SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission File Number: 0-24556
MARKER INTERNATIONAL
(Exact name of registrant as specified in its charter)
Utah 87-0372759
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
1070 West 2300 South
Salt Lake City, Utah 84119
(Address of principal executive offices)
(801) 972-2100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filings
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at November 15, 1999
--------------------- --------------------------------
Common Stock, $0.01 par value 11,120,577
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MARKER INTERNATIONAL
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements Page
----
<S> <C>
Condensed Consolidated Balance Sheets
As of September 30, 1999 and March 31, 1999 3
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended
September 30, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended
September 30, 1999 and 1998 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 33
Item 4. Submission of Matters to a Vote of Security Holders 35
Part II - Other Information
Item 1. Legal Proceedings 36
Item 3. Defaults Upon Senior Securities 36
Item 6. Exhibits and Reports on Form 8-K 37
Signatures 39
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
MARKER INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
ASSETS
September 30, March 31,
1999 1999
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 826 $ 5,547
Accounts receivable, net of allowance for doubtful
accounts of $1,461 and $1,721, respectively 27,876 22,392
Inventories 21,302 18,752
Prepaid and other current assets 566 391
-------- --------
Total current assets 50,570 47,082
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land 386 386
Building and improvements 4,578 4,645
Machinery and equipment 19,916 20,096
Furniture, fixtures and office equipment 4,223 4,797
-------- --------
29,103 29,924
Less accumulated depreciation and amortization (19,735) (18,725)
-------- --------
Net property, plant and equipment 9,368 11,199
-------- --------
INTANGIBLE ASSETS, net of accumulated amortization -- 244
-------- --------
OTHER ASSETS 512 448
-------- --------
$ 60,450 $ 58,973
======== ========
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated balance sheets.
3
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MARKER INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
(Unaudited)
<TABLE>
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LIABILITIES AND SHAREHOLDERS' DEFICIT
September 30, March 31,
1999 1999
-------- --------
<S> <C> <C>
LIABILITIES NOT SUBJECT TO COMPROMISE:
CURRENT LIABILITIES:
Notes payable to banks $ 59,873 $ 46,062
Current maturities of long-term debt 1,565 5,595
Current maturities of Series A Bonds, issued to a
related party -- 11,399
Accounts payable 2,913 5,948
Other current liabilities 4,256 12,937
-------- --------
Total current liabilities 68,607 81,941
-------- --------
LONG-TERM DEBT, net of current maturities 3,459 3,821
-------- --------
LIABILITIES SUBJECT TO COMPROMISE:
Accounts payable 12 --
Accrued liabilities 6,508 --
Long-term debt 1,506 --
Series A Bonds, issued to a related party 12,743 --
Redeemable Series B Preferred Stock 3,000 --
-------- --------
Total liabilities subject to compromise 23,769 --
-------- --------
REDEEMABLE SERIES B PREFERRED STOCK -- 3,000
-------- --------
SHAREHOLDERS' DEFICIT:
Common stock 111 111
Additional paid-in capital 36,736 36,311
Accumulated deficit (70,517) (64,658)
Accumulated other comprehensive loss (1,715) (1,553)
-------- --------
Total shareholders' deficit (35,385) (29,789)
-------- --------
$ 60,450 $ 58,973
======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated balance sheets.
4
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<TABLE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
For the Three Months For the Six Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 16,949 $ 24,035 $ 20,019 $ 26,596
COST OF SALES 11,075 15,830 13,254 17,408
-------- -------- -------- --------
GROSS PROFIT 5,874 8,205 6,765 9,188
-------- -------- -------- --------
OPERATING EXPENSES:
Selling 2,046 3,024 3,744 5,409
General and administrative 2,066 3,753 4,292 6,189
Research and development 441 650 881 1,258
Warehousing and shipping 400 414 711 784
-------- -------- -------- --------
Total operating expenses 4,953 7,841 9,628 13,640
-------- -------- -------- --------
OPERATING INCOME (LOSS) 921 364 (2,863) (4,452)
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (1,106) (1,743) (2,066) (3,226)
Other, net (1,477) 1,921 (1,525) 2,158
-------- -------- -------- --------
Total other income (expense) (2,583) 178 (3,591) (1,068)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
OPERATIONS BEFORE REORGANIZATION
ITEMS AND INCOME TAXES (1,662) 542 (6,454) (5,520)
-------- -------- -------- --------
REORGANIZATION ITEMS:
Professional fees (807) -- (879) --
Other general and administrative expenses (34) -- (35) --
-------- -------- -------- --------
Total reorganization items (841) -- (914) --
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES (2,503) 542 (7,368) (5,520)
(PROVISION) BENEFIT FOR INCOME TAXES 73 (329) 11 (329)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (2,430) 213 (7,357) (5,849)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued
snowboard business, net of income taxes -- (1,191) -- (1,484)
Gain (loss) on disposal of snowboard business 1,553 (24,861) 1,634 (24,861)
-------- -------- -------- --------
GAIN (LOSS) FROM DISCONTINUED OPERATIONS
OPERATIONS 1,553 (26,052) 1,634 (26,345)
-------- -------- -------- --------
NET LOSS $ (877) $(25,839) $ (5,723) $(32,194)
======== ======== ======== ========
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated statements.
5
<PAGE>
<TABLE>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
For the Three Months For the Six Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
--------- --------- --------- ------
<S> <C> <C> <C> <C>
INCOME (LOSS) PER COMMON SHARE (Both Basic and Diluted):
Income (loss) from continuing operations $ (0.22) $ 0.02 $ (0.66) $ (0.53)
-------- -------- -------- --------
Loss from operations of discontinued snowboard
snowboard business -- (0.11) -- (0.13)
Income (loss) on disposal of snowboard business 0.14 (2.23) 0.15 (2.23)
-------- -------- -------- --------
Income (loss) from discontinued operations 0.14 (2.34) 0.15 (2.36)
-------- -------- -------- --------
Net loss per share $ (0.08) $ (2.32) $ (0.51) $ (2.89)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Both Basic and Diluted) 11,140,577 11,130,577 11,140,577 11,130,577
========== ========== ========== ==========
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated statements.
6
<PAGE>
<TABLE>
<CAPTION>
MARKER INTERNATIONAL AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the Six Months
Ended September 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,723) $(32,194)
Adjustments to reconcile net loss to net cash
used in operating activities
Loss on sale of property, plant and equipment 21 725
Depreciation and amortization 2,176 2,097
Loss from write-off of goodwill and intangibles -- 8,487
Change in assets and liabilities:
Increase in accounts receivable, net (7,701) (10,033)
Increase in inventories (3,850) (6,559)
(Increase) decrease in prepaid and other assets (228) 1,911
(Decrease) increase in accounts payable (789) 11,794
(Decrease) increase in other current liabilities (1,898) 8,053
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (17,992) (15,719)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (711) (2,083)
Proceeds from disposition of equipment 167 --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (544) (2,083)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable to banks 15,253 19,413
Proceeds from issuance of preferred stock -- 3,000
Proceeds from issuance of long-term debt 482 360
Principal payments on long-term debt (3,234) (1,473)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,501 21,300
-------- --------
Effect of foreign exchange rate changes on cash and cash
equivalents 1,314 (3,270)
-------- --------
Net (decrease) increase in cash and cash equivalents (4,721) 228
Cash and cash equivalents at beginning of period 5,547 4,241
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 826 $ 4,469
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,556 $ 1,856
Cash paid for reorganization professional fees 1,064 --
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated statements.
7
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
Note 1. Interim Financial Statements
The accompanying condensed consolidated financial statements include
the accounts of Marker International and its subsidiaries (the "Company"). The
condensed consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures normally required in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to fairly
present the financial position, results of operations and cash flows for the
periods presented.
The Company's financial statements for the year ended March 31, 1999,
and unaudited financial statements for the three and six months ended September
30, 1999, have been prepared on a going concern basis, which contemplates the
realization of assets and settlement of liabilities and commitments in the
normal course of business. The Company incurred net losses of approximately $5.7
million for the six months ended September 30, 1999, and approximately $48.0
million for the year ended March 31, 1999. As of September 30, 1999, the Company
had a shareholders' deficit of approximately $35.4 million. The Company was not
in compliance with covenants of various debt and other obligations and has
insufficient working capital to fund operations (See Note 2 for a discussion of
obligations in default). These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern. The accompanying
condensed 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
and consummating the transactions contemplated by the Asset Purchase Agreement
dated as of July 30, 1999, as amended, between the Company and Marker
International GmbH, a Swiss GmbH currently wholly-owned by CT Sports Holding AG,
a newly formed joint venture between Tecnica S.p.A. and H.D. Cleven, the
principal shareholder of the Volkl Group. Management is actively pursuing these
plans, as discussed below.
The results of operations for the six months ended September 30, 1999,
are not necessarily indicative of the results for the full fiscal year. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K, as filed with the SEC.
8
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
Note 2. Recent Events
Bankruptcy Filing - As contemplated by the Purchase Agreement (as
defined below), on August 19, 1999 (the "Filing Date"), Marker International
(the "Company"), DNR North America, Inc. and DNR USA, Inc. (collectively with
the Company, the "Debtors") filed voluntary petitions for relief under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). See Note 8 ("Condensed
Combined Financial Statements of the Debtors") to the Condensed Consolidated
Financial Statements.
The Debtors have been operating as debtors-in-possession, subject to
the jurisdiction of the Bankruptcy Court since the Filing Date. The consolidated
financial statements of the Company have been presented in accordance with the
American Institute of Certified Public Accountants Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
and have been prepared in accordance with generally accepted accounting
principles applicable to a going concern, which principles, except as otherwise
disclosed, assume that assets will be realized and liabilities will be
discharged in the normal course of business.
In Chapter 11 cases, substantially all of the Debtors' liabilities as
of the Filing Date are subject to resolution under a plan of reorganization
which must be: (i) approved by the requisite majorities of the Debtors'
creditors and shareholders whose claims or interests are impaired under the Plan
and (ii) confirmed by the Bankruptcy Court. Schedules have been filed by the
Debtors with the Bankruptcy Court setting forth the assets and liabilities of
the Debtors as of the Filing Date, as shown by the Debtors' accounting records.
The Company's condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities and commitments in the
normal course of business. The appropriateness of using the going concern basis
is dependent upon, among other things, future operations and financing sources
to meet obligations. As of September 30, 1999, the Company has not realized any
gains or incurred any material charges related to the reorganization other than
those items disclosed herein.
Purchase Agreement with Marker International GmbH - On July 30, 1999,
the Company entered into an asset purchase agreement (as amended by the
Amendment to the Asset Purchase Agreement dated as of September 20, 1999, the
"Purchase Agreement") with Marker International GmbH ("Newco"), providing for
the sale by the Company of substantially all of its assets (including the equity
securities of its subsidiaries) to Newco. In exchange, Newco will assume certain
liabilities of the Company and the Company will receive a 15% equity interest in
Newco. The remaining 85% equity interest in Newco will be held by CT Sports
Holding AG ("CT").
Pursuant to the terms of the Purchase Agreement, CT will contribute
$15,000,000 (subject to reduction by $1,025,501 as a result of the consummation
9
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
of the sale to CT of the 66.66% equity interest in Marker Canada, Ltd.) to
Newco, in consideration for an 85% equity interest in Newco. Newco is a GmbH
organized under the laws of Switzerland and is currently a wholly-owned
subsidiary of CT. In connection with the Purchase Agreement, the Company and CT
will enter into an operating agreement which, among other things, will provide
that CT will be granted an option to purchase the Company's 15% equity interest
in Newco at any time on or after the second anniversary of the consummation date
of the Plan (as defined below) at the then fair market value, subject to
reduction in an amount equal to the sum of: (x) all unreimbursed advances and
litigation costs, if any, incurred by Newco under Sections 10.4(b)(i) and (ii)
of the Purchase Agreement, together with accrued interest thereon, plus (y)
$775,000.
The Purchase Agreement provides for the consummation of the sale to be
effected through a pre-negotiated Chapter 11 bankruptcy proceeding. In
connection therewith, the Company reached agreements-in-principle regarding the
restructuring of its debt and the treatment of such debt under a plan of
reorganization with substantially all of its creditors that are impaired under
the plan of reorganization. On the Filing Date, the Debtors filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code in
the Bankruptcy Court. On September 22, 1999, the Debtors filed the First Amended
Joint Chapter 11 Plan of Reorganization (as amended by the Amendment to the
First Amended Joint Chapter 11 Plan of Reorganization, dated as of October 25,
1999, the "Plan") and a related disclosure statement (the "Disclosure
Statement"). By order dated September 22, 1999, the Bankruptcy Court approved
the Disclosure Statement as containing adequate information. The Disclosure
Statement and the Plan were subsequently distributed to the Debtors' creditors
and shareholders for approval, which approval was subsequently obtained. On
October 27, 1999, the Plan was confirmed by order of the Bankruptcy Court (the
"Confirmation Order"). Descriptions of the Plan and the Disclosure Statement
(including the transactions contemplated thereby) herein are qualified in their
entirety by reference to the Plan and the Disclosure Statement, which are
attached hereto as Exhibit 2.3 and Exhibit 2.5, respectively, and are herein
incorporated by reference.
There are numerous conditions to Newco's obligation to consummate the
acquisition. Such conditions include, but are not limited to: (a) Newco entering
into employment agreements with key members of the Company's management, (b)
there not being any material adverse change in the business of the Company, (c)
the issuance of consents or waivers by various third parties and (d) the
confirmation of the Plan. Pursuant to the Confirmation Order, the Bankruptcy
Court approved the Plan and the Purchase Agreement on October 27, 1999. There
can be no assurance that the Company will be able to satisfy the remaining
conditions precedent under the Purchase Agreement.
The closing (the "Closing") of the sale is expected to be consummated
by November 30, 1999. After the Closing, the Company will no longer be engaged
in the conduct of business and will operate for the sole purpose of holding and
subsequently liquidating its assets (including, without limitation, its equity
interest in Newco). Pursuant to the terms of the operating agreement, the
Company is required to dissolve and liquidate all of its assets no earlier than
the third anniversary of the Closing, and no later than the fifth anniversary of
the Closing.
10
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MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
Marker Germany and Marker Austria Stockholders' Deficits - As of
September 30, 1999, Marker Deutschland GmbH ("Marker Germany") and Marker
Austria GmbH ("Marker Austria"), each on a stand alone unconsolidated basis, had
a net stockholders' deficit. Under the applicable foreign laws and regulations,
in order to avoid involuntary bankruptcy proceedings, these entities require
additional capital infusions. The Company and CT are in the process of
attempting to meet the necessary conditions that are required to consummate the
acquisition. If successful, the consummation of the sale will result in capital
infusions which will increase the stockholders' equity of these entities. There
can be no assurance that the Company will be able to meet all the necessary
conditions or be successful in increasing stockholders' equity to a level
sufficient to avoid such bankruptcy proceedings.
German Banks Settlement - On April 15, 1999, the Company did not make a
required principal and interest payment of DM 900,000 (U.S. $492,000) on the
Third Restated Promissory Note between the Company and Hypo Vereinsbank (acting
through its New York branch) dated April 15, 1998 (the "Term Loan"). On April
16, 1999, Hypo Vereinsbank notified the Company that nonpayment of principal and
interest constituted a default under the terms of the Term Loan and that the
entire balance of DM 6.4 million (U.S. $3.5 million) was immediately due and
payable. As a result, Hypo Vereinsbank applied the proceeds of a time deposit
that was held as security by the bank in the amount of U.S. $2.0 million against
the outstanding balance due on the Term Loan.
In addition, on March 31, 1999, Marker Germany's DM 58.7 million (U.S.
$32.1 million) line of credit with Hypo Vereinsbank, Deutsche Bank AG ("Deutsche
Bank") and BFG Bank expired. Marker Germany's obligations to Hypo Vereinsbank
and Deutsche Bank are guaranteed by the Company. In addition, the Company
granted to the German Banks a second lien on its intangible assets. As a result,
the Company and Marker Germany commenced negotiations with Hypo Vereinsbank to
restructure the debt owed to Hypo Vereinsbank, culminating in a Settlement
Agreement dated as of August 18, 1999, between Hypo Vereinsbank, the Company and
CT (the "Hypo Vereinsbank Settlement Agreement").
Pursuant to the Plan and the Hypo Vereinsbank Settlement Agreement,
Hypo Vereinsbank will forgive in full upon Closing, the outstanding indebtedness
of the Company of DM 2,755,000 (U.S. $1,506,000) (plus interest accrued from
April 19, 1999 to August 13, 1999) as of August 13, 1999, under the Term Loan,
in full satisfaction of the Company's outstanding obligation to Hypo Vereinsbank
(New York).
Pursuant to the terms and conditions of the Hypo Vereinsbank Settlement
Agreement, Hypo Vereinsbank agrees to sell to Newco, effective as of the Closing
Date, DM 22,455,000 (U.S. $12,274,000) of the outstanding debt balance of DM
40,761,000 (U.S. $22,280,000) (as of August 13, 1999) under the Loan Agreement
between Hypo Vereinsbank and Marker Germany dated October 13, 1998, as amended,
for a consideration of DM 1, which effectively reduces the amount of debt that
Marker Germany owes to Hypo Vereinsbank by DM 22,455,000 (U.S. $12,274,000) to
an outstanding balance of DM 18,306,000 (U.S. $10,006,000) (as of August 13,
1999), which balance will be included in the New Financing Facility (defined
below).
11
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
In addition, Marker Germany is a party to six (6) loan agreements
entered into with Hypo Vereinsbank from 1995 to 1997 (collectively, the "Medium
Term Loan"). Pursuant to the Hypo Vereinsbank Settlement Agreement, Hypo
Vereinsbank agreed that the Medium Term Loan in the amount of DM 4,648,000 (U.S.
$2,541,000) will be included in the New Financing Facility. Finally, subject to
the conditions set forth in the Hypo Vereinsbank Settlement Agreement, the
Company's and Marker USA's guarantees of Marker Germany's obligations to Hypo
Vereinsbank under the Loan Agreement and Medium Term Loan, pursuant to
guarantees issued by each of the Company and Marker USA on August 1, 1990, in
the amount of DM 80,000,000 (U.S. $43,728,000), will be canceled, released and
terminated and of no further effect.
Pursuant to the Hypo Vereinsbank Settlement Agreement, Hypo Vereinsbank
agreed to make available to Marker Germany, effective as of October 27, 1999, a
new line of credit (the "New Financing Facility") to be used for financing
Marker Germany's 1999-2000 fiscal year, in an amount up to DM 58,480,000 (U.S.
$31,965,000) (the "Hypo New Commitment"). The Hypo New Commitment has already
been made available to Marker Germany since April 1, 1999, to be replaced by the
New Financing Facility. The New Financing Facility will be secured by a
first-priority security interest in: (i) all existing and future accounts
receivable of Marker Germany, (ii) all existing and future inventory of Marker
Germany and (iii) all existing and future trademarks, patents and licenses of
Newco relating in any way to the production or sale of ski bindings and their
components. Newco will become a contract party to, and liable for, the New
Financing Facility.
Marker Germany is indebted to Deutsche Bank pursuant to: (i) a Loan
Agreement between Deutsche Bank and Marker Germany dated November 5/9, 1998, as
amended on December 30, 1998, January 12, 1999, February 23, 1999 and August 18,
1999 (the "DBAG Cash Credit") and (ii) Loan Agreements between Deutsche Bank and
Marker Germany dated November 18/22, 1996 and September 9/16, 1997 (the "DBAG
Medium Term Loan"). Marker Germany's obligations under the DBAG Cash Credit and
the DBAG Medium Term Loan are guaranteed by each of the Company and Marker USA,
pursuant to guarantees issued by each of the Company and Marker USA on April 30,
1998, in the amount of DM 40,000,000 (U.S. $21,864,000).
Pursuant to the terms and conditions of the DBAG Settlement Agreement,
Deutsche Bank agrees to sell to Newco, effective as of the Closing Date, DM
5,690,000 (U.S. $3,110,000) of the outstanding debt balance of DM 10,798,000
(U.S. $5,900,000) (as of August 13, 1999) under the DBAG Cash Credit for a
consideration of DM 1, which effectively reduces the amount of debt that Marker
Germany owes to Deutsche Bank by DM 5,690,000 (U.S. $3,110,000) to an
outstanding balance of DM 5,108,000 (U.S. $2,790,000) (as of August 13, 1999),
which balance will be included in the New Commitment (as defined below).
In addition, pursuant to an Agreement dated as of August 18, 1999 (the
"DBAG Settlement Agreement"), by and among Deutsche Bank, Marker and CT, the
parties have agreed, among other things, to the terms of a restructuring of the
obligations owed to Deutsche Bank. Pursuant to the DBAG Settlement Agreement,
Deutsche Bank agreed, among other things, that the DBAG Medium Term Loan in the
12
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
amount of DM 1,142,000 (U.S. $624,000) will be included in the New Commitment.
Finally, subject to the fulfillment of the conditions set forth in the DBAG
Settlement Agreement, the Company's and Marker USA's guarantees of Marker
Germany's obligations to Deutsche Bank will be canceled, released and terminated
and of no further effect.
Deutsche Bank has also agreed to make available a new line of credit to
Marker Germany for the 1999-2000 fiscal year as part of a new financing facility
in an amount of up to DM 17,934,000 (U.S. $9,803,000), (the "New Commitment").
The New Commitment has already been made available to Marker Germany since April
1, 1999. Newco will be party to and will be liable for the obligations under
this new financing facility, which will be secured by all accounts receivable
and inventory of Marker Germany and all intangibles of Newco.
Series A Bonds Settlement - 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 had the right to declare the
Series A Bonds in default and accelerate the entire outstanding balance of $12.0
million, plus accrued interest thereon. On March 26, 1999, CT entered into a
restructuring agreement, as amended, with the bondholder, which is contingent
upon numerous conditions. 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 requires interest payments at 2% per annum during the first four
years, and thereafter at a variable rate not exceeding the prime rate on
commercial loans in Japan plus 0.5%. The agreement also requires that any
amounts paid by Eiichi Isomura pursuant to his personal guarantees on the debt
obligations of Marker Japan Co. Ltd. ("Marker Japan") shall be repaid commencing
on October 27, 2005. The agreement prohibits the bondholder from taking any
enforcement action against the Company and/or its subsidiaries or exercising any
other rights or remedies that the bondholder may have under the documentation
relating to the Series A Bonds or applicable law. However, if the conditions of
the agreement are not met, there can be no assurance that the bondholder will
not declare the Series A Bonds in default and accelerate the outstanding
balance.
M&T Bank and KeyBank Settlements - The Company notified Manufacturers
and Traders Trust Company ("M&T Bank") and KeyBank National Association
("KeyBank"), banks with which the Company had certain foreign exchange
arrangements, in May 1999 and June 1999, respectively, 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") with the Company dated May 1, 1997. Pursuant
to its rights under the Netting Agreement, M&T Bank canceled and closed out all
of its outstanding foreign exchange contracts with the Company for a loss of
$3.7 million as of May 21, 1999, and demanded immediate payment of such amount.
On July 26, 1999, the Company entered into a letter agreement with M&T Bank,
Newco and CT, whereby M&T Bank agreed, subject to certain conditions (including,
but not limited to, consummation of the transactions contemplated by the
Purchase Agreement by November 30, 1999), to reduce its claim to $1,838,000,
payable in installments through 2004. The Company entered into a Supplemental
Agreement with M&T Bank, Newco and CT on August 11, 1999 (the "Supplemental
13
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
Agreement") whereby M&T agreed, subject to numerous conditions, not to take any
enforcement action against the Company and/or its subsidiaries or exercise any
rights or remedies under the Netting Agreement or any other documentation
relating thereto.
On August 13, 1999, KeyBank terminated the KeyBank Foreign Exchange
Contracts. KeyBank asserted that the Company owed KeyBank $1,279,626 (the
"KeyBank FX Debt") in realized losses under the terminated KeyBank Foreign
Exchange Contracts. Pursuant to the Agreement of Understanding dated as of
August 17, 1999 (the "KeyBank Settlement Agreement"), entered into by and among
KeyBank, the Company, Marker Germany, Marker Japan and Newco, the parties
reached an agreement which resolved the treatment of KeyBank's claims under the
Plan, as more particularly described therein and in the Disclosure Statement.
Pursuant to the KeyBank Settlement Agreement and the Plan, KeyBank agreed,
subject to certain conditions (including, but not limited to, consummation of
the transactions contemplated by the Purchase Agreement by November 30, 1999),
to reduce its claim to $638,534, payable in installments through 2004. In the
event that the terms of the restructuring agreement are not met, KeyBank can
proceed to obtain a judgment against the Company.
First Security Bank Settlement - As of June 30, 1999, the Company was
not in compliance with several loan covenants under the terms and conditions of
the revolving credit agreement dated October 30, 1998, as amended, among the
Company, its U.S. subsidiaries and First Security Bank (the "Revolving Credit
Agreement"). On July 30, 1999, the Company, its U.S. subsidiaries, Marker
Germany, Newco and First Security Bank entered into a Standstill Agreement (the
"Standstill Agreement"). Under the Standstill Agreement, First Security Bank
agreed to refrain from exercising any of its rights or remedies under the
Revolving Credit Agreement and other related loan documentation or under
applicable law including, without limitation, the right to exercise any right of
setoff, institute any suit or foreclose on their collateral until the earlier
of: (i) November 30, 1999 or (ii) the date upon which any default under the
Standstill Agreement occurs. Events which could occur and constitute defaults
under the Standstill Agreement include, but are not limited to, the following:
(i) the Exclusive Distributorship Agreement by and among the Company, Marker USA
and Marker Germany being rejected or otherwise terminated by any of the parties
thereto, or a party materially breaching its obligations thereunder, (ii) the
Closing not occurring by November 30, 1999, and (iii) the Borrowing Base (as
defined in the Revolving Credit Agreement) being less than 80% of the
outstanding obligations under the Revolving Credit Agreement at any time. In the
event of a default under the Standstill Agreement, First Security Bank may
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. Pursuant to the Plan, First Security Bank's claims will be paid in
full, in cash, upon the Closing.
