PURCHASE PRICE OLYMPIC INVENTORY
PAYMENT SCHEDULE 1 & 2
Due Do* Due
Item @ Clow July 10 August 31
lnvenlory-Ltd. Goods, Fleece, Compomonts
(EXHIBIT B)(Excluding Olympic Product)
Accounts Receivable\Samples (EXHIBIT A)
Fixed Amos (PP&E) (EXHIBIT C)
TOTAL VALUE $859,000 $450,000 $204,500 $204,500
Olympic inventory will be purchased at closing and paid for according to the
following conditions,
1) Ski & Sport Recreation will pay 75% of net sale price after Olympic
Commission an sale of non-current (Bid Logo) Olympic goods to marker as
received.
2) Ski & Sport Recreation will pay 60% of net solo price after Olympic
Commission an sale of current (SLC 2002 Logo) Olympic goods to marker.
3) Olympic Inventory payable to Marker on Ski & Sports, Recreation quarterly
sales of said product beginning Juno 30, 1999 through December 31, 1999.
<PAGE>
PROMISSORY NOTE
$409,000.00 May 1999
FOR VALUE RECEIVED, the undersigned, SKI & SPORTS RECREATION COMPANY. LLC.
a Utah limited liability company ("Maker"), hereby promises to pay to the order
of MARKER LTD. ("Payee"), at ___________, or at such other place designated in
writing by Payee at least 10 days prior to the payment date, in lawful money of
the United States and in immediately available funds the principal amount of
Four Hundred and Nine Thousand Dollars ($409,000.00) in two equal payments of
Two Hundred Four Thousand Five Hundred do11ars ($204,500.00) on July 10. 1999
and August 10. 1999,
If any amount is not paid in full when due hereunder, such unpaid amount
shall bear interest, to be paid upon demand, from the due date thereof until the
dam of actual payment (and before as well as after judgment) computed at the per
annum rate of ten percent (10%).
All interest payable hereunder shall be computed on the basis of actual
days elapsed and a of 360 days.
Upon the occurrence of any of the following:
(i) Maker shall fail to pay any of its obligations under this Note on the
daft when due;
or
(ii) Maker shall default in any payment of principal of or interest on any
indebtness or contingent obligation (other than its obligations under this Note)
or any other event shall occur, the effect of which is to permit such
indebtedness or contingent obligation to be declared or such indebtedness or
contingent obligation shall otherwise become due prior to its stated. maturity;
or
(iii) (a) Maker shall (1) commence any case, proceeding or other action
under any existing or future law of any jurisdiction, domestic or foreign
relating to bankruptcy, insolvency, reorganization, or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition, or other relief
with respect to it or its debts, or (2) commence any case, proceeding, or other
action seeking appointment of a receiver, trustee, custodian. or other similar
official for it or for all or any substantial part of its assets, or (3) make a
general assignment for the benefit of its creditors; (b) there shall be
commenced against Maker any casts, proceeding or other action of a nature
referred to in clause (a) above that (1) results in the entry of an order for
relief or any such adjudication or appointment. or (2) remains undismissed,
undischarged, or unbonded for a period of sixty (60) days; (c) there shall he
commenced against
EXHIBIT F
---------
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of
Company: formation:
-------- ----------
Marker Deutschland GmbH Germany
Marker USA Utah
Marker Japan Co. Ltd. Japan
Marker Austria GmbH Austria
Marker Canada, Ltd. Canada
Marker Ltd. Utah
Marker AG Switzerland
DNR USA, Inc. Delaware
DNR North America, Inc. Delaware
DNR Japan Co. Ltd. Japan
DNR Sportsystem, Ltd.1 Switzerland
1 Was an 80% owned Subsidiary of Marker AG until September 1, 1998
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statement File No. 33-80407.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
July 12, 1999
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<ARTICLE> 5
<CIK> 0000925172
<NAME> Marker International
<MULTIPLIER> 1
<CURRENCY> U.S. dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 5547
<SECURITIES> 0
<RECEIVABLES> 22392
<ALLOWANCES> 1721
<INVENTORY> 18752
<CURRENT-ASSETS> 47082
<PP&E> 29924
<DEPRECIATION> (18725)
<TOTAL-ASSETS> 58923
<CURRENT-LIABILITIES> 81941
<BONDS> 11399
3000
0
<COMMON> 111
<OTHER-SE> (29900)
<TOTAL-LIABILITY-AND-EQUITY> 58973
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<TOTAL-REVENUES> 74167
<CGS> 54638
<TOTAL-COSTS> 35452
<OTHER-EXPENSES> 1508
<LOSS-PROVISION> 1847
<INTEREST-EXPENSE> (6637)
<INCOME-PRETAX> (21052)
<INCOME-TAX> (1458)
<INCOME-CONTINUING> (22510)
<DISCONTINUED> (25508)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48018)
<EPS-BASIC> (4.33)
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