Zions First National Bank Settlement - 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 owed to Zions
14
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
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 $170,392 on or before July 1, 1999, as full settlement of
the remaining lease obligation of $1,703,916. On June 30, 1999, the Company
signed a revised agreement with Zions, whereby the Company paid $30,000 on June
30, 1999, and was required to pay the remaining $140,392 on or before October 1,
1999. On August 19, 1999, the Company paid the remaining $140,392 as full
settlement of the restructured lease obligation. The resulting gain of
$1,533,524 has been recorded as gain on disposal of snowboard business.
Henry E. Tauber Settlement - Henry E. Tauber ("Tauber"), former
president and chief executive officer of the Company and a member of the
Company's board of directors, is the record and beneficial owner of 1,000,000
shares of the Company's Series B Preferred Stock (the "Preferred Stock
Interests") which were acquired for $3.00 each in cash, for a total investment
of $3,000,000. Tauber and Newco entered into an Agreement of Understanding dated
as of July 13, 1999 (the "Tauber Agreement"), regarding the treatment of
Tauber's Preferred Stock Interests under the Plan. Pursuant to the Tauber
Agreement, Tauber, or the then existing holder of the Preferred Stock Interests,
is given an Allowed Claim (as defined in the Plan) in the principal amount of
$1,500,000 on account of the Preferred Stock Interests (the "Tauber Claim").
Pursuant to the Plan, in full satisfaction and release of the Tauber Claim, on
the Effective Date, Newco will assume the Tauber Claim and will pay, when due,
the Tauber Payment Obligations, as more particularly described in the Plan and
Disclosure Statement.
Wells Fargo Revolving Credit Line - On October 21, 1999, Marker USA
received a commitment letter from Wells Fargo Business Credit, Inc. ("WFBCI")
for a $15,000,000 secured revolving line of credit maturing on March 31, 2001.
The proposed line of credit is subject to numerous conditions before closing,
including but not limited to: (i) evidence that WFBCI has a perfected lien on
all collateral (including all accounts receivable, inventory, chattel paper,
machinery and equipment, general intangibles and other assets), (ii) extension
of the Exclusive Distributorship Agreement between Marker USA and Marker Germany
through the term of the credit facility, and assignment of Marker USA's rights
under such agreement, (iii) the closing of the Purchase Agreement, and (iv) no
adverse change in the financial condition of Marker USA. Proceeds from the
proposed line would be used to pay First Security Bank and for working capital
for Marker USA.
Equity Lock-up Agreement - On or about July 30, 1999, CT, Tauber (the
holder of the Preferred Stock Interests) and holders of approximately 51% of the
Common Stock Interests in the Company, entered into the Shareholders' Agreement
of Understanding (the "Equity Agreement"). Pursuant to the Equity Agreement,
each stockholder agreed, among other things, to support approval of the Plan and
the Purchase Agreement and not to sell, encumber, assign or otherwise dispose of
its Equity Interest in the Company during the term of the Equity Agreement.
Although the Company is seeking to alleviate its current fiscal
problems by, among other things, restructuring the Company's obligations
15
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
pursuant to the Plan, obtaining additional financing and consummating the
transactions contemplated by the Purchase Agreement, there can be no assurance
that the Company will be successful in its endeavors.
Discontinued Operations - The Company has substantially completed the
process of exiting the snowboard business through dissolution and sale of its
snowboard subsidiaries and related assets. The components of net assets of
discontinued operations included in the condensed consolidated balance sheets at
September 30, 1999, and at March 31, 1999, were as follows:
September 30, March 31,
1999 1999
------- -------
(In Thousands)
Accounts receivable, net $ 88 $ 171
Inventories 8 --
Prepaid and other current assets -- 9
Accounts payable (8) (8)
Other current liabilities (32) (2,032)
------- -------
Net current assets $ 56 $(1,860)
======= =======
As of September 30, 1999, the assets of the discontinued operations
exceeded the liabilities by approximately $56,000. The net losses of these
operations prior to September 10, 1998, are included in the condensed
consolidated statements of operations under "loss from operations of
discontinued snowboard business." Revenues from the discontinued operations were
approximately $2,187,000 for the three months ended September 30, 1998, and
approximately $2,637,000 for the six months ended September 30, 1998.
16
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
Note 3. Cash and Cash Equivalents
Cash and cash equivalents include investments in certificates of
deposit with original maturities of less than 30 days and restricted cash.
Note 4. Inventories
Inventories include direct materials, direct labor and manufacturing
overhead costs and are recorded at the lower of cost (using the first-in,
first-out method) or market. The major classes of inventories are as follows:
September 30, 1999 March 31, 1999
-------------------- --------------
(In Thousands)
Raw materials $ 203 $ 542
Work in process 2,518 1,821
Finished goods 18,581 16,389
------- -------
$21,302 $18,752
======= =======
Note 5. Earnings per Share
For the six months ended September 30, 1999, options and warrants to
purchase 1,531,800 shares of common stock were not included in the computation
of diluted net loss per common share because the exercise prices of such options
and warrants were greater than the average market price of common shares or
because the Company incurred a net loss. Pursuant to the Confirmation Order, all
outstanding options were cancelled on October 27, 1999.
17
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
Note 6. Comprehensive Loss
As of April 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." The following table displays components of the Company's
comprehensive loss for the three and six month periods ended September 30, 1999
and 1998, respectively: <TABLE> <CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
(In thousands) (In thousands)
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Loss $ (877) $(25,839) $ (5,723) $(32,194)
Other Comprehensive Loss Items:
Foreign Currency Translation Adjustments (257) 924 (162) 1,104
-------- -------- -------- --------
Comprehensive Loss $ (1,134) $(24,915) $ (5,885) $(31,090)
======== ======== ======== ========
</TABLE>
Note 7. Derivative Instruments and Hedging Activities
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.
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
has not determined if this pronouncement will have a material impact on the
Company's results of operations, financial position or liquidity.
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 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 year 1999, given the
financial position of the Company, the Company determined that all gains and
18
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
losses on foreign exchange contracts should be reported in income. Due to the
Company's financial position, the Company determined that it would be unable to
utilize certain foreign exchange contracts as originally intended. The Company
notified M&T Bank and KeyBank, banks with which the Company had certain foreign
exchange arrangements, in May 1999 and June 1999, respectively, that the Company
would be unable to utilize its foreign exchange contracts as originally
intended. See Note 2 ("M&T Bank and KeyBank Settlements") to the Condensed
Consolidated Financial Statements, which describes the M&T Bank and KeyBank
Settlements. As of September 30, 1999, the Company held foreign currency option
contracts to purchase DM 7,480,000 for U.S. $4,000,000. These option contracts
expire at varying dates through January 24, 2000. The Company's numerous
intercompany receivables and payables and commitments denominated in foreign
currencies exceed the amounts covered by the option contracts referenced above
and create exposure to fluctuations in foreign currency rates. As of September
30, 1999, these receivables and payables remain substantially unhedged.
19
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
Note 8. Condensed Combined Financial Statements of the Debtors
As described in Note 2, on the Filing Date, the Debtors filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code. The
Company's other wholly-owned subsidiaries did not file for bankruptcy
protection. Condensed combined financial statements for the Debtors as of and
for the six months ended September 30, 1999, are presented below:
Condensed Combined Balance Sheet
As of
September 30, 1999
------------------
Cash and Cash Equivalents $ 282
Accounts Receivable, Net 147
Accounts Receivable - Intercompany 5,263
Inventories 11
Prepaid And Other Current Assets 46
--------
Total Current Assets 5,749
--------
Non-Current Assets 2,693
--------
$ 8,442
========
Advances From Banks $ 1,500
Accounts Payable - Intercompany 1,151
Accrued Expenses 348
Other Current Liabilities 457
--------
Total Current Liabilities 3,456
--------
Long-Term Debt 1,338
Advances From Affiliated Companies 2,199
Liabilities Subject To Compromise 23,769
--------
Total Liabilities 30,762
--------
Cumulative Losses In Excess Of Investment In
Subsidiary Companies 12,976
--------
Shareholders' Deficit (35,296)
--------
$ 8,442
========
20
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
<TABLE>
Condensed Combined Statement of Operations
- ------------------------------------------
<CAPTION>
Six Months Ended
September 30, 1999
<S> <C>
Operating Expenses:
General And Administrative $ 1,780
---------------
Total Operating Expenses 1,780
---------------
Operating Expense (1,780)
---------------
Other Income/(Expense), Net:
Realized and unrealized foreign exchange losses (2,452)
Equity in the losses of subsidiaries (1,945)
Interest income (expense), net (623)
Intercompany interest expense (78)
Intercompany license and management fees 373
Licensing income 60
All other income (expense), net (865)
---------------
Total other income (expense), net (5,530)
---------------
Loss From Continuing Operations (7,310)
Gain From Discontinued Operations 1,623
---------------
Net Loss $ (5,687)
===============
</TABLE>
Note 9. Segment Reporting
The Company's reportable operating segments are strategic business
units that offer different products and services. The Company's reportable
operating segments as of September 30, 1999, are consistent with the Company's
reportable operating segments as of March 31, 1999, as described in the
Company's Annual Report on Form 10-K for the year ended March 31, 1999.
Intersegment sales, eliminated in consolidation, are not material. The
information for fiscal year 1999 has been restated from the prior year's segment
presentation in order to conform to the fiscal year 2000 presentation.
Summarized financial information concerning the Company's reportable operating
segments is shown in the following table. The information in the following table
is derived directly from the operating segments' internal financial information
used for corporate management purposes.
While the major portion of the Company's revenues from operations was
derived from the ski bindings and other hard goods segment, the Company also
derived substantial revenue from its clothing and other soft goods segment.
Effective April 1, 1999, the right to manufacture and sell the Company's
21
<PAGE>
MARKER INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Unaudited)
clothing and other soft goods was licensed to Ski & Sports Recreation Company,
LLC ("SSRC") in return for royalty payments equal to a percentage of net sales,
ranging from 3% to 5%. 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 was paid on August 2, 1999, and $204,500 was paid on November
5, 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.
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. No single customer accounted for more than
10% of the Company's sales for these periods.
Information concerning continuing operations by reportable operating
segments for each of the six month periods ended September 30, 1999 and 1998,
and as of September 30, 1999 and March 31, 1999, is as follows:
Six Months Ended September 30,
------------------------------
1999 1998
-------- --------
(In Thousands)
Revenues from Unrelated Entities:
Ski Bindings and Other Hard Goods $ 18,285 $ 22,264
Clothing and Other Soft Goods 1,734 4,332
-------- --------
$ 20,019 $ 26,596
======== ========
Operating (Loss) Income:
Ski Bindings and Other Hard Goods $ (2,445) $ (1,740)
Clothing and Other Soft Goods 9 (793)
Unallocated Corporate (427) (1,919)
-------- --------
$ (2,863) $ (4,452)
======== ========
As Of
----------------------------------
September 30, 1999 March 31, 1999
------------------ --------------
(In Thousands)
Total Assets:
Ski Bindings and Other Hard Goods $ 55,853 $ 49,133
Clothing and Other Soft Goods 1,419 2,630
Unallocated Corporate 3,082 7,030
Discontinued Operations 96 180
-------- --------
$ 60,450 58,973
======== ========
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
General
The Company incurred net losses of $5.7 million for the six months
ended September 30, 1999, and $48.0 million for the year ended March 31, 1999.
As of September 30, 1999, the Company had a shareholders' deficit of $35.4
million (see Note 1 ("Interim Financial Statements") to the Condensed
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 is in default under its
obligations to certain creditors (see "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 pursuant to the Plan, obtaining additional financing, and
consummating the transactions contemplated by the Purchase Agreement, there can
be no assurance that the Company will be successful in such endeavors.
The Company is a leading designer, developer, manufacturer and marketer
of alpine ski bindings in North America, Europe and Asia. The Company is a
holding company which operates through its subsidiaries, Marker Germany, Marker
USA, Marker Japan and Marker Austria. Substantially all of the Company's ski
bindings are manufactured by Marker Germany, which 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.
Purchase Agreement with Marker International GmbH - On July 30, 1999,
the Company entered into an asset purchase agreement (as amended by the
Amendment to the Asset Purchase Agreement dated as of September 20, 1999, the
"Purchase Agreement") with Marker International GmbH ("Newco"), providing for
the sale by the Company of substantially all of its assets (including the equity
securities of its subsidiaries) to Newco. In exchange, Newco will assume certain
liabilities of the Company and the Company will receive a 15% equity interest in
Newco. The remaining 85% equity interest in Newco will be held by CT.
Pursuant to the terms of the Purchase Agreement, CT will contribute
$15,000,000 (subject to reduction by $1,025,501 as a result of the consummation
of the sale to CT of the 66.66% equity interest in Marker Canada, Ltd.) to
Newco, in consideration for an 85% equity interest in Newco. Newco is a GmbH
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (continued)
organized under the laws of Switzerland and is currently a wholly-owned
subsidiary of CT. In connection with the Purchase Agreement, the Company and CT
will enter into an operating agreement which, among other things, will provide
that CT will be granted an option (the "Option") to purchase the Company's 15%
equity interest in Newco at any time on or after the second anniversary of the
consummation date of the Plan (as defined below) at the then fair market value,
subject to reduction in an amount equal to the sum of: (x) all unreimbursed
advances and litigation costs, if any, incurred by Newco under Sections
10.4(b)(i) and (ii) of the Purchase Agreement, together with accrued interest
thereon, plus (y) $775,000.
The Purchase Agreement provides for the consummation of the sale to be
effected through a pre-negotiated Chapter 11 bankruptcy proceeding. In
connection therewith, the Company reached agreements-in-principle regarding the
restructuring of its debt and the treatment of such debt under a plan of
reorganization with substantially all of its creditors that are impaired under
the plan of reorganization. On the Filing Date, the Debtors filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code in
the Bankruptcy Court. On September 22, 1999, the Debtors filed the First Amended
Joint Chapter 11 Plan of Reorganization (as amended by the Amendment to the
First Amended Joint Chapter 11 Plan of Reorganization, dated as of October 25,
1999, the "Plan") and a related disclosure statement (the "Disclosure
Statement"). By order dated September 22, 1999, the Bankruptcy Court approved
the Disclosure Statement as containing adequate information. The Disclosure
Statement and the Plan were subsequently distributed to the Debtors' creditors
and shareholders for approval, which approval was subsequently obtained. On
October 27, 1999, the Plan was confirmed by order of the Bankruptcy Court (the
"Confirmation Order"). Descriptions of the Plan and the Disclosure Statement
(including the transactions contemplated thereby) herein are qualified in their
entirety by reference to the Plan and the Disclosure Statement, which are
attached hereto as Exhibit 2.3 and Exhibit 2.5, respectively and are herein
incorporated by reference.
There are numerous conditions to Newco's obligation to consummate the
acquisition. Such conditions include, but are not limited to: (a) Newco entering
into employment agreements with key members of the Company's management, (b)
there not being any material adverse change in the business of the Company, (c)
the issuance of consents or waivers by various third parties and (d) the
confirmation of the Plan. Pursuant to the Confirmation Order, the Bankruptcy
Court approved the Plan and the Purchase Agreement on October 27, 1999. There
can be no assurance that the Company will be able to satisfy the remaining
conditions precedent under the Purchase Agreement.
The closing (the "Closing") of the sale is expected to be consummated
by November 30, 1999. After the Closing, the Company will no longer be engaged
in the conduct of business and will operate for the sole purpose of holding and
subsequently liquidating its assets (including, without limitation, its equity
interest in Newco). Pursuant to the terms of the operating agreement, the
Company is required to dissolve and liquidate all of its assets no earlier than
the third anniversary of the Closing, and no later than the fifth anniversary of
the Closing.
Marker Germany and Marker Austria Stockholders' Deficits - As of
September 30, 1999, Marker Deutschland GmbH ("Marker Germany") and Marker
Austria GmbH ("Marker Austria"), each on a stand alone unconsolidated basis, had
a net stockholders' deficit. Under the applicable foreign laws and regulations,
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
in order to avoid involuntary bankruptcy proceedings, these entities require
additional capital infusions. The Company and CT are in the process of
attempting to meet the necessary conditions that are required to consummate the
acquisition. If successful, the consummation of the sale will result in capital
infusions which will increase the stockholders' equity of these entities. There
can be no assurance that the Company will be able to meet all the necessary
conditions or be successful in increasing stockholders' equity to a level
sufficient to avoid such bankruptcy proceedings.
Results of Operations
Comparison of the three months ended September 30, 1999 with the three months
- --------------------------------------------------------------------------------
ended September 30, 1998 (continuing operations)
- ------------------------------------------------
Net sales for the three months ended September 30, 1999 decreased to
$16.9 million, compared to $24.0 million for the corresponding three months of
the prior fiscal year. The decrease in sales is primarily due to: (i) the
licensing of soft good sales to SSRC, the licensee of Marker clothing and other
soft goods, and (ii) the sale of 66.66% of Marker Canada to CT on June 18, 1999.
Marker Ltd., the soft goods subsidiary, had net sales of $4.1 million for the
three months ended September 30, 1998, compared to net sales of $0.0 million for
the three months ended September 30, 1999. Marker Canada had net sales of $3.0
million for the three months ended September 30, 1998, compared to net sales of
$0.0 for the three months ended September 30, 1999, since the Company no longer
consolidates sales of Marker Canada.
Gross profit for the three months ended September 30, 1999 was $5.9
million, or 34.7% of net sales, compared to $8.2 million, or 34.1% of net sales,
for the corresponding period of the prior fiscal year. The decrease in gross
profit is due to the decrease in sales, as explained above.
Operating expenses for the three months ended September 30, 1999
decreased to $5.0 million, compared to $7.8 million for the same period of the
prior fiscal year. The decrease in operating expenses is primarily due to: (i)
the licensing of soft good sales to SSRC, the licensee of Marker clothing and
other soft goods, (ii) the sale of 66.66% of Marker Canada to CT on June 18,
1999 and (iii) cost reductions. Marker Ltd. had operating expenses of $744,000
for the three months ended September 30, 1998, compared to operating expenses of
$9,000 for the three months ended September 30, 1999. Marker Canada had
operating expenses of $683,000 for the three months ended September 30, 1998,
compared to operating expenses of $0.0 for the three months ended September 30,
1999, since the Company no longer consolidates expenses of Marker Canada.
Interest expense for the three months ended September 30, 1999
decreased to $1.1 million, compared to $1.7 million for the corresponding period
of the prior fiscal year. This decrease was attributable to lower borrowing
requirements due to the liquidation of snowboard related assets, lower inventory
levels and lower accounts receivables levels compared to the same period of the
prior fiscal year.
Other income (loss) for the three months ended September 30, 1999
decreased to $(1.5) million, compared to $1.9 million for the corresponding
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
period of the prior fiscal year. The decrease in other income (loss) is
primarily due to realized and unrealized foreign exchange gains of $3.2 million
for the three months ended September 30, 1998, compared to realized and
unrealized foreign exchange losses of $1.5 million for the three months ended
September 30, 1999.
Comparison of the six months ended September 30, 1999 with the six months ended
- --------------------------------------------------------------------------------
September 30, 1998 (continuing operations)
- -------------------------------------------
Net sales for the six months ended September 30, 1999 decreased to
$20.0 million, compared to $26.6 million for the corresponding six months of the
prior fiscal year. The decrease in sales is primarily due to: (i) the licensing
of soft good sales to SSRC, the licensee of Marker clothing and other soft
goods, and (ii) the sale of 66.66% of Marker Canada to CT on June 18, 1999.
Marker Ltd. had net sales of $4.7 million for the six months ended September 30,
1998, compared to net sales of $0.8 million for the six months ended September
30, 1999, which consisted of a bulk sale of clothing and other soft goods
inventory to SSRC. Marker Canada had net sales of $3.5 million for the six
months ended September 30, 1998, compared to net sales of $0.8 for the period
ended June 18, 1999, at which time the Company no longer consolidated sales of
Marker Canada.
Gross profit for the six months ended September 30, 1999 was $6.8
million, or 33.8% of net sales, compared to $9.2 million, or 34.5% of net sales,
for the corresponding period of the prior fiscal year. The decrease in gross
profit is due to the decrease in sales, as explained above. The decrease in the
gross profit percentage is primarily due to the bulk sale of clothing and other
soft goods inventory to SSRC for approximately book value. The clothing and
other soft goods inventory had been written down to the bulk sales price as of
March 31, 1999.
Operating expenses for the six months ended September 30, 1999
decreased to $9.6 million, compared to $13.6 million for the same period of the
prior fiscal year. The decrease in operating expenses is primarily due to: (i)
the licensing of soft good sales to SSRC, the licensee of Marker clothing and
other soft goods, (ii) the sale of 66.66% of Marker Canada to CT on June 18,
1999 and (iii) cost reductions. Marker Ltd. had operating expenses of $1.5
million for the six months ended September 30, 1998, compared to operating
expenses of $30,000 for the six months ended September 30, 1999. Marker Canada
had operating expenses of $1.0 million for the six months ended September 30,
1998, compared to operating expenses of $480,000 for the period ended June 18,
1999, at which time the Company no longer consolidated expenses of Marker
Canada.
Interest expense for the six months ended September 30, 1999 decreased
to $2.1 million, compared to $3.2 million for the corresponding period of the
prior fiscal year. This decrease was attributable to lower borrowing
requirements due to the liquidation of snowboard related assets, lower inventory
levels and lower accounts receivables levels compared to the same period of the
prior fiscal year.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
Other income (loss) for the six months ended September 30, 1999
decreased to $(1.5) million, compared to $2.2 million for the corresponding
period of the prior fiscal year. The decrease in other income (loss) is
primarily due to realized and unrealized foreign exchange gains of $3.2 million
for the six months ended September 30, 1998, compared to realized and unrealized
foreign exchange losses of $1.3 million for the six months ended September 30,
1999.
Liquidity and Capital Resources
The Company incurred net losses of $5.7 million for the six months
ended September 30, 1999, and $48.0 million for the year ended March 31, 1999.
As of September 30, 1999, the Company had a shareholders' deficit of $35.4
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 is in default under its obligations to certain creditors
(see Note 2 ("Recent Events") to the Condensed Consolidated Financial
Statements).
Although the Company is seeking to alleviate its current fiscal
problems by, among other things, restructuring the Company's obligations
pursuant to the Plan, obtaining additional financing, and consummating the
transactions contemplated by the Purchase Agreement, there can be no assurance
that the Company will be successful in its endeavors.
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 $(34.9) million at March 31, 1999 to
$(38.8) million at September 30, 1999, including liabilities subject to
compromise. The decrease in working capital is primarily attributable to the
Company's losses.
At September 30, 1999, the Company's primary sources of liquidity
consisted of $826,000 in cash and cash equivalents. At September 30, 1999, the
Company had approximately $59.9 million available under its lines of credit, of
which it had borrowed approximately $59.9 million.
German Banks Settlement - On April 15, 1999, the Company did not make a
required principal and interest payment of DM 900,000 (U.S. $492,000) on the
Third Restated Promissory Note between the Company and Hypo Vereinsbank (acting
through its New York branch) dated April 15, 1998 (the "Term Loan"). On April
16, 1999, Hypo Vereinsbank notified the Company that nonpayment of principal and
interest constituted a default under the terms of the Term Loan and that the
entire balance of DM 6.4 million (U.S. $3.5 million) was immediately due and
payable. As a result, Hypo Vereinsbank applied the proceeds of a time deposit
that was held as security by the bank in the amount of U.S. $2.0 million against
the outstanding balance due on the Term Loan.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
In addition, on March 31, 1999, Marker Germany's DM 58.7 million (U.S.
$32.1 million) line of credit with Hypo Vereinsbank, Deutsche Bank AG ("Deutsche
Bank") and BFG Bank expired. Marker Germany's obligations to Hypo Vereinsbank
and Deutsche Bank are guaranteed by the Company. In addition, the Company
granted to the German Banks a second lien on its intangible assets. As a result,
the Company and Marker Germany commenced negotiations with Hypo Vereinsbank to
restructure the debt owed to Hypo Vereinsbank, culminating in a Settlement
Agreement dated as of August 18, 1999, between Hypo Vereinsbank, the Company and
CT (the "Hypo Vereinsbank Settlement Agreement").
Pursuant to the Plan and the Hypo Vereinsbank Settlement Agreement,
Hypo Vereinsbank will forgive in full upon Closing, the outstanding indebtedness
of the Company of DM 2,755,000 (U.S. $1,506,000) (plus interest accrued from
April 19, 1999 to August 13, 1999) as of August 13, 1999, under the Term Loan,
in full satisfaction of the Company's outstanding obligation to Hypo Vereinsbank
(New York).
Pursuant to the terms and conditions of the Hypo Vereinsbank Settlement
Agreement, Hypo Vereinsbank agrees to sell to Newco, effective as of the Closing
Date, DM 22,455,000 (U.S. $12,274,000) of the outstanding debt balance of DM
40,761,000 (U.S. $22,280,000) (as of August 13, 1999) under the Loan Agreement
between Hypo Vereinsbank and Marker Germany dated October 13, 1998, as amended,
for a consideration of DM 1, which effectively reduces the amount of debt that
Marker Germany owes to Hypo Vereinsbank by DM 22,455,000 (U.S. $12,274,000) to
an outstanding balance of DM 18,306,000 (U.S. $10,006,000) (as of August 13,
1999), which balance will be included in the New Financing Facility (defined
below).
In addition, Marker Germany is a party to six (6) loan agreements
entered into with Hypo Vereinsbank from 1995 to 1997 (collectively, the "Medium
Term Loan"). Pursuant to the Hypo Vereinsbank Settlement Agreement, Hypo
Vereinsbank agreed that the Medium Term Loan in the amount of DM 4,648,000 (U.S.
$2,541,000) will be included in the New Financing Facility. Finally, subject to
the conditions set forth in the Hypo Vereinsbank Settlement Agreement, the
Company's and Marker USA's guarantees of Marker Germany's obligations to Hypo
Vereinsbank under the Loan Agreement and Medium Term Loan, pursuant to
guarantees issued by each of the Company and Marker USA on August 1, 1990, in
the amount of DM 80,000,000 (U.S. $43,728,000), will be canceled, released and
terminated and of no further effect.
Pursuant to the Hypo Vereinsbank Settlement Agreement, Hypo Vereinsbank
agreed to make available to Marker Germany, effective as of October 27, 1999, a
new line of credit (the "New Financing Facility") to be used for financing
Marker Germany's 1999-2000 fiscal year, in an amount up to DM 58,480,000 (U.S.
$31,965,000) (the "Hypo New Commitment"). The Hypo New Commitment has already
been made available to Marker Germany since April 1, 1999, to be replaced by the
New Financing Facility. The New Financing Facility will be secured by a
first-priority security interest in: (i) all existing and future accounts
receivable of Marker Germany, (ii) all existing and future inventory of Marker
Germany and (iii) all existing and future trademarks, patents and licenses of
Newco relating in any way to the production or sale of ski bindings and their
components. Newco will become a contract party to, and liable for, the New
Financing Facility.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
Marker Germany is indebted to Deutsche Bank pursuant to: (i) a Loan
Agreement between Deutsche Bank and Marker Germany dated November 5/9, 1998, as
amended on December 30, 1998, January 12, 1999, February 23, 1999 and August 18,
1999 (the "DBAG Cash Credit") and (ii) Loan Agreements between Deutsche Bank and
Marker Germany dated November 18/22, 1996 and September 9/16, 1997 (the "DBAG
Medium Term Loan"). Marker Germany's obligations under the DBAG Cash Credit and
the DBAG Medium Term Loan are guaranteed by each of the Company and Marker USA,
pursuant to guarantees issued by each of the Company and Marker USA on April 30,
1998, in the amount of DM 40,000,000 (U.S. $21,864,000).
Pursuant to the terms and conditions of the DBAG Settlement Agreement,
Deutsche Bank agrees to sell to Newco, effective as of the Closing Date, DM
5,690,000 (U.S. $3,110,000) of the outstanding debt balance of DM 10,798,000
(U.S. $5,900,000) (as of August 13, 1999) under the DBAG Cash Credit for a
consideration of DM 1, which effectively reduces the amount of debt that Marker
Germany owes to Deutsche Bank by DM 5,690,000 (U.S. $3,110,000) to an
outstanding balance of DM 5,108,000 (U.S. $2,790,000) (as of August 13, 1999),
which balance will be included in the New Commitment (as defined below).
In addition, pursuant to an Agreement dated as of August 18, 1999 (the
"DBAG Settlement Agreement"), by and among Deutsche Bank, Marker and CT, the
parties have agreed, among other things, to the terms of a restructuring of the
obligations owed to Deutsche Bank. Pursuant to the DBAG Settlement Agreement,
Deutsche Bank agreed, among other things, that the DBAG Medium Term Loan in the
amount of DM 1,142,000 (U.S. $624,000) will be included in the New Commitment.
Finally, subject to the fulfillment of the conditions set forth in the DBAG
Settlement Agreement, the Company's and Marker USA's guarantees of Marker
Germany's obligations to Deutsche Bank will be canceled, released and terminated
and of no further effect.
Deutsche Bank has also agreed to make available a new line of credit to
Marker Germany for the 1999-2000 fiscal year as part of a new financing facility
in an amount of up to DM 17,934,000 (U.S. $9,803,000), (the "New Commitment").
The New Commitment has already been made available to Marker Germany since April
1, 1999. Newco will be party to and will be liable for the obligations under
this new financing facility, which will be secured by all accounts receivable
and inventory of Marker Germany and all intangibles of Newco.
Series A Bonds Settlement - 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 had the right to declare the
Series A Bonds in default and accelerate the entire outstanding balance of $12.0
million, plus accrued interest thereon. On March 26, 1999, CT entered into a
restructuring agreement, as amended, with the bondholder, which is contingent
upon numerous conditions. 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 requires interest payments at 2% per annum during the first four
years, and thereafter at a variable rate not exceeding the prime rate on
commercial loans in Japan plus 0.5%. The agreement also requires that any
amounts paid by Eiichi Isomura pursuant to his personal guarantees on the debt
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
obligations of Marker Japan Co. Ltd. ("Marker Japan") shall be repaid commencing
on October 27, 2005. The agreement prohibits the bondholder from taking any
enforcement action against the Company and/or its subsidiaries or exercising any
other rights or remedies that the bondholder may have under the documentation
relating to the Series A Bonds or applicable law. However, if the conditions of
the agreement are not met, there can be no assurance that the bondholder will
not declare the Series A Bonds in default and accelerate the outstanding
balance.
M&T Bank and KeyBank Settlements - The Company notified Manufacturers
and Traders Trust Company ("M&T Bank") and KeyBank National Association
("KeyBank"), banks with which the Company had certain foreign exchange
arrangements, in May 1999 and June 1999, respectively, 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") with the Company dated May 1, 1997. Pursuant
to its rights under the Netting Agreement, M&T Bank canceled and closed out all
of its outstanding foreign exchange contracts with the Company for a loss of
$3.7 million as of May 21, 1999, and demanded immediate payment of such amount.
On July 26, 1999, the Company entered into a letter agreement with M&T Bank,
Newco and CT, whereby M&T Bank agreed, subject to certain conditions (including,
but not limited to, consummation of the transactions contemplated by the
Purchase Agreement by November 30, 1999), to reduce its claim to $1,838,000,
payable in installments through 2004. The Company entered into a Supplemental
Agreement with M&T Bank, Newco and CT on August 11, 1999 (the "Supplemental
Agreement") whereby M&T agreed, subject to numerous conditions, not to take any
enforcement action against the Company and/or its subsidiaries or exercise any
rights or remedies under the Netting Agreement or any other documentation
relating thereto.
On August 13, 1999, KeyBank terminated the KeyBank Foreign Exchange
Contracts. KeyBank asserted that the Company owed KeyBank $1,279,626 (the
"KeyBank FX Debt") in realized losses under the terminated KeyBank Foreign
Exchange Contracts. Pursuant to the Agreement of Understanding dated as of
August 17, 1999 (the "KeyBank Settlement Agreement"), entered into by and among
KeyBank, the Company, Marker Germany, Marker Japan and Newco, the parties
reached an agreement which resolved the treatment of KeyBank's claims under the
Plan, as more particularly described therein and in the Disclosure Statement.
Pursuant to the KeyBank Settlement Agreement and the Plan, KeyBank agreed,
subject to certain conditions (including, but not limited to, consummation of
the transactions contemplated by the Purchase Agreement by November 30, 1999),
to reduce its claim to $638,534, payable in installments through 2004. In the
event that the terms of the restructuring agreement are not met, KeyBank can
proceed to obtain a judgment against the Company.
First Security Bank Settlement - As of June 30, 1999, the Company was
not in compliance with several loan covenants under the terms and conditions of
the revolving credit agreement dated October 30, 1998, as amended, among the
Company, its U.S. subsidiaries and First Security Bank (the "Revolving Credit
Agreement"). On July 30, 1999, the Company, its U.S. subsidiaries, Marker
Germany, Newco and First Security Bank entered into a Standstill Agreement (the
"Standstill Agreement"). Under the Standstill Agreement, First Security Bank
agreed to refrain from exercising any of its rights or remedies under the
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
Revolving Credit Agreement and other related loan documentation or under
applicable law including, without limitation, the right to exercise any right of
setoff, institute any suit or foreclose on their collateral until the earlier
of: (i) November 30, 1999 or (ii) the date upon which any default under the
Standstill Agreement occurs. Events which could occur and constitute defaults
under the Standstill Agreement include, but are not limited to, the following:
(i) the Exclusive Distributorship Agreement by and among the Company, Marker USA
and Marker Germany being rejected or otherwise terminated by any of the parties
thereto, or a party materially breaching its obligations thereunder, (ii) the
Closing not occurring by November 30, 1999, and (iii) the Borrowing Base (as
defined in the Revolving Credit Agreement) being less than 80% of the
outstanding obligations under the Revolving Credit Agreement at any time. In the
event of a default under the Standstill Agreement, First Security Bank may
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. Pursuant to the Plan, First Security Bank's claims will be paid in
full, in cash, upon the Closing.
Zions First National Bank Settlement - 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 owed to Zions
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 $170,392 on or before July 1, 1999, as full settlement of
the remaining lease obligation of $1,703,916. On June 30, 1999, the Company
signed a revised agreement with Zions, whereby the Company paid $30,000 on June
30, 1999, and was required to pay the remaining $140,392 on or before October 1,
1999. On August 19, 1999, the Company paid the remaining $140,392 as full
settlement of the restructured lease obligation. The resulting gain of
$1,533,524 has been recorded as gain on disposal of snowboard business.
Henry E. Tauber Settlement - Henry E. Tauber ("Tauber"), former
president and chief executive officer of the Company and a member of the
Company's board of directors, is the record and beneficial owner of 1,000,000
shares of the Company's Series B Preferred Stock (the "Preferred Stock
Interests") which were acquired for $3.00 each in cash, for a total investment
of $3,000,000. Tauber and Newco entered into an Agreement of Understanding dated
as of July 13, 1999 (the "Tauber Agreement"), regarding the treatment of
Tauber's Preferred Stock Interests under the Plan. Pursuant to the Tauber
Agreement, Tauber, or the then existing holder of the Preferred Stock Interests,
is given an Allowed Claim (as defined in the Plan) in the principal amount of
$1,500,000 on account of the Preferred Stock Interests (the "Tauber Claim").
Pursuant to the Plan, in full satisfaction and release of the Tauber Claim, on
the Effective Date, Newco will assume the Tauber Claim and will pay, when due,
the Tauber Payment Obligations, as more particularly described in the Plan and
Disclosure Statement.
Wells Fargo Revolving Credit Line - On October 21, 1999, Marker USA
received a commitment letter from Wells Fargo Business Credit, Inc. ("WFBCI")
for a $15,000,000 secured revolving line of credit maturing on March 31, 2001.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
The proposed line of credit is subject to numerous conditions before closing,
including but not limited to: (i) evidence that WFBCI has a perfected lien on
all collateral (including all accounts receivable, inventory, chattel paper,
machinery and equipment, general intangibles and other assets), (ii) extension
of the Exclusive Distributorship Agreement between Marker USA and Marker Germany
through the term of the credit facility, and assignment of Marker USA's rights
under such agreement, (iii) the closing of the Purchase Agreement, and (iv) no
adverse change in the financial condition of Marker USA. Proceeds from the
proposed line would be used to pay First Security Bank and for working capital
for Marker USA.
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 in 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 two 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 has completed successful testing of all systems to ensure that
they are Year 2000 compliant.
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 likely worst case scenario of failure by the
Company or its suppliers to adequately resolve Year 2000 issues would arise from
a failure of its order entry and accounts receivable system. Such a failure
would require the Company to resort to "non-computerized" means to undertake
sales and distribution functions such 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
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
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 best estimates at
present, 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, though 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.
Other Matters
Pursuant to the Plan, the Company will change its name to MKR Holdings
and will remain incorporated in Utah. Pursuant to the Confirmation Order, the
Company is authorized to amend its articles of incorporation and by-laws to
satisfy the provisions of the Purchase Agreement, the Plan and the Confirmation
Order on or before the Closing, without further authorization and approval from
the Company's shareholders, board of directors or order from the Bankruptcy
Court.
Pursuant to the Plan, as of the Closing, the business and affairs of
the Company will be managed by and under the direction of a Board of Directors
which shall consist of the following three members: Kevin Hardy, Henry E. Tauber
and Louis M. Alpern. Prior to the Closing, the business and affairs of the
Company will continue to be managed by and under the direction of the current
Board of Directors.
Effective September 22, 1999, John G. McMillian, Chairman of the Board
of Directors, resigned.
Effective October 27, 1999, the Company canceled all 1,531,800
remaining stock options.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk, including various interest rate
and foreign currency exchange rate risks.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
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 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 year 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. Due to the
Company's financial position, the Company determined that it would be unable to
utilize certain foreign exchange contracts as originally intended. The Company
notified M&T Bank and KeyBank, banks with which the Company has certain foreign
exchange arrangements, in May 1999 and June 1999, respectively, that the Company
would be unable to utilize its foreign exchange contracts as originally
intended. See Note 2 ("M&T Bank and KeyBank Settlements") to the Condensed
Consolidated Financial Statements, which describes the M&T Bank and KeyBank
Settlements. As of September 30, 1999, the Company held foreign currency option
contracts to purchase DM 7,480,000 for U.S. $4,000,000. These option contracts
expire at varying dates through January 24, 2000. The Company's numerous
intercompany receivables and payables and commitments denominated in foreign
currencies exceed the amounts covered by the option contracts referenced above
and create exposure to fluctuations in foreign currency rates. As of September
30, 1999, these receivables and payables remain substantially unhedged.
Interest Rate Risk - The Company's exposure to market risks for changes
in interest rates is tied to its outstanding borrowings. The Company's
borrowings consist of operating lines-of-credit 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 11.25% on a total outstanding balance of $74.1 million
as of September 30, 1999. The interest rates on the Company's fixed rate debt
ranged from 2.1% to 9.7% on a total outstanding balance of $5.0 million as of
September 30, 1999.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
With the exception of historical information (information relating to
the Company's financial condition and results of operations at historical dates
or for historical periods), the matters discussed in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking statements that necessarily are based on certain assumptions and
are subject to certain risks and uncertainties. These forward-looking statements
are based on management's expectations as of the date hereof, and the Company
does not undertake any responsibility to update any of these statements in the
future. Actual future performance and results could differ from those contained
in or suggested by these forward-looking statements as a result of the factors
34
<PAGE>
set forth in this Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Business Risks described in the Company's
Annual Report on Form 10-K for the year ended March 31, 1999, and elsewhere in
the Company's filings with the SEC.
Item 4. Submission of Matters to a Vote of Security Holders
Section 1129(a)(8) of the Bankruptcy Code requires that in order for a
plan of reorganization to be confirmed, each class of claims and interests
designated under the plan must either: (a) have voted to accept the plan, or (b)
not be impaired under the plan. Accordingly, the Debtors solicited votes to
accept or reject the Plan by transmitting the Plan, Disclosure Statement,
appropriate ballots and other solicitation materials to holders of claims and
interests entitled to vote under the Plan, including, among others, Marker's
common stockholders. Pursuant to Section 1126(d) of the Bankruptcy Code, a class
of interests is deemed to have accepted the plan if holders of at least
two-thirds of the amount of shares actually voting on the plan voted to accept
the plan. As set forth in the Affidavit of Christina Bastas dated October 25,
1999 (the "Bastas Affidavit") filed with the Bankruptcy Court, which certified
the results of the tabulation of ballots for Marker Class 11 (the common
stockholders), more than two-thirds of the shares of Marker common stock that
timely and properly voted on the Plan accepted the Plan. Specifically, the
Bastas Affidavit indicates that of the 6,946,201 shares that voted to accept or
reject the Plan, 6,928,801 shares (99.75%) voted to accept the Plan and 17,400
shares (.25%) voted to reject the Plan. Accordingly, pursuant to Section 1126 of
the Bankruptcy Code, the Plan was accepted by Marker's shareholders (classified
in Marker Class 11).
35
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As contemplated by the Purchase Agreement, on August 19, 1999, the
Debtors filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code in the Bankruptcy Court. See Note 2 ("Recent Events") and
Note 8 ("Condensed Combined Financial Statements of the Debtors") to the
Condensed Consolidated Financial Statements.
Item 3. Defaults Upon Senior Securities.
Descriptions of the defaults and settlements referenced below are qualified
in their entirety by reference to Part I of this Form 10-Q which is hereby
incorporated by reference.
German Banks Settlement - See Note 2 ("Recent Events - German Banks
Settlement") to the Condensed Consolidated Financial Statements.
Series A Bonds Settlement - See Note 2 ("Recent Events - Series A Bonds
Settlement") to the Condensed Consolidated Financial Statements.
M&T Bank and KeyBank Settlements - See Note 2 ("Recent Events - M&T
Bank and KeyBank Settlements") to the Condensed Consolidated Financial
Statements.
First Security Bank Settlement - See Note 2 ("Recent Events - First
Security Bank Settlement") to the Condensed Consolidated Financial Statements.
Zions First National Bank Settlement - See Note 2 ("Recent Events -
Zions First National Bank Settlement") to the Condensed Consolidated Financial
Statements.
Henry E. Tauber Settlement - See Note 2 ("Recent Events - Henry E.
Tauber Settlement") to the Condensed Consolidated Financial Statements.
36
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
--------
2.1 Asset Purchase Agreement, dated as of July 30, 1999,
by and between Marker International, as seller, and
Marker International GmbH, as buyer (without exhibits
or schedules).
2.2 Amendment to the Asset Purchase Agreement, dated as
of September 20, 1999, by and between Marker
International, as seller, and Marker International
GmbH, as buyer. Filed as exhibit 10.1 to the
Company's Current Report on Form 8-K dated November
12, 1999.
2.3 First Amended Joint Chapter 11 Plan of Reorganization
dated September 22, 1999 (without exhibits). Filed as
exhibit 2.2 to the Company's Current Report on Form
8-K dated November 12, 1999.
2.4 Confirmation of the First Amended Chapter 11 Plan of
Reorganization, dated October 27, 1999 (without
exhibits). Filed as exhibit 2.1 to the Company's
Current Report on Form 8-K dated November 12, 1999.
2.5 Disclosure Statement for the Plan, dated September
22, 1999 (without exhibits).*
2.6 Amendment to First Amended Joint Chapter 11 Plan of
Reorganization, dated as of October 25, 1999.*
27 Financial Data Schedule. *
- ------------------------
* Filed herewith.
37
<PAGE>
b) Reports filed on Form 8-K:
--------------------------
Current Report on Form 8-K filed on July 2, 1999, reporting
under Item 2 the execution of the Shareholders' Agreement
between CT Sports Holding AG, Marker International, Marker
Canada, Ltd. and Lapointe Rosenstein, as escrow agent.
Current Report on Form 8-K filed on August 6, 1999, reporting
under Item 2 the execution of the Purchase Agreement between
Marker International and Marker International GmbH.
Current Report on Form 8-K filed on August 23, 1999, reporting
under Item 3 the filing of the petition for relief under
Chapter 11 of the United States Bankruptcy Code by Marker
International, DNR USA, Inc.
and DNR North America, Inc.
Current Report on Form 8-K filed on November 12, 1999,
reporting under Item 3 the confirmation of the petition for
relief under Chapter 11 of the United States Bankruptcy Code
by Marker International, DNR USA, Inc. and DNR North America,
Inc.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARKER INTERNATIONAL
--------------------
Registrant
Dated: November 15, 1999 /s/ Peter C. Weaver
--------------------
Peter C. Weaver
President and Chief Executive Officer
Dated: November 15, 1999 /s/ Kevin Hardy
----------------
Kevin Hardy
Chief Financial Officer
39
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re: )
) Chapter 11
DNR USA, INC., DNR NORTH )
AMERICA, INC. AND ) Case No. 99-2880 (MFW)
MARKER INTERNATIONAL )
) (Jointly Administered)
Debtors. )
DISCLOSURE STATEMENT FOR THE FIRST AMENDED JOINT
CHAPTER 11 PLAN OF REORGANIZATION OF MARKER INTERNATIONAL,
DNR USA, INC. AND DNR NORTH AMERICA, INC.
DATED SEPTEMBER 22, 1999
------------------------
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
(212) 806-5400
and
YOUNG CONAWAY STARGATT & TAYLOR, LLP
P.O. Box 391
Rodney Square North, 11th Fl.
Wilmington, DE 19801
(302) 571-6600
Co-Counsel for the Debtors
Dated: Wilmington, Delaware
September 22, 1999
<PAGE>
ALL CREDITORS AND EQUITY INTEREST HOLDERS ARE ADVISED AND ENCOURAGED TO
READ THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO
ACCEPT OR REJECT THE PLAN. PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE
STATEMENT, INCLUDING THE FOLLOWING SUMMARY, ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE PLAN, THE EXHIBITS ANNEXED TO THE PLAN (INCLUDING THE NEWCO
AGREEMENT) AND THIS DISCLOSURE STATEMENT. THE STATEMENTS CONTAINED IN THIS
DISCLOSURE STATEMENT ARE MADE ONLY AS OF THE DATE HEREOF UNLESS OTHERWISE
SPECIFIED, AND THERE CAN BE NO ASSURANCE THAT THE STATEMENTS CONTAINED HEREIN
WILL BE CORRECT AT ANY TIME AFTER SUCH DATE. ALL CREDITORS AND EQUITY SECURITY
HOLDERS SHOULD READ CAREFULLY THE "RISK FACTORS" SECTION HEREOF BEFORE VOTING
FOR OR AGAINST THE PLAN. SEE SECTION XIII, "CERTAIN RISK FACTORS" .
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE AND RULE 3016 OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE AND NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES
LAWS OR OTHER APPLICABLE LAW. THIS DISCLOSURE STATEMENT HAS NEITHER BEEN
APPROVED NOR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC")
NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED
HEREIN. PERSONS OR ENTITIES TRADING IN OR OTHERWISE PURCHASING, SELLING, OR
TRANSFERRING SECURITIES OF THE DEBTORS SHOULD EVALUATE THIS DISCLOSURE STATEMENT
AND THE PLAN IN LIGHT OF THE PURPOSES FOR WHICH THEY WERE PREPARED.
CERTAIN STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING
PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING STATEMENTS, ARE BASED
ON ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS
WILL REFLECT ACTUAL OUTCOMES.
HOLDERS OF CLAIMS AND INTERESTS SHOULD NOT CONSTRUE THE CONTENTS OF
THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL OR TAX
ADVICE. EACH SUCH HOLDER SHOULD, THEREFORE, CONSULT WITH ITS OWN LEGAL,
BUSINESS, FINANCIAL AND TAX ADVISORS AS TO ANY MATTERS CONCERNING THE
SOLICITATION, THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY.
THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED SOLELY
FOR PURPOSES OF VOTING TO ACCEPT OR REJECT THE PLAN. NOTHING IN THIS DISCLOSURE
STATEMENT MAY BE USED BY ANY ENTITY FOR ANY OTHER PURPOSE. THE FACTUAL
<PAGE>
INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING THE DESCRIPTION OF
THE DEBTORS, THEIR BUSINESSES, AND EVENTS LEADING TO THE COMMENCEMENT OF THE
CHAPTER 11 CASES, HAS BEEN OBTAINED FROM VARIOUS DOCUMENTS, AGREEMENTS, AND
OTHER WRITINGS RELATING TO THE DEBTORS. NEITHER THE DEBTORS NOR ANY OTHER PARTY
MAKES ANY REPRESENTATION OR WARRANTY REGARDING SUCH INFORMATION.
THE TERMS OF THE PLAN GOVERN IN THE EVENT OF ANY INCONSISTENCY WITH THE
SUMMARIES IN THIS DISCLOSURE STATEMENT. ALL EXHIBITS TO THE DISCLOSURE STATEMENT
ARE INCORPORATED INTO AND ARE A PART OF THE DISCLOSURE STATEMENT AS IF SET FORTH
IN FULL HEREIN. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE
AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED.
AS TO CONTESTED MATTERS, EXISTING LITIGATION INVOLVING THE DEBTORS,
ADVERSARY PROCEEDINGS, AND OTHER ACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE
STATEMENT SHALL NOT CONSTITUTE OR BE CONSTRUED AS AN ADMISSION OF ANY FACT OR
LIABILITY, STIPULATION, OR WAIVER, BUT RATHER AS A STATEMENT MADE WITHOUT
PREJUDICE SOLELY FOR SETTLEMENT PURPOSES, WITH FULL RESERVATION OF RIGHTS, AND
IS NOT TO BE USED FOR ANY LITIGATION PURPOSE WHATSOEVER. AS SUCH, THIS
DISCLOSURE STATEMENT SHALL NOT BE ADMISSIBLE IN ANY NONBANKRUPTCY PROCEEDING
INVOLVING THE DEBTORS, OR ANY OTHER PARTY IN INTEREST, NOR SHALL IT BE CONSTRUED
TO BE CONCLUSIVE ADVICE ON THE TAX, SECURITIES, FINANCIAL OR OTHER EFFECTS OF
THE REORGANIZATION AS TO THE HOLDERS OF CLAIMS AGAINST OR EQUITY INTERESTS IN
THE DEBTORS.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
I. INTRODUCTION.............................................................................................1
A. Holders of Claims and Equity Interests Entitled to Vote.........................................4
B. Voting Procedures...............................................................................5
C. Confirmation Hearing............................................................................6
II. OVERVIEW OF THE PLAN.....................................................................................6
A. General.........................................................................................6
1. The Purchaser: Newco...................................................................6
2. Settlements Under the Plan.............................................................7
(i) First Security Settlement.....................................................7
(ii) German Banks Settlement.......................................................8
(iii) Isomura Settlement...........................................................11
(iv) Foreign Exchange Contracts Settlements.......................................12
(v) Tauber Settlement............................................................15
(vi) Equity Lock-up Agreement.....................................................16
(vii) Conclusions Re: Settlements..................................................16
B. Global Debt Restructuring of Marker and its Subsidiaries.......................................17
C. Summary of Classes and Treatment Under the Plan................................................17
III. OVERVIEW OF CHAPTER 11..................................................................................26
IV. DESCRIPTION OF THE DEBTORS' BUSINESSES..................................................................26
A. General Background.............................................................................26
B. Equity and Debt Structure......................................................................28
1. Equity Structure......................................................................28
2. Debt Structure........................................................................29
V. EVENTS LEADING TO COMMENCEMENT OF THE CHAPTER 11 CASES..................................................29
A. Snowboard Operations...........................................................................29
B. Sims Litigation................................................................................31
C. Liquidity Crisis and Inability to Comply With Existing Credit Facilities.......................32
D. Decrease of Inventory Levels...................................................................33
E. NASDAQ Delisting...............................................................................33
F. Other Litigation...............................................................................33
(i) Piero Litigation......................................................................33
G. Sale Discussions...............................................................................34
VI. THE NEWCO AGREEMENT.....................................................................................34
A. Terms of Sale..................................................................................34
B. Purchase and Sale of Assets....................................................................35
C. Assumption of Certain Liabilities..............................................................36
D. Excluded Assets................................................................................36
E. Certain Advances to Marker.....................................................................36
F. Certain Conditions to Closing..................................................................37
G. Indemnification and Offset.....................................................................38
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C>
VII. THE CHAPTER 11 CASES....................................................................................39
A. Disclosure Statement/Plan Confirmation Hearings................................................39
B. Significant First Day Motions During Chapter 11 Cases..........................................40
1. Retention of Professionals............................................................40
2. Employee Related Motions..............................................................40
a. Employee Wages and Benefits..................................................40
3. Other First Day Orders................................................................40
a. Bank Accounts................................................................40
C. Last Date to File Proofs of Claim..............................................................41
D. Breakup Fee Motion.............................................................................41
E. Assumption Motion..............................................................................42
VIII. SUMMARY OF THE PLAN OF REORGANIZATION...................................................................43
A. Introduction...................................................................................43
B. Classification and Treatment of Claims and Interests under the Plan............................43
1. Unclassified Claims...................................................................43
a. Administrative Claims........................................................43
b. Priority Claims..............................................................44
c. Priority Tax Claims..........................................................44
2. Classified Claims.....................................................................44
a. Marker Class 1-First Security Bank Claim.....................................44
b. Marker Class 2-First Mortgage Claim..........................................45
c. Marker Class 3 -Hypo Vereinsbank (New York) Claim............................45
d. Marker Class 4 -Series A Bonds Claim.........................................46
e. Marker Class 5 -German Bank Guarantee Claims.................................46
f. Marker Class 6A -M&T Bank's Foreign Exchange Contract Claims.................46
g. Marker Class 6B -KeyBank's Foreign Exchange Contract Claims..................47
h. Marker Class 7 -PieroClaims..................................................47
i. Marker Class 8 -Insured Product Liability Claims.............................47
j. Marker Class 9 -Small General Unsecured Claims...............................48
k. Marker Class 10 -Preferred Stock Interests in Marker.........................48
l. Marker Class 11 -Common Stock Interests in Marker............................48
m. DNR USAClass 1 -First Security Bank Claim....................................49
n. DNR USA Class 2 -General Unsecured Claims....................................49
o. DNR USA Class 3 -Equity Interests............................................49
p. DNR N.A. Class 1 -First Security Bank Claim..................................50
q. DNR N.A. Class 2 -General Unsecured Claims...................................50
r. DNR N.A. Class 3 -Equity Interests in DNR N.A................................50
3. Intercompany Claims...................................................................50
C. Means of Implementation of the Plan............................................................51
1. Transfers to Newco....................................................................51
2. Organization of Newco.................................................................51
3. Issuance of Newco Securities..........................................................51
4. Assets and Liabilities of Newco.......................................................51
ii
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
5. Governance of Newco...................................................................52
6. Capitalization of Marker..............................................................52
7. Governance of Marker..................................................................52
8. Funding of Marker.....................................................................53
9. Cessation of Marker's Business........................................................53
10. Execution of Documents and Certain Other Actionson or Prior to the Effective Date.....53
a. Operating Agreement..........................................................53
b. Amended and Restated Certificate of Incorporation and By-laws................54
c. Corporate Name...............................................................54
d. Dissolution of DNRUSA and DNR N.A............................................54
e. New Financing Facility.......................................................54
f. Restructuring Documents......................................................54
g. Employment Agreements........................................................54
h. Other........................................................................54
D. Provisions Relating to Distributions and Procedures for Resolving and Treating Disputed Claims.55
1. Distribution Responsibility...........................................................55
2. Date of Distributions.................................................................55
3. Delivery of Distributions.............................................................55
4. Clear Title and Release of Liens......................................................56
5. Means of Cash Payment.................................................................56
6. Prosecution of Claims Objections......................................................56
7. No Distributions Pending Allowance....................................................56
8. Distributions After Allowance.........................................................57
E. Executory Contracts and Leases.................................................................57
1. Assumed and Assigned Contracts........................................................57
2. Rejected Contracts....................................................................57
3. Claims Relating to Rejected Contracts.................................................57
F. Conditions Precedent...........................................................................58
1. Conditions Precedent toConfirmation...................................................58
2. Conditions Precedent to theEffective Date.............................................58
3. Waiver of Conditions..................................................................59
G. Releases, Injunctions and Limitations on Liability.............................................59
1. Extent of Release.....................................................................59
2. Release by Debtors....................................................................59
3. Release by Creditors and Holders of Equity Interests..................................60
4. Injunction............................................................................60
5. Discharge.............................................................................61
6. No Liability for Solicitation.........................................................61
7. Limitation of Liability...............................................................61
8. Term of Injunction or Stays...........................................................63
9. Justification of Releases.............................................................63
10. Registration Exemption................................................................64
11. Transfer Tax Exemption................................................................64
</TABLE>
<TABLE>
<CAPTION>
iii
<S> <C>
H. Jurisdiction of the Bankruptcy Court...........................................................65
IX. POSTCONSUMMATION MANAGEMENT OF MARKER...................................................................66
X. GOVERNANCE AND MANAGEMENT OF NEWCO......................................................................66
XI. VOTING PROCEDURES AND CONFIRMATION REQUIREMENTS.........................................................68
A. General Voting Requirements....................................................................68
B. Voting On The Plan.............................................................................69
C. Confirmation of the Plan.......................................................................71
1. The Confirmation Hearing..............................................................71
2. Requirements for Confirmation of the Plan.............................................72
(i) Acceptance...................................................................72
(ii) Best Interests Test..........................................................73
(iii) Feasibility..................................................................74
(iv) Classification...............................................................74
(v) Confirmation Without Acceptance By All Impaired Classes......................74
XII. SECURITIES LAWS MATTERS.................................................................................76
A. Investment Company Considerations..............................................................76
B. Hart-Scott-Rodino Antitrust Improvement Act....................................................77
XIII. CERTAIN RISK FACTORS....................................................................................77
A. Risk of Non-Confirmation of the Plan...........................................................78
B. New Financing for Newco........................................................................78
C. Risk Factors Relating to the Newco Securities Distributed to Marker............................78
1. Lack of Established Market; Illiquidity...............................................78
2. Dividends.............................................................................78
D. Newco Financial Projections....................................................................78
E. Risks Relating to the Marker Common Stock......................................................79
1. Lack of Trading Market for Marker Common Stock........................................79
2. Lack of Dividends.....................................................................79
F. Investment Company Act.........................................................................79
G. Significant Holders............................................................................79
XIV. RELEVANT FINANCIAL INFORMATION..........................................................................80
A. Historical Financial Information...............................................................80
B. Projected Financial Information................................................................80
XV. ALTERNATIVES TO CONFIRMATION OF THE PLAN................................................................81
</TABLE>
iv
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<TABLE>
<CAPTION>
<S> <C>
XVI. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.......................................82
A. Tax Consequences to the Company................................................................83
1. Discharge of Indebtedness.............................................................83
2. Tax Consequences of Transfer of Assets to Newco.......................................84
3. Section 382 Limitation on Use of NOLs and Future Deductions...........................84
4. Alternative Minimum Tax...............................................................85
5. Ownership of Interest in Newco........................................................85
B. Tax Consequences to the Common Stock Holders...................................................85
C. Importance of Obtaining Professional Tax Assistance............................................85
XVII. CONCLUSION..............................................................................................86
</TABLE>
v
<PAGE>
I.
INTRODUCTION
On August 19, 1999 (the "Filing Date"), Marker International ("Marker"
or the "Company"), DNR USA, Inc. ("DNR USA") and DNR North America, Inc. ("DNR
N.A.") (collectively, the "Debtors") filed petitions for relief under Chapter 11
of the Bankruptcy Code with the United States Bankruptcy Court for the District
of Delaware (the "Court"). On the same day, the Debtors also filed their
proposed joint Chapter 11 plan of reorganization, dated August 19, 1999 and
related disclosure statement. On or about September 22, 1999, the Debtors filed
the First Amended Joint Chapter 11 Plan of Reorganization dated September 22,
1999, a copy of which is annexed hereto as Exhibit A (the "Plan"), which sets
forth the manner in which Claims against and Equity Interests in the Debtors
will be treated. This Disclosure Statement describes certain aspects of the
Plan, the Asset Purchase Agreement dated as of July 30, 1999, as amended by the
Amendment to the Asset Purchase Agreement dated as of September 20, 1999 (the
"Newco Agreement"), between Marker, as seller, and Marker International GmbH
("Newco"), as buyer, the Debtors' businesses and related matters. Unless
otherwise defined herein, all capitalized terms contained in this Disclosure
Statement have the meanings ascribed to them in the Plan, the Newco Agreement,
the Bankruptcy Code or the Bankruptcy Rules, as applicable.
After a long and careful review of the Debtors' businesses and the
Debtors' prospects as going concerns, the Debtors, in consultation with their
legal and financial advisors, concluded that recoveries to creditors and equity
holders would be maximized by the sale of the Debtors' businesses as a going
concern. Accordingly, in September 1998, Marker retained Conway, Del Genio Gries
& Co., LLC ("Conway") as financial advisor to assist Marker in developing a
business plan in order to meet with and solicit prospective investors/lenders to
acquire or invest in Marker. After developing a business plan for Marker, Conway
generated a list of approximately nineteen (19) potential investors and
specifically contacted approximately ten (10) of such potential investors. These
ten potential investors included both financial investors and strategic
investors in the industry. Of the approximately 10 investors contacted, three
(3) parties actually conducted further due diligence and made preliminary
written offers. After considering all of the preliminary proposals, Marker opted
to proceed with extended negotiations with Tecnica S.p.A. ("Tecnica") and Volkl
International AG ("Volkl"), well known participants in the ski and boot
industry. The Company chose to go forward with the sale transaction contemplated
by the Newco Agreement for various reasons, including: (i) the strategic fit and
synergy between Marker's ski binding business, the ski business of Volkl and the
boot business of Tecnica, (ii) the existing business relationship between
Tecnica and Volkl and the German Banks (Marker Deutschland's working capital
lenders) which would make the German Banks more receptive to continue financing
Marker's operations in Germany during the restructuring period and to provide
additional financing in the future, (iii) the familiarity with and prior
business relationship between Marker (specifically, DNR, which purchased
snowboards from Volkl) and Tecnica and Volkl and (iv) most importantly, that the
transaction contemplated by Tecnica and Volkl was the most beneficial to and in
the best interests of Marker's and its Subsidiaries' existing creditors, trade
creditors, employees and shareholders.
1
<PAGE>
After extensive discussions among Marker, Tecnica and Volkl, on March
7, 1999, Marker signed a letter of intent with CT Sports Holding AG ("CT"), a
Swiss company, pursuant to which Marker agreed to transfer substantially all of
its assets and certain liabilities under a confirmed Chapter 11 plan of
reorganization to Newco, a newly formed entity. In exchange, Marker would
receive a 15% equity interest in Newco. The remaining 85% equity interest in
Newco would be issued to CT in exchange for approximately $15 million in Cash
(subject to reduction by $1,025,501 as a result of the consummation of the
Marker Canada Ltd. sale (described in Section IV.A below)). CT is a newly formed
entity owned by Tecnica and H.D. Cleven, the principal shareholder of Volkl.
Other than certain prior business dealings in the ski industry conducted on
normal commercial terms between the Debtors and Tecnica and Volkl disclosed
above, the Debtors are not aware of any other relationships between Tecnica,
H.D. Cleven and Volkl, on the one hand, and insiders of the Debtors, on the
other hand.
The Plan is premised upon a sale of substantially all of Marker's
business and assets, including Marker's Equity Interests in the Subsidiaries, to
Newco, and Newco's assumption of the Assumed Liabilities, including obligations
with respect to the treatment of all Allowed Claims as restructured under the
Plan, all under and subject to the terms and conditions set forth in the Newco
Agreement. For a more detailed discussion of the Newco Agreement, see Section VI
herein and the Newco Agreement annexed to the Plan as Exhibit 1.
The Plan provides, inter alia, that (i) Allowed Administrative Claims
(other than Allowed Professional Claims), Allowed Priority Claims, Allowed Small
General Unsecured Claims Against Marker and Allowed General Unsecured Claims
Against DNR USA and DNR N.A. will be paid in full in Cash by Newco, (ii) Allowed
Priority Tax Claims will be paid by Newco pursuant to the Tax Note, (iii) the
Allowed First Security Bank Claim will be paid in full in Cash by Newco, (iv)
the property subject to the First Mortgage will be transferred to Marker USA and
the obligations under the First Mortgage will be jointly and severally paid by
Newco, Marker USA and Marker Ltd. in accordance with the terms thereof, (v) the
Hypo Vereinsbank (New York) Claim will be waived and the outstanding
indebtedness of Marker under the Hypo Vereinsbank Claim will be forgiven, (vi)
the Allowed Series A Bond Claims will be satisfied by Newco's issuance of the
Isomura Note, (vii) the German Banks Guarantee Claims will be released, (viii)
M&T Bank's Allowed Foreign Exchange Contract Claims will be satisfied by Newco's
issuance, jointly and severally with Marker Japan Co. Ltd., of the M&T Bank Note
and certain Cash payments to M&T Bank, (ix) KeyBank's Allowed Foreign Exchange
Contract Claims will be satisfied by Newco's issuance, jointly and severally
with Marker Japan Co. Ltd., of the KeyBank Note and certain Cash payments to
KeyBank, (x) the holder of the Piero Claims will receive, from Newco, the Piero
Cash Payment in full settlement and release of the Allowed Piero Claims and (xi)
Insured Product Liability Claims (including deductible amounts) will be assumed
by Newco and paid by the insurer or Newco, as applicable. With respect to
holders of Equity Interests in Marker, the holder of the Preferred Stock
Interests will receive, as and when due, the Tauber Payment Obligations and
holders of Common Stock Interests will retain their Equity Interests under the
Plan and will receive no other distributions under the Plan. Holders of Common
Stock Interests may receive Cash if CT exercises its option under the Newco
Agreement to purchase, at any time after the second anniversary of the Effective
Date, Marker's 15% Equity Interest in Newco at the then fair market value. In
the event CT exercises its purchase option, the Cash proceeds from such
2
<PAGE>
acquisition which would be distributed to the holders of Marker Common Stock
would be subject to offset and adjustment as described in Section VI.G hereof.
Alternatively, if the option is not exercised prior to Marker's liquidation,
holders of Common Stock will receive an Equity Interest in Newco equal to each
Equity Interest holder's pro rata share of Marker's 15% interest in Newco.
Marker, the holder of the Equity Interests in the Subsidiaries, will receive a
15% Equity Interest in Newco, in lieu of 100% of the capital stock of the
Subsidiaries. The capital stock of the Subsidiaries will be acquired by Newco
pursuant to the terms of the Newco Agreement. Newco will assume all of Marker's
payment obligations with respect to Allowed Claims (other than Allowed
Professional Claims) under and as modified by the Plan. DNR USA and DNR N.A.
will be dissolved as of the Effective Date of the Plan and the Equity Interests
in DNR USA and DNR N.A. will be canceled.
This Disclosure Statement is being submitted pursuant to Section 1125
of the Bankruptcy Code to holders of Claims against and Equity Interests in the
Debtors in connection with (i) the solicitation of acceptance of the Debtors'
Plan and (ii) the hearing to consider confirmation of the Plan (the
"Confirmation Hearing") scheduled for October 27, 1999 at 2:30 p.m., Eastern
Time.
Attached as Exhibits to this Disclosure Statement are copies of the
following:
o EXHIBIT A -- The Plan
o EXHIBIT B --An Order of the Court dated September 22, 1999 (the
"Disclosure Statement Order"), among other things, approving the
Disclosure Statement and establishing certain procedures with respect
to solicitation and tabulation of votes to accept or reject the Plan
o EXHIBIT C -- Historical Financial Information
(i) Marker International Annual Report on Form
10-K for the fiscal year ended March 31,
1999
(ii) Marker International Form 10-Q for the
quarter ended June 30, 1999.
o EXHIBIT D -- Projected Financial Information
o EXHIBIT E -- Liquidation Analysis
In addition, a Ballot for acceptance or rejection of the Plan is
enclosed with the Disclosure Statement submitted to holders of Claims and Equity
Interests that the Debtors believe are entitled to vote to accept or reject the
Plan.
On September 22, 1999, after notice and a hearing, the Bankruptcy Court
signed the Disclosure Statement Order approving the Disclosure Statement as
containing adequate information of a kind and in sufficient detail to enable
hypothetical, reasonable investors typical of the Debtors' creditors and equity
3
<PAGE>
interest holders to make an informed judgment whether to accept or reject the
Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT, HOWEVER, CONSTITUTE A
DETERMINATION BY THE COURT AS TO THE FAIRNESS OR MERITS OF THE PLAN.
The Disclosure Statement Order, a copy of which is annexed hereto as
Exhibit B, sets forth in detail the deadlines, procedures and instructions for
voting to accept or reject the Plan and for filing objections to confirmation of
the Plan, the record date for voting purposes, and the applicable standards for
tabulating Ballots. In addition, detailed voting instructions accompany each
Ballot. Each holder of a Claim or an Equity Interest entitled to vote on the
Plan should read in their entirety the Disclosure Statement, the Plan, the
Disclosure Statement Order and the instructions accompanying the Ballots before
voting on the Plan. These documents contain, among other things, important
information concerning classification of Claims and Equity Interests for voting
purposes and the tabulation of votes. No solicitation of votes to accept the
Plan may be made except pursuant to Section 1125 of the Bankruptcy Code.
A. Holders of Claims and Equity Interests Entitled to Vote
Pursuant to the provisions of the Bankruptcy Code, only holders of
allowed claims or equity interests in classes of claims or equity interests that
are impaired are entitled to vote to accept or reject a proposed chapter 11
plan. Classes of claims or equity interests in which the holders of claims or
equity interests are unimpaired under a chapter 11 plan are deemed to have
accepted the plan and are not entitled to vote to accept or reject a plan
pursuant to Section 1126(f) of the Bankruptcy Code. Pursuant to the Bankruptcy
Code, a class of claims or interests is "impaired" if the legal, equitable or
contractual rights attaching to the claims or interests of that class are
altered, other than by curing defaults and reinstating maturity. The Plan
provides that the following Classes of Claims and Equity Interests are impaired:
Marker Class 1 (First Security Bank Claim), Marker Class 2 (First Mortgage
Claim), Marker Class 3 (Hypo Vereinsbank (New York) Claim), Marker Class 4
(Series A Bonds Claim), Marker Class 5 (German Banks Guarantee Claim), Marker
Class 6 (Foreign Exchange Contract Claims), Marker Class 10 (Preferred Stock
Interests in Marker), Marker Class 11 (Common Stock Interests in Marker), DNR
USA Class 1 (First Security Bank Claim), DNR USA Class 3 (Marker's Equity
Interests in DNR USA), DNR N.A. Class 1 (First Security Bank Claim) and DNR N.A.
Class 3 (Marker's Equity Interests in DNR N.A.). Accordingly, the Debtors are
soliciting acceptances only from the holders of Allowed Claims and Allowed
Equity Interests in such impaired Classes.
The Bankruptcy Code defines "acceptance" of a plan by a class of claims
as acceptance by creditors in that class that hold at least two-thirds in dollar
amount and more than one-half in number of the claims that cast ballots for
acceptance or rejection of the plan. Acceptance of a plan by a class of
interests requires acceptance by at least two-thirds of the number of shares in
such class that cast ballots for acceptance or rejection of the plan. For a more
detailed description of the requirements for confirmation of the Plan, see
Section XI, "Voting Procedures and Confirmation Requirements".
If one or more of the Classes of Claims or Equity Interests entitled to
vote on the Plan votes to reject the Plan, the Debtors intend to request
confirmation of the Plan pursuant to Section 1129(b) of the Bankruptcy Code.
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Section 1129(b) permits confirmation of a plan of reorganization notwithstanding
the nonacceptance of a plan by one or more impaired classes of claims or equity
interests. Under that Section, a plan may be confirmed by a bankruptcy court if
it does not discriminate unfairly and is "fair and equitable" with respect to
each nonaccepting class. For a more detailed description of the requirements for
confirmation of a nonconsensual Plan, see Section XI, "Voting Procedures and
Confirmation Requirements".
B. Voting Procedures
If you are entitled to vote to accept or reject the plan, a Ballot is
enclosed for the purpose of voting on the Plan. If you hold Claims in more than
one Class, or Claims and Equity Interests, and you are entitled to vote Claims
in more than one Class, you will receive separate Ballots which must be used for
each separate Class of Claims or Equity Interests. IN ORDER TO BE COUNTED YOUR
BALLOTS INDICATING ACCEPTANCE OR REJECTION OF THE PLAN MUST BE PROPERLY FILLED
OUT AND RECEIVED NO LATER THAN 5:00 P.M. EASTERN STANDARD TIME, ON OCTOBER 22,
1999 (THE "VOTING DEADLINE") IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH ON
THE BALLOT. IN ORDER TO MEET THE VOTING DEADLINE, BENEFICIAL OWNERS OF MARKER
COMMON STOCK INTERESTS HELD IN THE NAME OF A BANK, BROKERAGE FIRM OR OTHER
RECORD HOLDER NOMINEE MUST COMPLETE, EXECUTE AND DELIVER THEIR BALLOTS TO THEIR
RESPECTIVE RECORD HOLDER NOMINEES SO AS TO BE RECEIVED BY SUCH RECORD HOLDERS NO
LATER THAN 5:00 P.M. (E.S.T.) ON OCTOBER 18, 1999.
DO NOT RETURN YOUR DEBT OR EQUITY SECURITIES WITH YOUR BALLOT.
Any Claim or Equity Interest in an Impaired Class as to which an
objection is pending or which is scheduled by the applicable Debtor as
unliquidated, disputed or contingent is not entitled to vote unless the holder
of such Claim or Equity Interest has obtained an order of the Court temporarily
allowing such Claim or Equity Interest for the purpose of voting on the Plan.
Pursuant to the Disclosure Statement Order, the Court set September 15,
1999 as the record Date for voting on the Plan (the "Voting Record Date").
Accordingly only holders of record as of September 15, 1999 that are otherwise
entitled to vote under the Plan will receive a Ballot and may vote on the Plan.
IF YOU ARE A HOLDER OF A CLAIM OR EQUITY INTEREST ENTITLED TO VOTE ON
THE PLAN AND DID NOT RECEIVE A BALLOT, RECEIVED A DAMAGED BALLOT OR LOST YOUR
BALLOT, OR IF YOU HAVE ANY QUESTIONS CONCERNING THE DISCLOSURE STATEMENT, THE
PLAN OR THE PROCEDURES FOR VOTING ON THE PLAN PLEASE CONTACT EDWARD O. SASSOWER
AT 212-806-5515.
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C. Confirmation Hearing
Pursuant to Section 1128 of the Bankruptcy Code, the Confirmation
Hearing will be held on October 27, 1999 at 2:30 p.m., Eastern Time, before the
Honorable Mary F. Walrath, at the United States Bankruptcy Court, 824 Market
Street, Sixth Floor, Wilmington, Delaware 19801. The Court has directed that
objections, if any, to confirmation of the Plan be served and filed so that they
are received on or before October 25, 1999 at 4:00 p.m., Eastern Time, in the
manner described below in Section XI. The Confirmation Hearing may be adjourned
from time to time by the Court without further notice except for the
announcement of the adjournment date made at the Confirmation Hearing or any
subsequent Confirmation Hearing.
THE DEBTORS BELIEVE THAT THE PLAN AND THE CONTEMPLATED SALE WILL
MAXIMIZE THE RECOVERIES TO CREDITORS AND EQUITY HOLDERS AND THAT ACCEPTANCE OF
THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THEIR CREDITORS AND EQUITY
INTEREST HOLDERS. THE DEBTORS RECOMMEND THAT ALL CREDITORS AND EQUITY INTEREST
HOLDERS ENTITLED TO VOTE SUBMIT BALLOTS ACCEPTING THE PLAN AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
II.
OVERVIEW OF THE PLAN
The following is a brief summary of certain material provisions of the
Plan. This summary is qualified in its entirety by the provisions of the Plan.
For a more detailed description of the Plan, see Section VIII, "Summary of the
Plan of Reorganization".
A. General
The Plan is premised upon (i) Newco's purchase of Marker's Sale Assets,
including its Equity Interest in the Subsidiaries, and its assumption of the
Assumed Liabilities, all pursuant to the terms and conditions of the Newco
Agreement and (ii) several primary settlements among Marker, Newco and the
Debtors' major creditors.
1. The Purchaser: Newco
Pursuant to the terms and conditions of the Newco Agreement between
Marker and Newco dated as of July 30, 1999, as amended, Newco, a GmbH, organized
and existing under the laws of Switzerland, will purchase Marker's Sale Assets
and assume the Assumed Liabilities on the Effective Date. Under the terms of the
Newco Agreement and related Operating Agreement, CT, a newly formed joint
venture between Tecnica and H.D. Cleven, the principal shareholder of Volkl,
will own 85% of Newco and Marker will own the remaining 15%. Pursuant to the
terms of the Operating Agreement, CT will have the right to acquire Marker's 15%
ownership interest in Newco at some future time at the then fair market value
subject to certain adjustments set forth in the Newco Agreement and the
Operating Agreement and described in Section VI.G hereof. If CT exercises its
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option under the Operating Agreement, Marker shareholders will receive Cash
(subject to certain offsets and adjustments) on account of their Common Stock
Interests; provided, however, that no Investment Act Breach (as defined in the
Operating Agreement and described in Section XII.A hereof) has occurred prior
thereto. For a discussion of "Investment Act Breach" and the consequences
thereof, see Sections XII and XIII.F hereof. Alternatively, if CT does not
exercise its redemption option prior to the dissolution of Marker, holders of
Common Stock Interest will receive an equity interest in Newco equal to each
Equity Interest holder's pro rata share of Marker's 15% equity interest in
Newco.
Under the Plan and as set forth above, Marker will be receiving Newco
Equity Securities representing 15% of the outstanding equity of Newco.
2. Settlements Under the Plan
As mentioned above, the Plan is premised upon several settlements among
Marker, CT and each of First Security Bank, the German Banks, including Hypo
Vereinsbank, Isomura, M&T Bank, KeyBank and Henry E. Tauber. These settlements
are integral to the Plan. The Plan will constitute a motion by the Debtors
pursuant to Bankruptcy Rule 9019 requesting approval of the various settlements
incorporated in the Plan including the releases contemplated by such
settlements. A vote in favor of the Plan will constitute support of the
settlements effectuated through the Plan and described herein. A description of
the significant claims against Marker and their settlement under the Plan is set
forth below.
(i) First Security Settlement
The Debtors are indebted to First Security Bank as of July 30, 1999 in
the aggregate amount of $9,638,167.65 (including outstanding principal, accrued
and unpaid interest and costs, fees and expenses) under that certain Revolving
Credit Agreement dated as of October 30, 1998 (as amended, supplemented or
otherwise modified from time to time, the "First Security Credit Agreement")
among First Security, the Debtors, Marker USA, and Marker Ltd. (collectively,
the "Borrowers") and the other loan and security documentation (collectively,
the "First Security Loan Documents"). Pursuant to the First Security Loan
Documents, the Borrowers granted First Security liens on and first priority
security interests in the Debtors' inventory, receivables and intellectual
property. As of June, 1999, Marker was not in compliance with several loan
covenants under the First Security Loan Documents. On June 14, 1999, First
Security notified Marker that M&T Bank's termination of the M&T Foreign Exchange
Contract (described below) constituted a default under the First Security Credit
Agreement. As of June 30, 1999, Borrowers' outstanding balance on their line of
credit exceeded the available borrowing base for periods greater than the ten
day mandatory repayment period allowed under the First Security Loan Documents
which also constituted a default. As of June 30, 1999, First Security had not
declared a default, but reserved the right to do so. Pursuant to a Third
Extension and Modification Agreement dated as of June 30, 1999 by and among the
Borrowers and First Security, the Borrowers' obligations under the First
Security Loan Documents were due and payable on July 30, 1999.
As a result, Marker began engaging in discussions with First
Security regarding a standstill and a resolution of First Security's Claim,
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culminating in the Standstill Agreement dated as of July 30, 1999 (the
"Standstill Agreement"), by and among, First Security, the Debtors, Marker USA,
Marker Ltd., Marker Deutschland GmbH ("Marker Deutschland") and Newco. Pursuant
to the Standstill Agreement and the Plan, on the Effective Date, First Security
will receive from Newco Cash equal to the Allowed amount of its Secured Claim in
full satisfaction of the First Security Bank Claim against Marker and its
Subsidiaries. As of July 30, 1999, the aggregate amount outstanding under the
First Security Secured Loan Documents is $9,638,167.65 (plus reasonable
attorneys fees and expenses incurred after June 30, 1999).
Pursuant to the Standstill Agreement, First Security and
Marker have agreed upon the basic terms of a proposed restructuring of Marker
and the treatment of First Security's Claim to be contained in the Plan and
other definitive documentation. However, First Security's voting rights with
respect to the Plan are specifically reserved in the Standstill Agreement.
Pursuant to the Standstill Agreement, First Security agrees not to directly or
indirectly sell, assign, hypothecate, dispose of or otherwise transfer any claim
against the Borrowers arising from or relating to the First Security Loan
Documents prior to the termination of the Standstill Agreement.
(ii) German Banks Settlement
a. Hypo Vereinsbank (New York) Claim
On April 15, 1999, the Company did not make a
required principal and interest payment of DM 900,000 (U.S. $496,000) on the
Third Restated Promissory Note between Marker and Hypo Vereinsbank (acting
through its New York branch) dated April 15, 1998 (the "Term Loan").
On April 16, 1999, Hypo Vereinsbank notified Marker
that nonpayment of principal and interest constituted a default under the terms
of the Term Loan and that the entire balance of DM 6.4 million (U.S. $3.4
million) was immediately due and payable. As a result, Hypo Vereinsbank 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 Term Loan.
In addition, on March 31, 1999, Marker Deutschland's
DM 58.7 million (U.S. 32.3 million) line of credit with Hypo Vereinsbank,
Deutsche Bank AG ("Deutsche Bank") and BFG Bank expired. Marker Deutschland's
obligations to Hypo Vereinsbank and Deutsche Bank are guaranteed by Marker. In
addition, Marker granted to the German Banks a second lien on its intangible
assets (i.e., patents and trademarks).
As a result, Marker and Marker Deutschland commenced
negotiations with Hypo Vereinsbank to restructure the debt owed to Hypo
Vereinsbank, culminating in a Settlement Agreement dated as of August 18, 1999
between Hypo Vereinsbank, Marker and CT (the "Hypo Vereinsbank Settlement
Agreement").
Pursuant to the Plan and the Hypo Vereinsbank
Settlement Agreement, Hypo Vereinsbank will forgive, in full, the outstanding
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indebtedness of Marker (DM 2,755,000 (plus interest from 4/19/99 to 8/13/99) as
of August 13, 1999) under the Term Loan in full satisfaction of the Hypo
Vereinsbank (New York) Claim.
b. Hypo Vereinsbank Claims Against Marker
Deutschland GmbH and Related Guarantee Claim
Against Marker
Pursuant to the terms and conditions of the Hypo
Vereinsbank Settlement Agreement, Hypo Vereinsbank agrees to sell to Newco,
effective as of the Confirmation Date, DM 22,455,000 of the outstanding balance
of DM 40,761,000 (as of August 13, 1999) under the Loan Agreement between Hypo
Vereinsbank and Marker Deutschland dated October 13, 1998, as amended (the "Cash
Credit") for a nominal consideration of DM 1.00 (one Deutschmark). The parties
also agree that upon such sale, the balance of the Cash Credit will be DM
18,306,000 which balance will be available to Marker Deutschland for financing
during the 1999-2000 fiscal year and will be added to the New Financing Facility
(defined below). In addition, Marker Deutschland is also a party to six (6) loan
agreements entered into with Hypo Vereinsbank from 1995 to 1997 (collectively,
the "Medium Term Loan"). Pursuant to the Hypo Vereinsbank Settlement Agreement,
Hypo Vereinsbank agrees that the Medium Term Loan in the amount of DM 4,648,000
will remain available to Marker Deutschland for financing the 1999-2000 fiscal
year. Finally, subject to the conditions set forth in the Hypo Vereinsbank
Settlement Agreement, Marker's and Marker USA's guarantees of Marker
Deutschland's obligations to Hypo Vereinsbank under the Loan Agreement and
Medium Term Loan pursuant to guarantees issued by each of Marker and Marker USA
on August 1, 1990 in the amount of DM 80,000,000, will be canceled, released and
terminated and of no further effect.
Pursuant to the Hypo Vereinsbank Settlement
Agreement, Hypo Vereinsbank also agrees to make available to Marker Deutschland,
effective as of the Confirmation Date, a new line of credit (the "New Financing
Facility") to be used for financing Marker Deutschland's 1999-2000 fiscal year
in an amount up to DM 58,480,000 consisting of DM 18,306,000 remaining balance
on the Cash Credit and DM 40,174,000 additional commitment (the "Hypo New
Commitment"). The Hypo New Commitment has already been made available to Marker
Deutschland since April 1, 1999, to be replaced by the New Financing Facility.
The New Financing Facility will be secured by a first-priority security interest
in (i) all existing and future accounts receivable of Marker Deutschland, (ii)
all existing and future inventory of Marker Deutschland, and (iii) all existing
and future trademarks, patents and licenses of Newco relating in any way to the
production or sale of ski bindings and their components. Newco will become a
contract party to, and liable for, the New Financing Facility.
Finally, pursuant to the Hypo Vereinsbank Settlement
Agreement, CT and Hypo Vereinsbank agree to use their reasonable best efforts to
support Marker's debt restructuring pursuant to the "pre-negotiated" Plan. In
addition, subject to the fulfillment of the conditions set forth in the Hypo
Vereinsbank Settlement Agreement (including, among other things, the Plan being,
in form and substance, satisfactory to Hypo Vereinsbank and Court approval of
this Disclosure Statement), Hypo Vereinsbank agrees to vote in favor of the
Plan. Hypo Vereinsbank also agrees, for so long as the Hypo Vereinsbank
Settlement Agreement is in effect, not to directly or indirectly, sell, assign,
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hypothecate, dispose of or otherwise transfer any Claim against Marker or Marker
Deutschland arising from or relating to the Cash Credit, the Medium Term Loan or
the Term Loan.
c. Deutsche Bank AG Claims Against Marker
Deutschland GmbH and Related Guarantee Claim
Against Marker
Marker Deutschland is indebted to Deutsche Bank
pursuant to (i) a Loan Agreement between Deutsche Bank and Marker Deutschland
dated November 5/9, 1998 as amended on December 30, 1998, January 12, 1999,
February 23, 1999 and August 18, 1999 (the "DBAG Cash Credit") and (ii) Loan
Agreements between Deutsche Bank and Marker Deutschland dated November 18/22,
1996 and September 9/16, 1997 (the "DBAG Medium Term Loan"). Marker
Deutschland's obligations under the DBAG Cash Credit and the DBAG Medium Term
Loan are guaranteed by each of Marker and Marker USA pursuant to guarantees
issued by each of Marker and Marker USA on April 30, 1998 in the amount of DM
40,000,000.
Pursuant to an Agreement dated as of August 18, 1999
(the "DBAG Settlement Agreement"), by and among Deutsche Bank, Marker and CT,
the parties have agreed, among other things, to the terms of a restructuring of
the obligations owed to Deutsche Bank.
Pursuant to the terms and conditions of the DBAG
Settlement Agreement, Deutsche Bank agrees to sell to Newco, effective as of the
Effective Date, DM 5,690,000 of the outstanding balance of DM 10,798,000 (as of
August 13, 1999) under the DBAG Cash Credit for a nominal consideration of DM
1.00 (one Deutschmark). The parties also agree that upon such sale, the balance
of the DBAG Cash Credit will be DM 5,108,000 which balance will be available to
Marker Deutschland for financing during the 1999-2000 fiscal year and will be
added to a new financing facility. In addition, pursuant to the DBAG Settlement
Agreement, Deutsche Bank agrees that the DBAG Medium Term Loan in the amount of
DM 1,142,000 will remain available to Marker Deutschland for financing the
1999-2000 fiscal year. Finally, subject to the fulfillment of the conditions set
forth in the DBAG Settlement Agreement, Marker's and Marker USA's guarantees of
Marker Deutschland's obligations to Deutsche Bank will be canceled, released and
terminated and of no further effect.
Deutsche Bank has also agreed to make available a new
line of credit to Marker Deutschland (for 1999-2000 fiscal year) as part of a
new financing facility in an amount of up to DM 17,934,000, consisting of DM
5,108,000 remaining balance of the DBAG Cash Credit and DM 12,826,000 additional
commitment (the "New Commitment"). The New Commitment has already been made
available to Marker Deutschland since April 1, 1999. This separate arrangement
will be canceled and replaced with a new financing facility to be contained in a
credit agreement which will cover the remaining balance of the Cash Credit, the
amount drawn under the New Commitment, and any unused balance of the New
Commitment. Newco will be party to and be liable for the obligations under this
new financing facility, which will be secured by all accounts receivable and
inventory of Marker Deutschland and all intangibles (i.e., patents and
trademarks) of Newco.
Finally, pursuant to the DBAG Settlement Agreement,
CT and Deutsche Bank agree to use their reasonable best efforts to support
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Marker's debt restructuring pursuant to the Plan. In addition, subject to the
fulfillment of the conditions set forth in the DBAG Settlement Agreement
(including, among other things, the Plan being, in form and substance,
satisfactory to DBAG and Court approval of this Disclosure Statement), Deutsche
Bank agrees to vote in favor of the Plan. Deutsche Bank also agrees, for so long
as the DBAG Settlement Agreement is in effect, not to directly or indirectly,
sell, assign, hypothecate, dispose of or otherwise transfer any Claim against
Marker or Marker Deutschland arising from or relating to the DBAG Cash Credit or
the DBAG Medium Term Loan.
(iii) Isomura Settlement
On August 16, 1994, Marker issued Series A Bonds to Isomura
Sangyo Kaisha Ltd., a Japanese Corporation ("Isomura"), in the aggregate
principal amount of $19 million. Marker did not make the required interest
payment of $125,000 due in October 1998 and $125,000 due in April 1999 on the
Series A Bonds. As a result, Isomura, the bondholder, has the right to declare
the Series A Bonds in default and accelerate the entire outstanding balance of
approximately $11.5 million plus accrued interest of approximately $600,000. On
March 26, 1999, CT entered into a restructuring agreement with Isomura (as
amended, the "Isomura Agreement"). Pursuant to the Isomura Agreement, Isomura
agreed to reduce the amount due under the Series A Bonds to an aggregate
principal amount of $5,750,000. Pursuant to the Plan and the Isomura Agreement,
on the Effective Date, Isomura, the holder of the Allowed Series A Bonds Claim,
will receive the Isomura Note, to be issued by Newco, in the aggregate principal
amount of $5,750,000 in full and complete satisfaction of the Series A Bonds
Claim. The Isomura Note is a five year unsecured promissory note with the
following principal terms: (i) principal amortization in four (4) equal annual
installments of $750,000 commencing on the first anniversary of the date on
which the Confirmation Order shall become a Final Order (hereafter, the "Final
Confirmation Date") and the remaining principal amount of $2,750,000 to be
payable on the fifth anniversary of the Final Confirmation Date; (ii) interest
will be paid annually until the second anniversary of the Final Confirmation
Date and semi-annually thereafter at an interest rate of 2% per annum both
before and after default until the fourth anniversary of the Final Confirmation
Date and thereafter, the interest rate, both before and after default will be
the rate Isomura pays to the bank or other financial institution that funded the
purchase of the Series A Bonds by Isomura or has taken over said position from
the original funding bank or institution, provided said rate of interest does
not exceed the prime lending rate extended by said bank or other financial
institution on commercial loans in Japan from time to time plus one-half of one
percent (.5%); and (iii) interest will accrue under the Isomura Note commencing
April 1, 1999. The Isomura Note will be in substantially the form annexed to the
Plan as Exhibit 2 .
Pursuant to the Isomura Agreement, Newco and Eiichi Isomura
will enter into an employment agreement, effective on the Confirmation Date,
pursuant to which Eiichi Isomura agrees to be employed by Marker Japan for a
term of at least five (5) years as President and Representative Director at
compensation levels to be negotiated. In addition, commencing on the sixth
anniversary of the Confirmation Date, Newco will satisfy Eiichi Isomura's
obligations under personal guaranties made by him as credit support for Marker
Japan Co. Ltd.'s obligations under a certain term loan facility and a working
capital facility, by making three equal annual payments of up to $1,166,666 on
the then aggregate principal amount outstanding under the term loan and working
capital facilities. Eiichi Isomura's personal guaranties will be terminated and
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all obligations thereunder will be discharged on the eighth anniversary of the
Confirmation Date. The liability of Eiichi Isomura under the personal guaranties
will be limited to $3,500,000.
Pursuant to the Isomura Agreement, Isomura and CT agree that
the restructuring agreed to in the Isomura Agreement is subject to each party's
written consent to the definitive documentation relating thereto. The parties
agree to take all reasonable steps and use their best efforts to (i) negotiate
and assist in the preparation of and to enter into such definitive documentation
and (ii) obtain Court approval of the Plan. The parties also agree not to
support or propose any other Plan unless such plan is acceptable to and endorsed
by Newco. Pursuant to the Isomura Agreement, Isomura also agrees, so long as the
Isomura Agreement is in effect, not to directly or indirectly, sell, assign,
transfer, hypothecate or otherwise dispose of (i) any Series A Bonds
beneficially owned by it or as to which it has investment discretion, (ii) any
Claim arising from or relating to the Series A Bonds or (iii) any option,
interest in, or right to acquire any Series A Bonds or related Claims.
(iv) Foreign Exchange Contracts Settlements
a. M&T Bank
On May 1, 1997, Marker entered into a certain Foreign Exchange
Netting Agreement (as amended, supplemented or otherwise modified from time to
time, the "M&T Foreign Exchange Contract") in order to hedge against foreign
currency fluctuations. Subsequent to March 31, 1999, Marker notified M&T Bank
that it would be unable to utilize the M&T Foreign Exchange Contract as
originally intended. As a result, on May 25, 1999, M&T Bank terminated the M&T
Foreign Exchange Contract, and pursuant to its rights thereunder, 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. Shortly
thereafter, Marker and Newco commenced negotiations with M&T Bank to restructure
the obligation. These discussions culminated in a letter agreement dated as of
July 26, 1999 (as supplemented by the Supplemental Agreement of Understanding
dated as of August 11 1999, the "M&T Letter Agreement"), between M&T Bank,
Marker, CT and Newco, pursuant to which the parties set forth the principal
economic terms for the treatment of M&T Bank's Claims under the Plan.
Pursuant to the M&T Letter Agreement, M&T Bank agrees to
reduce its Claim under the M&T Foreign Exchange Contract from $3,675,823.37
(plus interest thereon after May 16, 1999 at a rate of prime plus 2%, plus costs
and expenses) to $1,838,000 (the "Reorganized Debt"). Pursuant to the Plan and
the M&T Letter Agreement, (i) Newco will assume the Reorganized Debt and (ii) in
full and complete satisfaction of the Reorganized Debt and M&T Bank's Foreign
Exchange Contract Claims against Marker, on the Effective Date, M&T Bank will
receive from Newco (a) Cash in an amount equal to $788,000 and (b) the M&T Bank
Note. The M&T Bank Note is an unsecured five (5) year promissory note to be
issued to M&T Bank in the aggregate principal amount of $1,050,000. Pursuant to
the "most favored nations clause" agreed to in the M&T Letter Agreement
described below, the M&T Bank Note will be issued jointly and severally by Newco
and Marker Japan Co. Ltd. ("Marker Japan") consistent with the treatment
accorded to KeyBank pursuant to the KeyBank Settlement Agreement described
below.
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Principal payments under the M&T Bank Note will be made (x) in
consecutive equal quarterly installments of $50,000 during the first four years
of the term, the first of which will be paid ninety (90) days after the
Effective Date, and (y) in consecutive equal quarterly installments of $62,500
during the fifth year of the term. Interest will be paid quarterly at the rate
of 2% per annum until the fourth anniversary of the Effective Date and
thereafter until the maturity date at the prime lending rate extended by
commercial banks on commercial loans in Japan from time to time plus one-half
(1/2) of one percent. The M&T Bank Note will be in substantially the form
annexed to the Plan as Exhibit 3.
The M&T Letter Agreement provides that Marker and CT agree
that, except with respect to Marker's existing secured lenders and ordinary
course trade creditors, none of Marker's creditors or shareholders will obtain
any settlement, restructuring, payment or other disposition of any of its Claims
or Equity Interests that is more favorable than the terms of M&T Bank's
restructuring unless such more favorable terms are afforded to M&T Bank on an
equal pro rata basis.
Finally, pursuant to the M&T Letter Agreement, Marker and M&T
Bank agree that the restructuring agreed to in the M&T Letter Agreement is
subject to each party's written consent to the definitive documentation relating
thereto. The parties agree to take all reasonable steps and use their best
efforts to (i) negotiate and assist in the preparation of and to enter into such
definitive documentation and (ii) obtain Court approval of the Plan so long as
the Plan provides for the treatment of M&T Bank's Claim in accordance with the
M&T Letter Agreement. Pursuant to the M&T Letter Agreement, M&T Bank agrees that
until the occurrence of certain events set forth therein, M&T Bank will not
directly or indirectly, sell, assign, hypothecate, dispose of or otherwise
transfer any Claim against Marker arising from or relating to the M&T Foreign
Exchange Contract.
b. KeyBank
Marker and/or its Subsidiaries also bought and sold foreign
currencies from time to time pursuant to the KeyBank National Association
Foreign Exchange Transaction Terms and Conditions set forth in the written
confirmations entered into from time to time with respect to each foreign
exchange transaction (collectively, the "KeyBank Foreign Exchange Contracts").
On August 13, 1999, KeyBank terminated the KeyBank Foreign Exchange Contracts.
KeyBank asserts that Marker and its Subsidiaries owe KeyBank $1,279,626.31 (the
"KeyBank FX Debt") in realized losses under the terminated KeyBank Foreign
Exchange Contracts. Pursuant to the Agreement of Understanding dated as of
August 17, 1999 (the "KeyBank Settlement Agreement"), entered into by and among
KeyBank, Marker, Marker Deutschland, Marker Japan Co. Ltd. ("Marker Japan") and
Newco, the parties reached an agreement which resolved the treatment of
KeyBank's Claims under the Plan.
Pursuant to the KeyBank Settlement Agreement and the Plan,
KeyBank agrees to reduce its Claim under the KeyBank Foreign Exchange Contracts
from $1,279,626.31 to $638,534 (the "Reorganized KeyBank Debt").
Contemporaneously with execution of the KeyBank Settlement Agreement, Marker and
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Marker Japan delivered to KeyBank a promissory note (the "KeyBank FX Debt Note")
for the entire KeyBank FX Debt, payable upon demand with interest at ten
percent, issued by Marker and Marker Japan. KeyBank cannot make any demand under
the KeyBank FX Debt Note except upon termination of the KeyBank Settlement
Agreement. Pursuant to the Plan and the KeyBank Settlement Agreement, on the
Effective Date Newco will (i) assume the Reorganized KeyBank Debt, (ii) make a
Cash payment to KeyBank of $273,840 (the "Cash Payment") and (iii) issue,
jointly and severally with Marker Japan, the KeyBank Note. The KeyBank Note is
an unsecured five (5) year promissory note to be issued by Newco to KeyBank in
the aggregate principal amount of $364,694. Principal payments under the KeyBank
Note will be made (x) in consecutive equal quarterly installments of $17,095
during the first four years of the term, the first of which will be paid ninety
(90) days after the Effective Date, and (y) in consecutive equal quarterly
installments of $22,793 during the fifth year of the term. Interest will be paid
quarterly at the rate of 2% per annum until the fourth anniversary of the
Effective Date and thereafter until the maturity date at the prime lending rate
extended by commercial banks on commercial loans in Japan from time to time plus
one-half (1/2) of one percent. The KeyBank Note will be substantially in the
form of the M&T Bank Note annexed to the Plan as Exhibit 3. Under the Plan,
KeyBank's Allowed Claim against Marker will be discharged upon KeyBank's receipt
of the Cash Payment and the KeyBank Note. The KeyBank Note shall be exchanged
for the KeyBank FX Debt Note and the KeyBank FX Debt Note shall be canceled and
have no further force and effect on and after the Effective Date, and Marker's
and Marker Japan's obligations thereunder shall be discharged.
KeyBank has asserted and continues to maintain that Marker
Deutschland and Marker USA are jointly and severally liable with Marker and
Marker Japan for the entire KeyBank FX Debt. Pursuant to KeyBank Settlement
Agreement, the parties agree, without that agreement being an admission of
liability to KeyBank, that KeyBank shall preserve all rights and claims against
Marker Deutschland and Marker USA and that nothing in the Plan will in any way
affect such rights. KeyBank agrees that in the event the Plan is confirmed and
no event of default has occurred or is continuing under the KeyBank Note after
the Effective Date, KeyBank will make no claim against the Subsidiaries, or seek
recovery on the KeyBank FX Debt, and further that KeyBank will make no claim
against the Subsidiaries on account of the KeyBank FX Debt which exceeds in
principal amount the balance of the KeyBank Note which may be outstanding from
time to time. Neither Marker Deutschland nor Marker USA admit any liability or
obligation to KeyBank arising from or otherwise relating to the KeyBank FX Debt,
the KeyBank Foreign Exchange Contracts, the KeyBank FX Debt Note or the KeyBank
Note, and all of such Subsidiaries' rights, defenses and claims are preserved in
the KeyBank Settlement Agreement. Upon receipt by KeyBank of full, final and
timely payment of the Cash Payment and all sums payable under the KeyBank Note,
Newco and the Subsidiaries will also be discharged of any and all obligations or
liabilities arising under or relating to the KeyBank FX Debt, the KeyBank
Foreign Exchange Contracts and the KeyBank Note, as applicable.
The KeyBank Settlement Agreement also provides that, except
with respect to Marker's existing secured lenders and ordinary course trade
creditors, none of Marker's creditors or shareholders will obtain any
settlement, restructuring, payment or other disposition of any of its Claims or
Equity Interests that is more favorable than the terms of the KeyBank Settlement
Agreement unless such more favorable treatment is afforded to KeyBank on an
equal pro rata basis.
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Pursuant to the KeyBank Settlement Agreement, the parties
agree that the restructuring agreed to in the KeyBank Settlement Agreement is
subject to each party's written consent to the definitive documentation relating
thereto. The parties agree to take all reasonable steps and use their best
efforts to (i) negotiate and assist in the preparation of and to enter into such
definitive documentation and (ii) obtain Court approval of the Plan so long as
the Plan provides for the treatment of KeyBank's Claim in accordance with the
KeyBank Settlement Agreement. Pursuant to the KeyBank Settlement Agreement,
KeyBank agrees that so long as the KeyBank Settlement Agreement is in effect,
KeyBank will not directly or indirectly, sell, assign, hypothecate, dispose of
or otherwise transfer any Claim against Marker arising from or relating to the
KeyBank Foreign Exchange Contracts.
(v) Tauber Settlement
Henry E. Tauber ("Tauber"), former president and chief
executive officer of Marker and a member of Marker's board of directors, is the
record and beneficial owner of 1,000,000 shares of Marker's Series B Preferred
Stock (the "Preferred Stock Interests") which were acquired for $3.00 each in
cash, for a total investment of $3,000,000. Each share of the Series B Preferred
Stock is convertible, at the option of the holder, at any time, into shares of
common stock of Marker at a rate of one and one-third shares of common stock for
each share of Series B Preferred Stock. At the election of a majority of the
holders of the Series B Preferred Stock, the Company is required to redeem each
year, beginning September 1, 2003, and on each September 1 thereafter, 25% of
the total number of outstanding shares of Marker's Series B Preferred Stock at a
price per share equal to $3.00 (subject to adjustment) plus accrued and unpaid
cumulative dividends. Tauber and Newco entered into an Agreement of
Understanding dated as of July 13, 1999 (the "Tauber Agreement") regarding the
treatment of Tauber's Preferred Stock Interests under the Plan.
Pursuant to the Tauber Agreement, Tauber or the then existing
holder of the Preferred Stock Interests is given an Allowed Claim in the
principal amount of $1,500,000 on account of the Preferred Stock Interests (the
"Tauber Claim"). Pursuant to the Plan, in full satisfaction and release of the
Tauber Claim, on the Effective Date Newco will assume the Tauber Claim and will
pay, as when due, the Tauber Payment Obligations. The Tauber Payment Obligations
will consist of the following: (i) three equal annual installments of the
principal of the Tauber Claim of $150,000 each, the first of which will be due
and payable on June 1, 2000 and the second and third on the same day of each
succeeding year, and (ii) four equal annual consecutive installments of the
principal of the Tauber Claim of $262,500 each, the first of which is payable
June 1, 2003 and the remaining three on the same day of each succeeding year
until paid in full on June 1, 2006. Simple interest at the rate of 5% per annum
will accrue on all installments of the principal of the Tauber Claim that have
not been paid, in whole or in part, on their respective due dates; provided that
interest will only commence as and from the later of June 1, 2003 and the date
such installment was due and payable. Newco will have the right any time and
from time to time to defer, without premium or penalty, the payment (in whole or
in part) of any installment of principal and the payment of any accrued interest
thereon up to and including June 1, 2007. Tauber will have no recourse against
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<PAGE>
Newco for failure to pay Tauber any principal installment when due; provided
that all amounts due Tauber under the Plan will be paid on or before June 1,
2007.
Pursuant to the Tauber Agreement, Tauber has accepted the
treatment provided to the Preferred Stock Interests subject to confirmation of
the Plan.
(vi) Equity Lock-up Agreement
On or about July 30, 1999, CT, Tauber (the holder of the
Preferred Stock Interests) and holders of approximately 51% of the Common Stock
Interests in Marker entered into the Shareholders Agreement of Understanding
(the "Equity Agreement"). Pursuant to the Equity Agreement, each stockholder
agreed (i) to take all reasonable steps and use his or their reasonable best
efforts to (a) negotiate and assist in the preparation of and to enter into
definitive documentation with respect to the transactions contemplated by the
Newco Agreement and (b) obtain Court approval of the Plan, the Newco Agreement
and such other related documentation, (ii) not to support or propose any other
plan of reorganization or any other sale of substantially all of the assets of
Marker or its Subsidiaries unless such plan or sale is acceptable to Newco, and
(iii) not to sell, encumber, assign or otherwise dispose of such stockholder's
Equity Interest in Marker during the term of the Equity Agreement.
(vii) Conclusions Re: Settlements
The foregoing settlements described in Section II.A.2(i)-(vi)
above, represent a global restructuring of the debts of Marker and its
Subsidiaries. This global restructuring was necessitated by the fact that Marker
had inadequate working capital to fund operations and service its debt and was
not in compliance with certain financial covenants and in default under its
obligations to certain creditors. These settlements are integral to
implementation of the Sale and the Plan. Without such settlements restructuring
the Debtors' major categories of debt, CT would not move forward with the Sale.
In fact, delivery of the executed lock-up and other agreements described above
is a condition to the Closing of the Sale.
The Debtors believe that each of the settlements described
above represents a good faith compromise of the claims and disputes between the
parties, is fair and equitable, is well within the range of reasonableness and
should be approved by the Court pursuant to Bankruptcy Rule 9019.
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B. Global Debt Restructuring of Marker and its Subsidiaries
The implementation of the Debtors' Plan and the sale of Marker's Assets
as described herein allows for a restructuring of Marker's debt obligations.
However, that restructuring is part of a global debt restructuring which is
taking place with respect to Marker's non-debtor operating Subsidiaries, in
particular, Marker Deutschland. Pursuant to the Plan and the settlements
described above, Marker will achieve $14,570,448 in debt forgiveness with
respect to $25,928,840 of debt in Marker. In addition, simultaneously herewith,
Marker Deutschland, Marker's non-debtor operating Subsidiary conducting business
in Germany, is undergoing a consensual debt restructuring with its working
capital lenders, Hypo Vereinsbank, Deutsche Bank and BFG Bank. Substantially all
of Marker's ski bindings are manufactured by Marker Deutschland. Pursuant to the
German debt restructuring, Marker Deutschland will achieve debt forgiveness of
approximately $15,722,280 with respect to existing working capital debt of
$40,808,725. However, Marker Deutschland's restructuring is contingent upon
consummation of the Newco Agreement, execution of debt restructuring agreements
with Marker's major creditors and confirmation of the Plan in accordance with
the timetable set forth in the Newco Agreement.
C. Summary of Classes and Treatment Under the Plan
The Plan constitutes a separate plan of reorganization for each Debtor
and each type of Claim and Equity Interest against and in the Debtors, except
Administrative Claims and Priority Claims, is placed in the classes set forth on
the Table of Summary of Classes and Treatment set forth below for each of the
respective Debtors.
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<TABLE>
<CAPTION>
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN
Type of Claim or Estimated
Class Equity Interest Treatment Recovery
- ----- --------------- --------- --------
<S> <C> <C> <C>
Unclassified Allowed Administrative Claims Paid in full (or as otherwise 100%
Unclassified Allowed Priority Claims Paid in full, in Cash, on or as 100%
Unclassified Allowed Priority Tax Claims Each holder of an Allowed Priority 100%
Marker
Marker Class 1 Allowed First Security Bank Impaired; paid by Newco in full, 100%
Marker Class 2 Allowed First Mortgage Claim Impaired. In full and complete 100%
Marker Class 3 Allowed Hypo Vereinsbank (New Impaired. On the Effective Date, 0%
Marker Class 4` Allowed Series A Bonds Claim Impaired. On the Effective Date, 47%
Marker Class 5 Allowed German Banks Guarantee Impaired; no distribution under 0%
Marker Class 7 Allowed Piero Claims Unimpaired. Pursuant to and in 100%
Marker Class 8 Allowed Insured Product Unimpaired. Allowed Insured 100%
Marker Class 9 Allowed Small General Unimpaired; paid in full, in Cash, 100%
Marker Class 10 Allowed Preferred Stock Impaired. In full and complete N/A
Marker Class 11 Allowed Common Stock Interests Impaired; each holder of a Class N/A
DNR USA
DNR USA Class 1 Allowed First Security Bank Impaired; see treatment provided 100%
DNR USA Class 2 Allowed General Unsecured Unimpaired; paid in full, in Cash, 100%
DNR USA Class 3 Allowed Equity Interests in Impaired. Marker, the holder of N/A
DNR N.A.
DNR N.A. Class 1 Allowed First Security Bank Impaired; see treatment provided 100%
DNR N.A. Class 2 Allowed General Unsecured Unimpaired; paid in full, in Cash, 100%
DNR N.A. Class 3 Allowed Equity Interests in Impaired. Marker, the holder of N/A
</TABLE>
<PAGE>
III.
OVERVIEW OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under chapter 11, a debtor is authorized to reorganize its
business for the benefit of itself, its creditors and equity interest holders.
In addition to permitting rehabilitation of a debtor, another goal of chapter 11
is to promote equality of treatment for similarly situated creditors and equity
interest holders with respect to distribution of a debtor's assets.
The commencement of a chapter 11 case creates an estate that is
comprised of all of the legal and equitable interests of the debtor as of the
filing date. The Bankruptcy Code provides that the debtor may continue to
operate its business and remain in possession of its property as a "debtor in
possession."
The consummation of a plan of reorganization is the principal objective
of a chapter 11 reorganization case. A plan of reorganization sets forth the
means for satisfying claims against and interests in the debtor. Confirmation of
a plan of reorganization by the bankruptcy court makes that plan binding upon a
debtor, any person acquiring property under the plan and any creditor or equity
interest holder of a debtor. Subject to certain limited exceptions, the
confirmation order discharges a debtor from any debt that arose prior to the
date of confirmation of the plan and substitutes therefor the obligations
specified under the confirmed plan.
After a plan of reorganization has been filed, the holder of claims
against or interest in a debtor are permitted to vote to accept or reject the
plan. Before soliciting acceptances of the proposed plan, however, Section 1125
of the Bankruptcy Code requires a debtor to prepare a disclosure statement
containing adequate information of a kind, and in sufficient detail, to enable a
hypothetical reasonable investor to make an informed judgment about the plan.
The Debtors are submitting this Disclosure Statement to holders of Claims
against Equity Interests in the Debtors to satisfy the requirements of Section
1125 of the Bankruptcy Code.
IV.
DESCRIPTION OF THE DEBTORS' BUSINESSES
A. General Background
Marker is a leading designer, developer, manufacturer and marketer of
alpine ski bindings in North America, Europe and Asia. Marker is a holding
company which operates its business through its Subsidiaries, Marker
Deutschland, Marker USA, Marker Japan, Marker Austria GmbH ("Marker Austria")
and Marker Canada, Ltd. ("Marker Canada") (a 33.33% owned Subsidiary after
giving effect to the sale to CT described below). Substantially all of the
Company's ski bindings are manufactured by Marker Deutschland, 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.
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On June 18, 1999, CT, Marker, Marker Canada and Lapointe Rosenstein, as
escrow agent, entered into a shareholders agreement pursuant to which CT, on
behalf of Newco, purchased 200 class "A" shares of Marker Canada for a purchase
price of Cdn $1.5 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 Marker. The purpose of this transaction was to provide working capital
to Marker Canada.
The purchase price of Cdn $1.5 million (converted to U.S. dollars at an
exchange rate of 1.4627 Canadian dollar per U.S. dollar) will be deducted from
the U.S. $15 million required to be contributed by CT to Newco pursuant to the
Newco Agreement. CT has the option (the "Canada Option") to purchase all of
Marker's 100 shares of Marker Canada for a purchase price of Cdn $750,000, less
all amounts then payable by Marker or any of its Subsidiaries to Marker Canada,
CT or any subsidiary or Affiliate of CT. The Canada Option is exercisable if (i)
the transactions contemplated by the Newco 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, its subsidiaries or Affiliates, (iii) Marker makes a
motion or application in the bankruptcy court to reject the Canada Option, or
(iv) Marker contests the validity or enforceability of the Canada Option or
denies it has any obligations under the shareholders agreement.
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,
the Company and Marker Ltd. granted Ski & Sports Recreation Company, L.L.C. 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%. 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 Ski & Sports Recreation Company, L.L.C. under
the license agreement. Marker and Marker Ltd. also have the right of first
refusal through March 31, 2002 as to any sale or transfer of the business or
assets used by Ski & Sports Recreation Company, L.L.C. for the manufacture, sale
and marketing of the Apparel Business. In connection with the license agreement,
Marker and Marker Ltd. sold certain assets (including, inventory and accounts
receivable) of Marker Ltd. to Ski & Sports Recreation Company, L.L.C.
In addition, prior to September 1998, Marker and certain of its
Subsidiaries designed, developed, manufactured and marketed snowboards,
Interface Step-in System(TM), traditional 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, DNR N.A. 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 Cruz(TM) and Marker(TM) brand names. DNR N.A. and
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<PAGE>
DNR Japan, through their own sales force, marketed snowboards, Interface Step-in
Systems(TM), 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. 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 Zions Credit, the equipment lessor.
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 owns its 57,000 square foot combined headquarters and
western United States distribution facility located in Salt Lake City, Utah,
which was constructed in 1995. Marker USA leases an 8,600 square foot warehouse
in Manchester, New Hampshire for use as its eastern United States distribution
hub.
Marker was incorporated in 1981 under the laws of the State of Utah.
Marker's principal executive offices are located at 1070 West 2300 South, Salt
Lake City, Utah 84119 and its telephone number is (801) 972-2100.
B. Equity and Debt Structure
1. Equity Structure
The Company has the authority to issue up to 25,000,000 shares of
common stock, $0.01 par value, and 5,000,000 shares of Series B Preferred Stock,
$0.01 par value. Based on 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. As of June
30, 1999, there were 11,140,577 shares of common stock outstanding. The
Company's common stock is quoted on the over-the-counter bulletin board.
Tauber owns 1,000,000 shares of the Company's Series B Preferred Stock,
which constitute all of the issued and outstanding shares. Each share of the
Series B Preferred Stock is convertible, at the option of the holder, at any
time, into shares of common stock of the Company at a rate of one and one-third
shares of common stock for each share of Series B Preferred Stock. At the
election of a majority of the holders of the Series B Preferred Stock, the
Company is 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 adjustments) plus accrued and unpaid
cumulative dividends. Pursuant to the Plan and the Tauber Agreement, Tauber or
the then current holder of the Preferred Stock Interests will be given an
Allowed Claim under the Plan in the principal amount of $1,500,000 on account of
the Preferred Stock Interests. For a more detailed description of the treatment
of Preferred Stock Interests under the Plan see Section II.A.2(vii), "Tauber
Settlement".
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2. Debt Structure
Following is a list of the Debtors' major categories of debt:
(i) Secured line of credit with First Security Bank pursuant
to the First Security Bank Credit Agreement, as modified and extended,
with maximum borrowings of approximately 12,500,000, subject to a
borrowing base limitation. Interest at the prime rate plus 0.5% (with a
maximum default interest rate of prime plus 3%) secured by, among other
things, accounts receivable and inventory;
(ii) First Mortgage on Marker's corporate headquarters;
(iii) Note payable in German Marks (DM 6.4 million) to Hypo
Vereinsbank (New York Branch) pursuant to Third Restated and Amended
Promissory Note dated April 15, 1998, with interest at 4.64%;
(iv) Series A Bonds; and
(v) Foreign Exchange Contracts.
Each of the foregoing liabilities is described in detail above in Section
II.A.2, "Settlements Under the Plan."
V.
EVENTS LEADING TO COMMENCEMENT OF THE CHAPTER 11 CASES
A. Snowboard Operations
Having established itself as a leader in the alpine ski binding
business, the Company sought to diversify its business by capitalizing on its
existing design and production capabilities and distribution and sales networks.
In pursuit thereof, the Company entered the snowboard market in June 1995 by
acquiring, through its wholly-owned Subsidiary Marker AG, a 25% equity interest
in Switzerland-based DNR Sportsystem, a leading developer, marketer and
distributor of snowboards, snowboard boots, snowboard bindings and other related
products. In June 1996, the Company used the proceeds of a secondary public
offering of common stock and the proceeds from additional borrowings from
short-term credit facilities to increase the Company's ownership interest in DNR
Sportsystem to 80%.
In 1997, the Company formed DNR USA to design, develop and manufacture
snowboards at a production facility in Salt Lake City, Utah. In January 1997,
the Company completed the $2.3 million construction of its 56,608 square foot
snowboard manufacturing facility. The facility, adjacent to the Company's
headquarters in Salt Lake City, was built on approximately 5 acres of land
purchased by the Company for approximately $0.7 million. The Company financed
approximately $2.3 million of the costs associated with the manufacturing
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<PAGE>
facility with long term debt payable over 15 years. The Company also formed two
distribution Subsidiaries, DNR N.A. and DNR Japan. Through their own sales
forces, DNR N.A. and DNR Japan marketed snowboards and related products directly
to retailers in the United States and Japan, respectively.
Marker's entry into the snowboard business required a substantial financial
commitment. The snowboard business had become oversaturated with entrants and
Marker found itself competing against many other snowboard companies, large and
small, with many of the smaller competitors having a much lower cost structure
than Marker. During 1997-1998, the snowboard industry began to experience
significant consolidation and an oversupply of snowboards and related equipment.
All of this led to increased pricing pressures on Marker.
Marker originally designed its snowboard facility to produce and sell
approximately 200,000 snowboards per year. However, as a result of extensive
competition and a much lower demand for the Company's snowboards than
anticipated, during fiscal 1998, the first full year of operation production at
its snowboard manufacturing facility in Salt Lake City, the Company only
received orders to purchase roughly 25% of the 200,000 snowboards it had
anticipated selling. Lower demand for snowboards in fiscal 1998 resulted in
under-utilization of the Company's costly manufacturing facility which caused
the manufacturing facility to operate at a negative gross margin. The lower
demand for snowboard products also resulted in lower sales prices which also
lowered the overall gross margin. Finally, during this time period, the entire
snowboard industry experienced a significant oversupply problem which
contributed to the lower sales of the Company's snowboard products.
The effects of the highly competitive, oversaturated snowboard market
and Marker's costly investment in the snowboard business, negatively impacted
the Company's cash flows and working capital which in turn affected the
operations of Marker's business as a whole (including the ski binding business).
In fiscal 1998 the Company's overall net sales decreased 25.4% to $94.3
million, compared to $126.4 million in fiscal 1997. The decrease in net sales
related primarily to the Company's snowboard business. Gross profit for fiscal
1998 decreased to $30.4 million, and decreased as a percentage of sales to
32.2%, compared to $45.9 million, or 36.3% of sales, for fiscal 1997. The
reduction in gross profit percentage was also primarily related to the Company's
snowboard operations.
The Company's losses resulting from its snowboard operations began to
affect the Company's compliance with its existing credit facilities. For
example, at March 31, 1998, the Company had insufficient cash to fund its
obligations and was not in compliance with certain financial covenants in the
First Security Secured Loan Documents. As a result of such non-compliance, First
Security Bank had the right to declare all obligations of the Company under the
line of credit to be immediately due and payable, which would have triggered a
cross-default and acceleration rights in respect of substantially all of the
Company's indebtedness. If any such indebtedness had been accelerated, the
Company would not have had the ability to repay such indebtedness and would have
been forced to seek protection from its creditors under chapter 11 of the
Bankruptcy Code.
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As a result of the foregoing, in April 1998 the Company began
evaluating its snowboard operations worldwide. In May 1998, the Company's board
of directors retained an independent firm to assist the Company in developing
and implementing a restructuring plan, while negotiating a refinancing with the
Company's lenders. On September 10, 1998, the board of directors authorized the
disposition of the entire snowboard operations of the Company. The Company has
substantially completed the process of exiting the snowboard business. On
December 14, 1998, Marker AG sold its 80% ownership interest in DNR Sportsystem
to the Richard H. Novak Trust for US $1.00 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 disposed of its leased
snowboard manufacturing equipment through an auction and the net proceeds of the
auction were paid to Zions Credit Corporation, the equipment lessor. The Company
is currently in the process of winding down its remaining snowboard distribution
operations.
B. Sims Litigation
Also in fiscal 1997, the Company was enjoined from the distribution of
Sims branded products (see below) which accounted for more than $29.0 million in
sales in fiscal 1997 thereby further negatively impacting Marker's business
operations.
On September 26, 1996, Thomas P. Sims ("Sims") filed an action in the
Superior Court of California for the County of Santa Barbara (the "Superior
Court") against Marker and DNR Sportsystem relating to a license agreement,
dated September 8, 1991, between Sims and DNR Sportsystem for the production and
distribution of snowboards and related products bearing the Sims trademark
outside of the United States and Canada. Sims alleged, among other things, that
Marker and DNR Sportsystem were promoting products that unfairly competed with
Sims' products and that DNR Sportsystem breached the license agreement. On
September 27, 1996, Sims notified DNR Sportsystem of his intention to terminate
the license agreement, which was scheduled to expire on July 1, 2001. Pursuant
to the terms of the license agreement, Sims initiated arbitration proceedings
against DNR Sportsystem by filing a demand for arbitration. Sims claimed that
termination of the license agreement was justified because of DNR Sportsystem's
alleged breach of the license agreement. Sims also claimed that Marker
misappropriated Sims' design for a snowboard binding and sought damages based
upon various legal and factual theories, including claims that DNR Sportsytem's
conduct damaged the value of his trademarks and that DNR Sportsystem distributed
goods not authorized by the license agreement. Marker denied Sims' claim and
filed a counterclaim in which Marker sought damages from Sims for wrongfully
terminating the license agreement, for selling his interest in his trademarks
and the license agreement to a third party in violation of a right of first
refusal contained in the license agreement, and for other relief and damages.
On November 27, 1996, the Superior Court granted Sims' request for a
preliminary injunction against the Company and DNR Sportsystem. The Superior
Court's ruling prevented DNR Sportsystem from manufacturing, shipping, selling
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or distributing snowboard products with the Sims trademark pending the outcome
of the arbitration. The preliminary injunction did not restrict the right of DNR
Sportsystem to produce and market snowboards and related products under brand
names other than Sims such as the DNR brand name and others.
Following protracted and costly litigation which spanned over a period
of approximately two years, on March 18, 1998, Marker and Sims finally agreed to
end their then on-going arbitration proceedings and to release all claims and
counterclaims against each other with no monetary exchange. While the settlement
ended all disputes between Sims, Sims Sports, Inc. and Marker without payment to
either side, the litigation was very costly.
C. Liquidity Crisis and Inability to Comply With Existing Credit
Facilities
As described above, as a result of losses from its snowboard
operations, at March 31, 1998, the Company had insufficient cash funds to fund
its obligations and was not in compliance with financial covenants contained in
the First Security Loan Documents.
On November 12, 1998, the Company entered into a restated credit
agreement with First Security Bank which, among other things, extended the
maturity of the credit facility until March 31, 1999, increased the interest
rate thereon to the bank's prime rate plus 0.5% and waived the Company's
non-compliance with certain financial covenants. Under the restated credit
agreement, the Company agreed to pledge additional collateral, including certain
real property owned by the Company, to secure its obligations.
In order to assist the Company in repaying a portion of its
indebtedness, Tauber purchased 1,000,000 shares of the Company's Series B
Preferred Stock for an aggregate purchase price of $3,000,000 in August 1998.
The proceeds of the sale were used by the Company to repay a short-term loan
with Hypo Vereinsbank. At December 31, 1998, the Company had a working capital
deficit of $11.6 million, compared to a working capital deficit of $4.0 million
at September 30, 1998 and a working capital of $6.7 million at March 31, 1998.
This decrease in working capital was due to higher borrowing levels due to
losses in the snowboard business. Notwithstanding Tauber's investment, the
Company quickly reached a point where existing debt service and operating
obligations could not be paid out of operational cash flow.
As discussed in Section IV.A above, in June 1999, CT agreed to purchase
66.66% of the outstanding shares of Marker Canada for a purchase price of $1.5
million, in order to assist the Company and provide needed working capital to
Marker Canada. In addition, Hypo Vereinsbank and Deutsche Bank AG have agreed to
fund Marker Deutschland (subject to Marker meeting the timetable set forth in
the Newco Agreement) with an additional DM 6,000,000 line of credit, of which DM
3,000,000 CT has agreed to provide credit support for and DM 3,000,000 is
unsecured. Marker Deutschland will in turn lend up to DM 6,000,000 to Marker USA
in order to fund the Company's U.S. operations, secured by a second lien on
Marker USA's accounts receivable and inventory.
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D. Decrease of Inventory Levels
In order to decrease inventory levels, the Company ceased binding
production at its manufacturing facility in Germany from November 16, 1998
through April 5, 1999. The manufacturing facility received financial assistance
from the German government which partially offset the expenses incurred during
that period. In connection with a German governmental program, the German
government compensated employees who were affected by the shutdown of the
assembly line. The Company paid employee taxes and all other fixed costs
associated with the factory during this time period.
E. NASDAQ Delisting
In August 1998, the Nasdaq Stock Market, Inc. notified the Company of
its failure to meet certain minimum financial qualifications required to
maintain its listing on the Nasdaq National Market ("Nasdaq"). Nasdaq's
continued listing standards require, among other things, net tangible assets of
$4.0 million and a minimum bid price of one dollar. As a result of the Company's
inability to meet Nasdaq's requirements, shares of the Company's common stock
ceased to trade on Nasdaq at the close of business on October 28, 1998. The
Company's common stock currently trades on the OTC Bulletin Board.
F. Other Litigation
(i) Piero Litigation
On March 22, 1999, Piero G. Ruffinengo ("Piero") filed a
breach of contract action against Marker and certain of its officers and
directors in the Third Judicial District Court in Salt Lake City, Utah (the
"Piero Lawsuit"). In the Piero Lawsuit, Piero, who provided legal and consulting
services to the Company from 1982 to 1998, alleged, among other things, breach
of contract and failure to pay wages, and sought damages as well as injunctive
relief and a declaratory judgment that Marker does not have authority to demand
that Piero transfer his rights to certain intellectual property to Marker or any
other person or entity. Pursuant to the Piero Lawsuit, Piero sought money
damages in the approximate amount of $836,566 plus interest. In June, 1999,
Marker began settlement negotiations with Piero culminating in the Settlement
Agreement and Mutual Release of All Claims dated as of August 17, 1999 (the
"Piero Settlement").
Pursuant to the Piero Settlement, on the Effective Date, all
of Piero's Claims against Marker and its officers and directors, including any
and all claims asserted in the Piero Lawsuit, will be resolved and compromised.
Pursuant to the Piero Settlement, Piero will have received $100,000 within ten
(10) Business Days after execution of the Piero Settlement (the "Initial
Payment"). In addition, pursuant to the Piero Settlement, Piero will also
receive, in full and complete satisfaction of the Piero Claims, $350,000 to be
paid within five (5) Business Days after the Closing Date (the "Second
Payment"). Under the Piero Settlement, interest will accrue on the Second
Payment from the date the Initial Payment is made until the date the Second
Payment is made at a rate per annum equal to the prime rate charged from time to
time by First Security Bank plus 1%, and shall be paid with the Second Payment.
Pursuant to the Piero Settlement, Piero will assign to Marker all right, title
and interest to all patent applications filed before the date Piero no longer
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consulted for Marker and any patents granted thereon, and all reissues and
extensions thereof in which Piero is named as inventor. These patents have
significant value to Marker. Pursuant to the Piero Settlement, Piero has
accepted the treatment provided to Piero's Claims under the Plan.
G. Sale Discussions
As described in more detail in Section 1 above, in September 1998, the
Company retained Conway as financial advisor to assist the Company in developing
a business and marketing plan and exploring various strategic alternatives,
including a sale of the business as a going concern. The Company, with the
assistance of its financial advisor, then commenced a marketing and solicitation
program to solicit interested investors. That process culminated in the
execution, on March 7, 1999, of a letter of intent with CT regarding a sale and
restructuring of the Company. After extensive negotiations, the parties agreed
on the terms of a definitive Asset Purchase Agreement, and on or about July 30,
1999, the Company and Newco executed the Newco Agreement. The Newco Agreement
contemplates, among other things, the contemporaneous filing of (i) voluntary
bankruptcy petitions under Chapter 11 of the Bankruptcy Code for the Debtors and
filing of (ii) a Joint Plan of Reorganization for the Debtors, and the
implementation of the sale of substantially all of Marker's assets pursuant to
such Plan in accordance with terms of the Newco Agreement.
VI.
THE NEWCO AGREEMENT
On July 30, 1999, the Company and Newco executed the Newco Agreement
providing for the sale by the Company of substantially all of its assets
(including the Equity Securities of the Subsidiaries) to Newco. In exchange,
Newco will assume certain liabilities of the Company and the Company will
receive a 15% equity interest in Newco. The remaining 85% equity interest in
Newco will be held by CT (subject to the terms of the Operating Agreement). A
copy of the Newco Agreement (without exhibits or schedules) is annexed to the
Plan as Exhibit 1.
The following description is for summary purposes only and is qualified
in its entirety by the actual terms of the Newco Agreement. Nothing contained in
this Disclosure Statement or in the Plan shall be construed as or be deemed to
be an amendment, supplement, or other modification of the Newco Agreement. In
the event of any inconsistency between this Disclosure Statement, the Plan and
the Newco Agreement, the Newco Agreement shall govern.
A. Terms of Sale
Pursuant to the Newco Agreement, CT will contribute $13,974,499 in cash
(i.e., $15,000,000 minus the $1,025,501 previously contributed by CT as a result
of the consummation of the sale of the 66.66% equity interest in Marker Canada)
to Newco in consideration for an 85% equity interest in Newco. In connection
with the Newco Agreement, the Company and CT will enter into the Operating
Agreement which, among other things, provides that CT will be granted an option
(the "Option") to purchase all, but not less than all, of the Company's 15%
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equity interest in Newco at any time on or after the second anniversary of the
consummation date of the plan of reorganization at the then fair market value,
subject to certain adjustments as described below in the subsection entitled
"Indemnification and Offset". The proceeds of the exercise of the Option (after
taking into account any adjustments) will then be distributed to the
shareholders of the Company in liquidation. After the Closing Date, Marker will
operate for the primary purpose of liquidating its assets and is required to
dissolve and liquidate all of its assets no earlier than the third anniversary
of the Closing Date and no later than the fifth anniversary of the Closing Date.
B. Purchase and Sale of Assets
Pursuant to the Newco Agreement, Marker will transfer all of the
property of the Estate, including, but not limited to, all assets of Marker
utilized in its business operations (other than the Excluded Assets) and all
Equity Securities of the Subsidiaries, including, without limitation, the
following:
1. all leasehold interests in Real Property held by Marker;
2. all machinery, apparatus, furniture and fixtures, materials,
supplies, motor vehicles and other equipment of every type owned or leased by
Marker (except for the Excluded Assets);
3. all of Marker's Accounts Receivable;
4. all of Marker's Inventory;
5. all of the Assumed Contracts and all insurance policies relating to
the Business (other than any insurance policy that covers directors and officers
of Marker) or pursuant to which the Business is a beneficiary (including,
without limitation, the insurance policies relating to the Employment Plans,
except to the extent such policies are assumed by Marker USA) and other
documents relating to the Business;
6. Marker's prepaid expenses and deposits (including, but not limited
to deposits of Marker held by utilities or under Assumed Contracts);
7. information services systems and software;
8. all cash and cash equivalents, except to the extent required to make
payments or distributions under the Plan;
9. sales data, customer lists, information relating to customers,
suppliers' names, mailing lists, advertising matters and internet addresses, and
all rights thereto relating to the Business;
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10. all of Marker's Intangible Property, and corporate and trade names
(including, without limitation, the name "Marker") and all rights associated
therewith and all Marks and all goodwill associated with the Business; all of
Marker's books and records relating to the Business and employees; transferable
Permits; unemployment compensation, workers' compensation and other credits,
reserves or deposits with applicable Governmental Entities relating to Marker's
employees who become employees of Newco; all orders, backlog, outstanding
proposals, manufacturing standards and procedures and customer lists;
11. all causes of action relating to the Purchased Assets or the
Business or Marker's operations or any of the foregoing; and
12. all Equity Securities legally or beneficially owned by Marker.
C. Assumption of Certain Liabilities
Newco will assume and agree to pay, perform, discharge and satisfy when
due the Assumed Liabilities, including:
1. all amounts payable after the Closing Date under the Assumed
Contracts for goods and/or services rendered to Newco after the Closing Date;
2. such Allowed Claims against Marker as set forth in the Plan that
constitute Assumed Liabilities;
3. all liabilities and obligations of Marker identified on
Schedule 2.2(b)(iii) to the Newco Agreement; and
4. the liabilities or obligations of Marker constituting expenses of
administration under Section 503(b)(1) of the Bankruptcy Code and (to the extent
not consisting of ordinary course trade payables) specifically identified on
Schedule 2.2(b)(iv) to the Newco Agreement.
D. Excluded Assets
Those assets not being sold pursuant to the Newco Agreement include the
following: (i) Marker's 15% equity interest in Newco, (ii) books and records,
(iii) any shares of capital stock of Marker held as treasury shares, and (iv)
the Excluded Assets set forth on Schedule 2.1(b) to the Newco Agreement
(including certain equipment, insurance policies and software).
E. Certain Advances to Marker
Pursuant to Section 7.8 of the Newco Agreement and so long as Marker is
not default of any of its obligations under the Newco Agreement or the Operating
Agreement, Newco will advance to Marker from time to time an aggregate amount
not to exceed $300,000 for each twelve month period following the Closing Date
(the "Advances"); provided that the Advances will be used solely for (i)
maintaining director and officer liability insurance for Marker's board of
directors and officers, (ii) preparing, filing and distributing (including to
Marker's shareholders) such documents and other information as may be required
by United States federal and state securities laws applicable to Marker, (iii)
compliance with its statutory and other legally required or contractual
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obligations arising under the Newco Agreement and/or the Operating Agreement,
and ordinary administrative and operating expenses associated with clauses (i),
(ii) and (iii) (including, salaries and the payment of reasonable costs, fees
and expenses of attorneys and other professionals, provided that the scope of
their engagement is reasonably satisfactory to Newco and a copy of each invoice
submitted by such attorneys and other professionals is promptly delivered to
Newco). Newco will have no obligations to make any Advances to Marker after the
earlier of (a) the second anniversary of the Closing Date, (b) Marker's breach
of its obligations under Section 7.8(a) of the Newco Agreement and (c) Marker's
ceasing to be the holder of record of the Newco Equity Securities. All Advances,
together with accrued interest thereon at a rate of 5% per annum from the date
of funding of such Advances, made to Marker will be set off from any Redemption
Payment due to Marker.
In addition, pursuant to the Operating Agreement, so long as Marker is
not in default of its obligations under the Newco Agreement or the Operating
Agreement, Newco agrees to advance to Marker, upon timely written notice
received from Marker, an amount equal to Marker's income tax liability for any
taxable year or portion thereof following the Closing, subject to certain
conditions set forth in the Operating Agreement. Any advances made by Newco to
Marker for payment of Marker's income tax liabilities (together with interest
due thereon pursuant to the Operating Agreement), will also be withheld and set
off from any amounts due Marker under the Operating Agreement.
F. Certain Conditions to Closing
Subject to the terms and conditions of the Newco Agreement, the closing
will occur no later than November 30, 1999, unless the parties agree in writing
to extend such date.
The Newco Agreement contains numerous conditions to closing including,
among other things, the following conditions:
1. no Material Adverse Change shall have occurred;
2. receipt of all necessary Approvals, Permits (including Approvals and
Permits set forth on Schedule 4.8(b) to the Newco Agreement), schedules,
opinions, financial statements, certificates, Inventory reports and Accounts
Receivable aging lists;
3. each Employment Agreement (as defined in the Newco Agreement) being
in full force and effect;
4. Marker having sold a certain number of units of Product to retailers
and distributors;
5. the consolidated net worth of Marker and the Subsidiaries, exclusive
of goodwill and other intangibles and before giving effect to any capital
contribution and/or other investment made by Newco, being at least ($6,000,000);
6. approval by Newco of title to the Purchased Assets and receipt
by Newco of each existing title policy with respect to each parcel of Real
Property;
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7. the Breakup Fee Order, the Assumption Order, the Disclosure
Statement Order and the Confirmation Order being entered by the Bankruptcy Court
within the time periods set forth in the Newco Agreement;
8. as of the date of entry of the Confirmation Order, the aggregate
amount of Assumed Liabilities (after giving effect to the Restructuring
Documents but before giving effect to any capital contribution and/or other
investment made by Newco) not exceeding $16,000,000 and, after giving effect to
the Restructuring Documents but before giving effect to any capital contribution
and/or other investment made by Newco, the aggregate amount of the liabilities
of Marker and the Subsidiaries on a consolidated basis as set forth on the Pro
Forma Balance Sheet not exceeding $83,000,000;
9. receipt of duly executed copies of each of the Restructuring
Documents (as defined in the Newco Agreement), each being in full force and
effect;
10. Newco and/or the Subsidiaries entering into the New Financing
Facility;
11. amending Marker's certificate of incorporation and by-laws to
satisfy the provisions of the Plan and the Newco Agreement;
12. Newco's receipt of the Claims Schedule, Schedule 2.1(a)(viii),
Schedule 2.2(b)(iii) and Schedule 2.2(b)(iv), each in form and substance
satisfactory to Newco (including the aggregate amount of liabilities set forth
on each such Schedule and such liabilities shall be payable at such times as
Newco deems acceptable) no later that than ten (10) Business Days after the Bar
Date and in no event later than ten (10) Business Days prior to the Confirmation
Hearing;
13. receipt of a duly executed copy of the Operating Agreement;
14. there not having occurred a breach or default under the
Canadian Stockholders Agreement; and
15. at Newco's request and only if Marker's corporate headquarters
building and the related real estate has not been sold prior to the Closing
Date, Marker having, pursuant to the Plan, assigned, conveyed and transferred to
Marker USA all of Marker's right, title and interest in such Real Property on or
prior to the Closing Date for no additional consideration along with the
necessary instruments of transfer.
G. Indemnification and Offset
Subject to the offset provisions of the Newco Agreement described
below, Marker agreed to indemnify Newco and its member/partners (other than
Newco), directors, officers, employees, Affiliates, subsidiaries, agents, and
assigns for all Losses arising out of: (i) any inaccuracy in or breach or
nonperformance of any of the representations, warranties, disclosures, covenants
or agreements made by Marker in the Newco Agreement and the schedules thereto;
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(ii) any Excluded Liability or any other liability or obligation of Marker not
expressly assumed by Newco pursuant to the Plan and Section 2.2(b) of the Newco
Agreement; (iii) any liability of Marker or any Subsidiary not disclosed to
Newco in writing prior to the Closing (or if disclosed, the inaccuracy of the
amount of such liability or obligation to the extent it exceeds the amount so
disclosed); and (iv) any and all Actions, claims, demands, assessments and
judgments incidental to the foregoing or the enforcement of such
indemnification.
Marker's indemnity obligation is subject to certain minimum and maximum
amounts. Except as expressly set forth in the Newco Agreement, Marker's
indemnification obligations are due and payable only as an offset against the
purchase price of the Option due to Marker at the time CT exercises its Option
under the Operating Agreement to purchase Marker's Equity Interest in Newco. In
addition to the foregoing right to offset, Newco or CT may withhold and set off
from any Redemption Payment due to Marker (including payments made to Marker in
connection with the exercise of the Option or as a result of an Investment Act
Breach) an amount equal to the sum of (x) all unreimbursed Advances and
Litigation Costs incurred by Newco under Section 10.4(b)(i) or (ii) of the Newco
Agreement, together with accrued interest thereon at a rate of 5% per annum,
plus (y) $775,000. In addition, as set forth above, all advances made by Newco
to Marker for payment of Marker's income tax liabilities (together with interest
due thereon) will be set off from any amounts due Marker in connection with the
exercise of the Option or as a result of an Investment Act Breach (defined in
Section XII.A hereof) under the Operating Agreement.
Newco agreed to indemnify Marker for losses arising out of (i) any
inaccuracy in or breach of any of the representations, warranties, covenants or
agreements made by Newco in the Newco Agreement and (ii) to the extent Marker is
not obligated to indemnify and hold Newco harmless for any Assumed Liability
pursuant to Section 10.1 of the Newco Agreement, any third-party claims in
respect of any Assumed Liability specifically set forth in Sections
2.2(b)(i)-(iv) of the Newco Agreement and the schedules referenced in such
Sections.
VII.
THE CHAPTER 11 CASES
A. Disclosure Statement/Plan Confirmation Hearings
On the Filing Date, the Debtors filed a motion and obtained an order
from the Court scheduling a hearing to consider the adequacy of this Disclosure
Statement, establishing deadlines and procedures for filing objections to the
Disclosure Statement and approving the form and manner of notice of the hearing
on the Disclosure Statement. On September [22], 1999, after notice and a
hearing, the Court entered the Disclosure Statement Order. As provided by the
Disclosure Statement Order, the hearing on confirmation of the Plan is scheduled
for October 27, 1999 at 2:30 p.m..
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B. Significant First Day Motions During Chapter 11 Cases
1. Retention of Professionals
On the Filing Date, the Debtors filed motions and obtained
entry of orders from the Court authorizing the Debtors to retain Stroock &
Stroock & Lavan LLP, and Young Conaway Stargatt & Taylor LLP as bankruptcy
co-counsel.
2. Employee Related Motions
In order to provide comfort and assurance to employees
following the bankruptcy filing, the Debtor sought and obtained entry of the
following first day orders:
a. Employee Wages and Benefits
On the Filing Date, the Debtors sought and obtained entry of
an order authorizing the Debtors to pay certain prepetition claims for accrued
and unpaid amounts owing in respect of (1) employee wages, salaries and other
compensation, (2) withholdings from employee paychecks and related deductions
and payments, including state withholding taxes and other payroll taxes, and (3)
reimbursable employee expenses.
3. Other First Day Orders
a. Bank Accounts
On the Filing Date, the Debtors filed a motion and obtained
entry of an order (i) authorizing (a) maintenance of pre-petition bank accounts
and (b) continued use of existing business forms.
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C. Last Date to File Proofs of Claim
On the Filing Date, the Debtors filed a motion (the "Bar Date Motion")
for an order (the "Bar Date Order"), pursuant to Rule 3003(c)(3) of the
Bankruptcy Rules, (i) fixing the bar date for filing proofs of claim, (ii)
approving the form of the bar date notice, and (iii) approving the mailing and
publication procedures. The Bar Date Motion requested that any person or entity
(other than, among others, employees and shareholders) which fails to timely
file a proof of claim be forever barred, stopped and enjoined from voting on, or
receiving a distribution under, the Plan and will be forever barred, estopped
and enjoined from asserting a Claim against the Debtors, their estates and any
of their successors or assigns. On August 19, 1999, the Court entered the Bar
Date Order establishing September 27, 1999 as the Bar Date. The Bar Date Order
requires any person or entity holding or asserting a Claim against the Debtors
to file a written proof of claim with the Clerk of the Court, United States
Bankruptcy Court for the District of Delaware, 824 Market Street, Wilmington, DE
19801, on or before 4:00 p.m. (EST) on September 27, 1999 (the "Bar Date") or be
forever barred from asserting such Claim against the Debtors, their Estates or
any of their successors or assigns.
D. Breakup Fee Motion
As required by the terms of the Newco Agreement, on the Filing Date,
the Debtors filed a motion (the "Break-Up Fee Motion") for an order approving
the payment of a break-up fee in the aggregate principal amount of $1,000,000
(the "Break-Up Fee") and reimbursement of expense provisions upon the occurrence
of certain events as outlined in the Newco Agreement. Specifically, Section
11.14 of the Newco Agreement provides for Marker to pay to Newco and its
Affiliates the Break-Up Fee and other amounts (the "Reimbursement Expenses") in
the event that (i) any plan or reorganization other than the Plan is confirmed
or (ii) any acquisition, merger, tender or exchange offer or other form of
business combination or any disposition of all or any substantial part of the
assets or the Equity Securities (as defined in the Newco Agreement) of Marker or
any Subsidiary is consummated upon terms more favorable to the shareholders of
Marker other than as contemplated by the Newco Agreement; provided, however,
that the Break-Up Fee is not payable if Marker's failure to consummate the Sale
is due to circumstances beyond Marker's reasonable control so long as Marker is
not in material breach of any representation, warranty or covenant contained in
the Newco Agreement and Marker has not consummated or agreed to consummate an
Alternative Sale (as defined in the Newco Agreement) or (ii) a material breach
of the Newco Agreement by Newco; provided that the failure of a condition to
Newco's obligation to consummate the Sale shall not, by itself, constitute a
material breach by Newco.
Section 11.14(b) of the Newco Agreement provides that Marker must
reimburse Newco for the Reimbursement Expenses (defined as all out-of pocket
expenses and fees (including but not limited to reasonable fees, expenses and
disbursements of counsel, accountants, investment bankers and other
representatives of Newco and its Affiliates) incurred by them or in connection
with the transactions contemplated by the Newco Agreement, the Chapter 11 Cases
and the negotiation, preparation, execution or performance of the Newco
Agreement and any related investigations or due diligence analysis of Marker and
its Subsidiaries), in the event that the Newco Agreement is terminated or
abandoned for any reason (except in the event that (a) Marker terminates the
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Newco Agreement in accordance with its terms or due to a material breach of the
Newco Agreement by Newco; provided that, failure of a condition to Newco's
obligation to consummate the transactions contemplated by the Newco Agreement
will not by itself constitute a material breach by Newco, or (b) Newco
terminates the Newco Agreement other than as a result of a material breach of
Marker of any representation, warranty or covenant under the Newco Agreement).
Except as otherwise provided in Section 11.14(a) and (b) of the Newco
Agreement, pursuant to Section 11.14(c) of the Newco Agreement, Marker and Newco
agree to pay their own expenses incident to the negotiation, preparation,
execution and performance of the Newco Agreement and the transactions
contemplated thereby, including but not limited to the fees, expenses and
disbursements of their respective investment bankers, accountants, counsel and
other representatives. If the Newco Agreement is terminated for any reason other
than as a result of Newco's material breach, then Marker and its Subsidiaries
will jointly and severally reimburse and indemnify Newco, CT or their respective
Affiliates and subsidiaries all amounts paid at any time by them to the German
Banks in reduction of Marker's and/or its Subsidiaries' obligations to such
German Banks to the extent such amounts have not been recovered prior thereto as
credits against the purchase price of Marker products sold to Newco, CT or their
Affiliates.
By the Break-Up Fee Motion, Marker requested entry of an order granting
Newco a superpriority administrative claim under Sections 364(c)(1), 503 and 507
of the Bankruptcy Code with respect to the Break-Up Fee and the Reimbursement
Expenses, and approving the payment of the Break-Up Fee and Reimbursement
Expenses to Newco and its Affiliates upon the occurrence of the events described
above and in Section 11.14 of the Newco Agreement. In addition, the Debtors
sought approval of the exclusivity provision in the Newco Agreement pursuant to
which Newco has the exclusive right to purchase substantially all of the assets
of Marker and consummate the transactions contemplated by the Newco Agreement.
The Break-Up Fee and Reimbursement Expenses are intended to compensate Newco and
its Affiliates for the expenditures and risks associated with the Newco
Agreement and the negotiations thereof. The Debtors believe that consistent with
the Third Circuit Court of Appeals opinion in Calpine Corp. v. O'Brien
Environmental Energy, Inc., 1999 WL504723 (3d Cir. 1999), the Break-Up Fee and
Reimbursement Expenses are "necessary to preserve the value of the estate" and
served to induce a bid that otherwise would not have been made.
By order dated September 14, 1999, the Court entered an order approving
the Break-Up Fee Motion and authorizing the Debtors to pay the Break-Up Fee and
the Reimbursement Expenses as administrative expense claims pursuant to Sections
503 and 507 of the Bankruptcy Code in accordance with the terms of the Newco
Agreement, as amended.
E. Assumption Motion
As required by the Newco Agreement, the Debtors filed a motion seeking
to assume, pursuant to Section 365(a) of the Bankruptcy Code, the Distribution
Agreement dated as of June 1, 1999 by and between Marker and Marker Canada, as
amended by the amendment agreement dated as of June 1, 1999, by and among,
Marker, Marker Canada, Tecnica and Volkl (the "Distribution Agreement"). The
Distribution Agreement provides Marker Canada with the exclusive right to
distribute and sell, in Canada, ski bindings and related parts and accessories
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that are manufactured, packaged, marketed or distributed by or on behalf of
Marker and bear the "Marker" trademark or any other trademark or logo owned by
Marker. By order dated September 14, 1999, the Court entered an order
authorizing the Debtors to assume the Distribution Agreement.
VIII.
SUMMARY OF THE PLAN OF REORGANIZATION
A. Introduction
The following is a summary of certain provisions of the Plan. It is not
a complete statement of the Plan and is qualified in its entirety by reference
to the Plan itself. The Plan is annexed to this Disclosure Statement as Exhibit
A. To the extent that the terms of this Disclosure Statement vary from the terms
of the Plan, the terms of the Plan shall be controlling. You should read the
Plan in its entirety and discuss the distributions and rights to which you are
entitled thereunder with your advisors. The Debtors reserve the right to amend
or modify the Plan subject to Newco's consent, and upon such notice to creditors
as may be required by the Bankruptcy Code or the Bankruptcy Rules.
B. Classification and Treatment of Claims and Interests under the Plan
Set forth below is the classification of Claims and Equity Interests
and the treatment of such Claims and Interests under the Plan. The Debtors
believe that they have classified the Claims and Interests in the Plan in
accordance with Section 1123(a)(1) of the Bankruptcy Code.
1. Unclassified Claims
a. Administrative Claims
Creditors holding Administrative Claims are those entities
holding Claims against the Debtors entitled to priority under Section 503(b),
507(a)(1) or 507(b) of the Bankruptcy Code, including all actual and necessary
costs of preserving the estates of the Debtors, indebtedness or obligations
incurred by the Debtors in connection with the conduct of their businesses,
Professional Claims that are Allowed under the Bankruptcy Code and an interim
order or Final Order of the Court, any fees or charges assessed against the
Debtors' estates under Section 1930, Chapter 123 Title 28 of the United States
Code, and the Breakup Fee (if any), and other amounts which may become payable
by Marker under the Newco Agreement.
Each holder of an Allowed Administrative Claim against any of
the Debtors (other than holders of Allowed Professional Claims which will be
paid by the Debtors) shall receive from Newco in full satisfaction thereof (A)
one hundred percent (100%) of the amount of such Allowed Administrative Claim,
in Cash, on or soon as practicable after the later of: (i) the Effective Date;
(ii) the date such Administrative Claim (or a portion thereof) is Allowed or on
which such Allowed Administrative Claim becomes due and payable; or (iii) in the
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case of Professional Claims, upon entry of an order of the Court authorizing the
payment of such Claims (provided, however, that professional fees incurred
subsequent to the Confirmation Date will be paid by Marker without the need for
approval of the Court); or (B) such other treatment as may be agreed to by the
holder of such Allowed Administrative Claim and the Debtors and/or Newco (as the
case may be), or as may be ordered by the Court.
Administrative Claims are not Impaired under the Plan and,
pursuant to Section 1126(f) of the Bankruptcy Code, holders of Allowed
Administrative Claims are conclusively deemed to have accepted the Plan and will
not be entitled to vote on the Plan.
b. Priority Claims
Creditors holding Priority Claims are those holding Claims
against the Debtors entitled to priority pursuant to Section 507(a) of the
Bankruptcy Code other than Administrative Claims or Priority Tax Claims.
With respect to each Debtor, each holder of an Allowed
Priority Claim will receive from Newco in full satisfaction thereof one hundred
percent (100%) of the amount of such Allowed Priority Claim, in Cash, on or soon
as practicable after the later of (i) the Effective Date, (ii) the date such
Priority Claim (or a portion thereof) is Allowed or on which such Allowed
Priority Claim becomes due and payable or (iii) as otherwise agreed to by the
holder of such Allowed Claim and Newco, or as may be ordered by the Court.
Priority Claims are not Impaired under the Plan and, pursuant
to Section 1126(f) of the Bankruptcy Code, holders of Allowed Priority Claims
are conclusively deemed to have accepted the Plan and will not be entitled to
vote on the Plan.
c. Priority Tax Claims
Creditors holding Priority Tax Claims are those holding Claims
against the Debtors entitled to priority pursuant to Section 507(a)(8) of the
Bankruptcy Code.
With respect to each Debtor, on the Effective Date, each
holder of an Allowed Priority Tax Claim will receive from Newco a Tax Note that
complies with the requirements of Section 1129(a)(9)(C) of the Bankruptcy Code
or such other, more favorable treatment, as Newco may elect.
2. Classified Claims
a. Marker Class 1 - First Security Bank Claim
Marker Class 1 consists of the Secured Claim of First Security
Bank against Marker arising under or relating to the First Security Secured Loan
Documents.
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On the Effective Date, the holder of the Allowed First
Security Bank Claim will receive from Newco, in full and complete satisfaction
thereof, Cash equal to the Allowed amount of such Claim.
On the Effective Date, conditioned upon its receipt of payment
in full as provided above, the holder of the Marker Class 1 Claim will release
and satisfy, and be deemed to have released and satisfied, its Liens on the
Collateral, including any Liens on collateral held by any non-debtor affiliate
or Subsidiary of Marker. The collateral agent and/or the holder of the Class 1
Claim will execute and deliver such documents in connection with the foregoing
as may be reasonably required by the Debtors or Newco.
Marker Class 1 is Impaired under the Plan. First Security Bank
will be entitled to vote to accept or reject the Plan.
b. Marker Class 2 - First Mortgage Claim
Marker Class 2 consists of the Secured Claim of the holder of
the First Mortgage granted by Marker in Marker's fee simple title to the real
property (including the land, the improvements and the fixtures) where its
corporate headquarters is located pursuant to the Trust Deed with Assignment of
Rents dated as of September 8, 1993 and other documents and instruments executed
from time to time in connection therewith.
In full and complete satisfaction of the Allowed First
Mortgage Claim against Marker, on the Effective Date, the property subject to
the First Mortgage will be transferred to Marker USA and the obligations under
the First Mortgage will be jointly and severally paid and performed by Newco,
Marker USA and Marker Ltd. in accordance with the First Mortgage; provided that
Marker's right, title and interest to the real property covered by the First
Mortgage will be transferred to Marker USA on the Effective Date of the Plan and
the holder of the First Mortgage Claim will have a first mortgage from Marker
USA.
Marker Class 2 is Impaired under the Plan. The holder of the
First Mortgage Claim will be entitled to vote to accept or reject the Plan.
c. Marker Class 3 - Hypo Vereinsbank (New York) Claim
Marker Class 3 consists of the unsecured Claim of Hypo
Vereinsbank (acting through its New York Branch) against Marker arising under or
relating to the Hypo Vereinsbank Term Loan Agreement.
On the Effective Date, Hypo Vereinsbank (New York) will
forgive, in full, the outstanding indebtedness of Marker under the Hypo
Vereinsbank Term Loan Agreement in full and complete satisfaction of the Hypo
Vereinsbank (New York) Claim, and Hypo Vereinsbank will not be entitled to any
distributions under the Plan on account of the Hypo Vereinsbank (New York)
Claim.
Marker Class 3 is Impaired under the Plan. Although Hypo
Vereinsbank will not receive any distribution or retain any property under the
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Plan and is deemed to have rejected the Plan pursuant to Section 1126(g) of the
Bankruptcy Code, Hypo Vereinsbank has agreed to accept the treatment accorded to
it in the Plan.
d. Marker Class 4 - Series A Bonds Claim
Marker Class 4 consists of the unsecured Claims of Isomura
arising under or relating to the Series A Bonds issued by Marker to Isomura in
the aggregate principal amount of $11.5 million.
In full and complete satisfaction of the Series A Bonds Claim,
Isomura, the holder of the Allowed Series A Bonds Claim will receive, on the
Effective Date, the Isomura Note, to be issued by Newco, in the aggregate
principal amount of $5,750,000.
Marker Class 4 is Impaired under the Plan. Isomura, the holder
of the Allowed Series A Bonds Claim, will be entitled to vote to accept or
reject the Plan.
e. Marker Class 5 - German Bank Guarantee Claims
Marker Class 5 consists of the unsecured guarantee Claims of
Hypo Vereinsbank and Deutsche Bank (together, the "German Banks") against Marker
arising under or relating to the Guarantee Agreements entered into with Hypo
Vereinsbank and Deutsche Bank dated as of August 1, 1990 and April 30, 1998,
respectively, pursuant to which each of Marker and Marker USA guaranteed Marker
Deutschland's obligations to the German Banks under various working capital loan
agreements between Marker Deutschland and the German Banks.
The German Banks will receive no distribution under the Plan
on account of the German Banks Guarantee Claim. Pursuant to the Plan, the German
Banks will release Marker's and Marker USA's guarantee of Marker Deutschland's
obligations to the German Banks under the German Bank Agreements in full and
complete satisfaction of the German Banks Guarantee Claim.
Marker Class 5 is Impaired under the Plan. Although the German
Banks will not receive any distribution or retain any property under the Plan
and are deemed to have rejected the Plan pursuant to Section 1126(g) of the
Bankruptcy Code, the German Banks have agreed to accept the treatment accorded
to them in the Plan.
f. Marker Class 6A - M&T Bank's Foreign Exchange
Contract Claims
Marker Class 6A consists of the unsecured Claims held by M&T
Bank arising under or relating to the Foreign Exchange Netting Agreement dated
May 1, 1997 entered into by Marker and M&T Bank in order to hedge against
foreign currency fluctuations.
In full and complete satisfaction of M&T Bank's Foreign
Exchange Contract Claims against Marker, on the Effective Date, M&T Bank will
receive (i) from Newco and Marker Japan the M&T Bank Note and (ii) from Newco
Cash in an amount equal to $788,000.
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Marker Class 6A is Impaired under the Plan. M& T Bank will be
entitled to vote to accept or reject the Plan.
g. Marker Class 6B - KeyBank's Foreign Exchange Contract
Claims
Marker Class 6B consists of the unsecured Claims held by
KeyBank arising under or relating to the KeyBank Foreign Exchange Contracts
entered into from time to time by and between Marker and KeyBank to hedge
against foreign currency fluctuations.
In full and complete satisfaction of KeyBank's Allowed Foreign
Exchange Contract Claims against Marker, on the Effective Date, KeyBank will
receive (i) from Newco and Marker Japan the KeyBank Note in the aggregate
principal amount of $364,694 and (ii) from Newco Cash in an amount equal to
$273,840.
Marker Class 6B is Impaired under the Plan. KeyBank will be
entitled to vote to accept or reject the Plan.
h. Marker Class 7 - Piero Claims
Marker Class 7 consists of all of Piero's Claims against
Marker and its Subsidiaries, including those claims asserted by Piero in the
Piero Lawsuit commenced by Piero against Marker and certain of its officers and
directors and any Claims for unpaid wages and/or severance arising from services
rendered by Piero to Marker and/or any of its Subsidiaries.
In full and complete satisfaction of the Piero Claims,
pursuant to and in accordance with the terms of the Piero Settlement Agreement,
within five (5) business days after the Closing Date, Piero will receive, from
Newco, the Piero Cash Payment consisting of $350,000 Cash (plus interest at the
rate and in the manner provided in the Piero Settlement Agreement).
Marker Class 7 is unimpaired under the Plan. Piero will not be
entitled to vote to accept or reject the Plan.
i. Marker Class 8 - Insured Product Liability Claims
Marker Class 8 consists of all pre- and post-petition claims
arising as a result of or relating to alleged product liability or breach of
product warranty relating to products manufactured by the Debtors which claims
are covered by insurance.
Allowed Insured Product Liability Claims (including applicable
deductibles under Marker's insurance policies) are being assumed by Newco
pursuant to Section 2.2(b)(ii) of the Asset Purchase Agreement and the
provisions of the Plan and will be paid by the insurer or, in the case of any
applicable deductible amount, by Newco, in the ordinary course of business.
Marker Class 8 is not Impaired under the Plan. Pursuant to
Section 1126(f) of the Bankruptcy Code, each holder of an Allowed Insured
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Product Liability Claim in Marker Class 8 is conclusively deemed to have
accepted the Plan and is not entitled to vote to accept or reject the Plan.
j. Marker Class 9 - Small General Unsecured Claims
Marker Class 9 consists of all General Unsecured Claims not
otherwise classified in the Plan in Marker Classes 3 through 10 and equal to
$100,000 or less. Marker Class 9 includes unsecured trade Claims arising prior
to the Filing Date and Claims arising under rejected executory contracts or
leases.
In full and complete satisfaction of the Small General
Unsecured Claims, holders of Allowed Marker Class 9 Claims will receive from
Newco one hundred (100%) percent of their Allowed Claims in Cash on the later of
(i) the Effective Date, (ii) the date such Claims (or a portion thereof) are
Allowed or on which an Allowed Claim comes due, or (iii) as otherwise agreed to
by the claimant and Newco.
Marker Class 9 is not Impaired under the Plan. Pursuant to
Section 1126(f) of the Bankruptcy Code, each holder of an Allowed Small General
Unsecured Claim in Marker Class 9 is conclusively deemed to have accepted the
Plan and is not entitled to vote to accept or reject the Plan.
k. Marker Class 10 - Preferred Stock Interests in Marker
Marker Class 10 consists of the Preferred Stock Interests in
Marker comprised of all the issued and outstanding shares of Marker Series B
Preferred Stock issued to Tauber.
In full and complete satisfaction of the Preferred Stock
Interests, on the Effective Date Newco will assume the Tauber Claim (in the
aggregate principal amount of $1,500,000) and will pay, as and when due, the
Tauber Payment Obligations in accordance with the terms of the Plan.
Marker Class 10 is Impaired under the Plan. The holder of the
Allowed Preferred Stock Interests in Marker will be entitled to vote to accept
or reject the Plan.
l. Marker Class 11 - Common Stock Interests in Marker
Marker Class 11 consists of all of the common stock of Marker
issued and outstanding as of the Record Date.
Each holder of a Class 11 Common Stock Interest in Marker will
retain its Marker Common Stock and will not receive any distribution under the
Plan. On the Effective Date, Marker will own the Newco Equity Securities in lieu
of 100% of the capital stock of the Subsidiaries. Pursuant to the Operating
Agreement, holders of Common Stock Interests in Marker may receive (i) Cash if
CT exercises its option under the Operating Agreement to purchase all of the
Common Stock Interests in Marker for such Equity Interests' Fair Market Value
(as defined in the Operating Agreement) subject to setoff and adjustment in
accordance with the terms of the Newco Agreement and/or the Operating Agreement
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(as described in Section VI.G hereof) or, alternatively, (ii) an equity interest
in Newco if such purchase option is not exercised prior to Marker's dissolution;
provided, however, that if an Investment Act Breach (as defined in the Operating
Agreement and described in Section XII hereof) occurs prior to CT's exercise of
its option, Marker will be required to transfer its Equity Interests to Newco.
Marker Class 11 is Impaired under the Plan. Each holder of an
Allowed Common Stock Interest in Marker will be entitled to vote to accept or
reject the Plan.
m. DNR USA Class 1 - First Security Bank Claim
DNR USA Class 1 consists of First Security Bank's Secured
Claim against DNR USA.
On the Effective Date, First Security Bank will receive the
treatment provided to it in Marker Class 1 in full satisfaction of its Claim
against DNR USA; provided, however, that First Security Bank will be entitled to
only one satisfaction in full under the Plan.
DNR USA Class 1 is Impaired under the Plan. First Security
Bank will be entitled to vote to accept or reject the Plan.
n. DNR USA Class 2 - General Unsecured Claims
DNR USA Class 2 consists of all General Unsecured Claims
against DNR USA, including pre-petition trade Claims and Claims arising under
rejected executory contracts or leases.
In full and complete satisfaction of the General Unsecured
Claims Against DNR USA, holders of Allowed DNR USA Class 2 Claims will receive
from Newco one hundred (100%) percent of their Allowed Claims in Cash on the
later of (i) the Effective Date, (ii) the date such Claims (or a portion
thereof) are Allowed or on which an Allowed Claim comes due, or (iii) as
otherwise agreed to by the claimant and Newco.
DNR USA Class 2 is not Impaired under the Plan. Pursuant to
Section 1126(f) of the Bankruptcy Code, each holder of an Allowed General
Unsecured Claim in DNR USA Class 2 is conclusively deemed to have accepted the
Plan and is not entitled to vote to accept or reject the Plan.
o. DNR USA Class 3 - Equity Interests
DNR USA Class 3 consists of all of Marker's Equity Interests
in DNR USA.
Marker, the holder of the Class 3 Equity Interests in DNR USA,
will not receive any distributions under this Plan on account of such Equity
Interests, and the DNR USA Equity Interests will be canceled and extinguished on
the Effective Date without any further act or action under any applicable
agreement, law, regulation, order or rule.
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DNR USA Class 3 is Impaired under the Plan. Marker, the sole
holder of Equity Interests in DNR USA, is conclusively deemed to have rejected
the Plan as a holder of a DNR USA Class 4 Equity Interest and is not entitled to
vote to accept or reject the Plan.
p. DNR N.A. Class 1 - First Security Bank Claim
DNR N.A. Class 1 consists of First Security's Secured Claim
against DNR N.A.
On the Effective Date, First Security Bank will receive the
treatment provided to it in Marker Class 1 in full and complete satisfaction of
its Claim against DNR N.A.; provided, however, that First Security Bank will be
entitled to only one satisfaction in full under the Plan.
DNR N.A. Class 1 is Impaired under the Plan. First Security
Bank will be entitled to vote to accept or reject the Plan.
q. DNR N.A. Class 2 - General Unsecured Claims
DNR N.A. Class 2 consists of all General Unsecured Claims
against DNR N.A.
In full and complete satisfaction of the General Unsecured
Claims Against DNR N.A., holders of Allowed DNR N.A. Class 2 Claims will receive
from Newco one hundred (100%) percent of their Allowed Claims in Cash on the
later of (i) the Effective Date, (ii) the date such Claims (or a portion
thereof) are Allowed or on which an Allowed Claim comes due, or (iii) as
otherwise agreed to by the claimant and Newco.
DNR N.A. Class 2 is not Impaired under the Plan. Pursuant to
Section 1126(f) of the Bankruptcy Code, each holder of an Allowed General
Unsecured Claim in DNR N.A. Class 2 is conclusively deemed to have accepted the
Plan and is not entitled to vote to accept or reject the Plan.
r. DNR N.A. Class 3 - Equity Interests in DNR N.A.
DNR N.A. consists of all of Marker's Equity Interests in DNR
N.A.
Marker, the holder of the Class 3 Equity Interests in DNR N.A.
will not receive any distributions under this Plan on account of such Equity
Interests, and the DNR N.A. Equity Interests will be canceled and extinguished
on the Effective Date without any further act or action under any applicable
agreement, law, regulation, order or rule.
DNR N.A. Class 3 is Impaired under the Plan. Marker, the sole
holder of the Equity Interests in DNR N.A., is conclusively deemed to have
rejected the Plan as a holder of a DNR USA Class 3 Equity Interest and is not
entitled to vote to accept or reject the Plan.
3. Intercompany Claims
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As of the Effective Date, all Intercompany Claims (including without
limitation, any contribution or similar claim Marker may have against its
Subsidiaries for payment of the First Security Bank Claim) shall be canceled.
C. Means of Implementation of the Plan
1. Transfers to Newco
a. On the Effective Date, pursuant to the Newco Agreement,
Marker will transfer or cause to be transferred to Newco all property of the
Estate, including, but not limited to, all assets of Marker utilized in its
business operations (other than the Excluded Assets) and all Equity Securities
of the Subsidiaries; provided, however, that (i) the property subject to the
First Mortgage which constitutes Marker's corporate headquarters will be
transferred to Marker USA and (ii) the Equity Interests in DNR USA and DNR N.A.
will be canceled and extinguished.
b. On the Effective Date, pursuant to the Newco Agreement and
in accordance with the terms hereof and the documents and instruments executed
and delivered by Newco in connection herewith, Newco will assume and agree to
pay, perform, discharge and satisfy when due the Assumed Liabilities, including
all obligations with respect to the treatment of such Allowed Claims against
Marker as restructured and set forth in the Plan that constitute Assumed
Liabilities. Newco shall not be responsible or liable for any claim, liability
or obligation owing by the Debtors that does not constitute an "Assumed
Liability."
2. Organization of Newco
Newco is organized as a GmbH under the laws of Switzerland. Newco will
have the partnership power and authority to issue the Newco Equity Securities.
The governance of Newco will be carried out in accordance with Newco's Articles
of Association, the Operating Agreement and the applicable laws of Switzerland.
3. Issuance of Newco Securities
Pursuant to the Newco Agreement and the Operating Agreement, Newco will
issue the Newco Equity Securities to Marker representing a 15% ownership
interest in Newco. Pursuant to the Operating Agreement, the Newco Equity
Securities are subject to certain transfer restrictions more fully described in
the Operating Agreement. Marker is prohibited from transferring its equity
interest in Newco other than in connection with CT's call option to purchase the
Newco Equity Securities at fair market value or the occurrence of an Investment
Act Breach (defined in Section XII.A hereof). CT is also subject to certain
transfer restrictions and may not create an encumbrance on its equity securities
unless it is in order to secure indebtedness or other obligations incurred by
Newco or its subsidiaries to be utilized in their business.
4. Assets and Liabilities of Newco
On the Effective Date, Newco will own the Sale Assets, including, among
other assets, 100% of the issued and outstanding capital stock of the
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Subsidiaries, free and clear of all Liens, Claims and encumbrances except as
otherwise provided in the Plan. As of the Effective Date, Newco's only other
material assets will consist of (i) the capital contributions and/or other
investments made by CT in an aggregate amount equal to $13,974,499 and (ii) the
equity securities issued to Newco pursuant to the Canadian Stockholders
Agreement. As of the Effective Date, Newco will assume the Assumed Liabilities
pursuant to Section 10.1(b) of the Plan. Newco shall not be responsible for any
claim, liability or obligation owing by the Debtors that does not constitute an
"Assumed Liability."
5. Governance of Newco
The business and affairs of Newco will be managed by and under the
direction of the Board of Managing Partners (the "Board"). The Board will
consist of not less than four or more than seven managing members. Pursuant to
the terms of the Operating Agreement, Marker will be entitled, but not required,
to nominate one managing member of the Board; provided, however, that such
nominee is acceptable to CT. CT will be entitled, but not required, to nominate
the remaining managing members of the Board. At or prior to the Confirmation
hearing, Newco will disclose the identities of the initial managing members of
the Board as well as the identities of the officers of Newco.
The Articles of Association of Newco provide that the voting right of
each Partner is proportionate to the value of his or her contribution to Newco,
whereby each 1,000 Swiss Francs entitles the holder to one vote. The Partner's
Meeting is the supreme body of Newco and has certain non-delegable powers
(including, but not limited to, the power to amend the Articles of Association,
to elect the managing members of the Board, and to discharge the managing
members and officers). A Meeting of Partners is called by the Board and upon the
written demand of one or more Partners. An absolute majority of votes
represented at the Meeting of Partners is required for the adoption of
resolutions. A majority is calculated according to the total number of votes due
to the Partners. A resolution of the Partner's Meeting passed by at least
two-thirds of the represented votes is required for certain actions (including,
but not limited to, an increase in capital, the dissolution of Newco followed by
liquidation, a change in the Articles of Association or any other resolution
with significant effect on Newco).
6. Capitalization of Marker
On the Effective Date, the authorized capital stock of Marker will
consist only of common stock, with 25,000,000 shares authorized, $0.01 par value
and approximately 11,120,577 shares outstanding.
7. Governance of Marker
On the Effective Date, the business and affairs of Marker will be
managed by and under the direction of a Board of Directors. The identities of
the members of the Board of Directors and the identities of the officers of
Marker will be disclosed at or prior to the Confirmation Hearing.
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8. Funding of Marker
Pursuant to Section 7.8 of the Newco Agreement and so long as Marker is
not in default of any of its obligations under the Newco Agreement or the
Operating Agreement, Newco will advance to Marker from time to time an aggregate
amount not to exceed $300,000 for each twelve month period following the Closing
Date (the "Advances"); provided that the proceeds of the Advances will be used
solely for: (i) maintaining director and officer liability insurance for
Marker's board of directors and officers, (ii) preparing, filing and
distributing (including to Marker's shareholders) such documents and other
information as may be required by United States federal and state securities
laws that are applicable to Marker, (iii) compliance with its statutory and
other legally required or contractual obligations arising under the Newco
Agreement (other than any indemnification obligation arising under Article X of
the Newco Agreement) and/or the Operating Agreement, and (iv) ordinary
administrative and operating expenses associated with clauses (i), (ii) and
(iii) (including, salaries and the payment of reasonable costs, fees and
expenses of attorneys and other professionals, provided that the scope of their
engagement is reasonably satisfactory to Newco and a copy of each invoice
submitted by such attorney or professional is promptly delivered to Newco).
Newco will have no obligations to make any Advances to Marker after the earlier
of (a) the second anniversary of the Closing Date, (b) Marker's breach of its
obligations under Section 7.8(a) of the Newco Agreement and (c) Marker's failure
to be the holder of record of the Newco Equity Securities. All Advances,
together with accrued interest thereon at 5% per annum from the date of funding
of such Advance, must be repaid by Marker pursuant to Section 10.3(iii)(C) of
the Newco Agreement. In addition, pursuant to and subject to the terms of the
Operating Agreement, Newco agrees, so long as Marker is not in default under the
Newco Agreement and Operating Agreement, to advance to Marker an amount equal to
Marker's income tax liability for any taxable year or portion thereof following
the Closing. These advances will be setoff from amounts due Marker pursuant to
the terms of the Operating Agreement. See Sections VI.E and VI.G for a more
detailed discussion of the income tax advances and related offsets.
9. Cessation of Marker's Business
From and after the Effective Date, Marker will not be engaged in the
conduct of business and will operate for the purpose of liquidating its assets
(including, without limitation, the Newco Equity Securities). Pursuant to the
terms of the Operating Agreement, Marker will dissolve and liquidate all of its
assets no earlier than the third anniversary of the Closing Date and no later
than the fifth anniversary of the Closing Date.
10. Execution of Documents and Certain Other Actions on or Prior
to the Effective Date
On or prior to the Effective Date, the following actions will be taken
and the following documents will be executed, all of which documents will become
effective on the Effective Date unless otherwise specified herein:
a. Operating Agreement
Marker, Newco and CT will execute the Operating Agreement and
such other documents as are contemplated by the Operating Agreement. A form of
the Operating Agreement is annexed to the Plan as Exhibit 6.
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b. Amended and Restated Certificate of Incorporation and
By-laws
The certificate of incorporation and by-laws of Marker will be
amended as necessary to satisfy the provisions of the Plan and the provisions of
the Newco Agreement, and such amended certificate and by-laws will be the
certificate of incorporation and by-laws governing Marker after the Effective
Date. The adoption of the amended certificate of incorporation and by-laws of
Marker, and the initial selection of directors and officers for Marker pursuant
to Section 10.7 of the Plan will be authorized and approved in all respects
without further order of the Court or any action by the stockholders or
directors of Marker.
c. Corporate Name
On or prior to the Closing Date, Marker will take all action
necessary and file all documents or instruments necessary to change its current
corporate name to a name that is distinctly different in spelling and sound from
its current name which new name will be subject to Newco's prior approval.
d. Dissolution of DNR USA and DNR N.A.
As of the Effective Date, the corporate existence of DNR USA
and DNR N.A. will terminate and any remaining assets of DNR USA and DNR N.A.,
will vest in Newco. Certificates of dissolution for DNR USA and DNR N.A. may be
filed at any time after the Confirmation Date to become effective on the
Effective Date.
e. New Financing Facility
On or prior to the Effective Date, Newco or the Subsidiaries
will have entered into the New Financing Facility.
f. Restructuring Documents
On or prior to the Effective Date, the Debtors and/or Newco
will have executed the Restructuring Documents (as defined in the Newco
Agreement) and such Restructuring Documents will be in full force and effect on
the Effective Date.
g. Employment Agreements
On or prior to the Effective Date, Newco will have entered
into employment agreements with (i) Peter Weaver and (ii) Eiichi Isomura, which
employment agreements will be in full force and effect on the Effective Date.
h. Other
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The Debtors may execute such documents and take such other
actions as is necessary to effectuate the transactions provided for in the Newco
Agreement, the Operating Agreement and the Plan.
D. Provisions Relating to Distributions and Procedures for Resolving and
Treating Disputed Claims
1. Distribution Responsibility
Except as otherwise provided in the Plan, and subject to the specific
treatment provisions of Articles IV - VIII of the Plan, Newco will be
responsible for and will be obligated to make in accordance with the terms of
the Plan, all post-Effective Date distributions required with respect to all
allowed Claims and Equity Interests, including, Administrative Claims (other
than Allowed Professional Claims), Priority Claims, Priority Tax Claims, the
First Mortgage Claim, the Piero Claims, the Foreign Exchange Contract Claims,
the Series A Bonds Claim, Small General Unsecured Claims and the Preferred Stock
Interests. Marker, with funding provided by Newco, will make the Effective Date
distributions required under the Plan. In the event CT exercises its purchase
option with respect to Marker's 15% equity interest in Newco which option is
exercisable any time on or after the second anniversary of the Effective Date,
Marker will be responsible for distributing the cash proceeds from such
acquisition (after taking into account any setoffs and adjustments required by
the Newco Agreement and the Operating Agreement) to the then existing holders of
record of Marker Common Stock.
2. Date of Distributions
Except as otherwise provided in the Plan, any distributions and
deliveries to be made under Plan will be made on the Effective Date or as soon
as practicable thereafter. If any payment or act under the Plan is required to
be made or performed on a date that is not a Business Day, then the making of
such payment or the performance of such act may be completed on the next
succeeding Business Day, but will be deemed to have been completed as of the
required date. All fees payable pursuant to Section 1930 of chapter 123 title 28
of the United States Code, as determined by the Court, will be paid on or before
the Effective Date.
3. Delivery of Distributions
Except as otherwise provided in the Plan, all distributions to be made
under the Plan will be made to the holder of an Allowed Claim or Equity Interest
(other than the Marker Common Stock Interests) as of the Record Date. The holder
of an Allowed Claim or Equity Interest as of the Record Date will be deemed to
be the entity who (a) filed the most recent timely proof of claim or interest
relating thereto, provided no evidence of the transfer of such Claim or Equity
Interest was filed on or before the Record Date, or (b) if evidence of the
transfer of a timely filed proof of claim or interest was filed on or before the
Record Date, (i) the transferee named therein if the transferor named therein
does not file a timely objection pursuant to Bankruptcy Rule 3001(e) or (ii) the
Person so designated by a Final Order of the Court if a timely objection to the
evidence of transfer was filed, or (c) is reflected in the Schedules as the
holder of such Claim or Equity Interest if no timely proof of claim or interest
related thereto was filed.
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Subject to Bankruptcy Rule 9010, all distributions to any holder of an
Allowed Claim or Equity Interest will be made at the address of such holder as
listed in the Schedules filed with the Court unless the applicable Debtor has
been notified in writing of a change of address, including, without limitation,
by the filing of a proof of claim by such holder that contains an address for
such holder different from the address reflected for such holder in the
Schedules. In the event that any distribution to any holder is returned as
undeliverable, the Debtors or Newco, as applicable, will use reasonable efforts
to determine the current address of such holder, but no distribution to such
holder will be made unless and until the Debtors or Newco, as applicable, has
determined the then current address of such holder, at which time such
distribution will be made to such holder without interest. All Claims for
undeliverable distributions must be made on or before the fifth anniversary of
the Effective Date, and if not made by such fifth anniversary all unclaimed
property will revert to Newco, and the Allowed Claims or Equity Interests whose
distributions were not delivered will be discharged and barred forever. Checks
issued in respect of Allowed Claims or Equity Interests will be null and void if
not cashed within 60 days of the date of issuance thereof.
4. Clear Title and Release of Liens
Except as specifically provided otherwise in the Plan or the
Newco Agreement, all Sale Assets of Marker conveyed to and vesting in Newco and
Marker's corporate headquarters conveyed to and vesting in Marker USA will be
free and clear of all Liens, Claims and Equity Interests. Whenever by the terms
of the Plan it is provided that Liens on Collateral securing a particular Claim
are released and deemed null and void or a Claim that is secured by Collateral
is disallowed in full by Final Order, Newco may require the holder of any such
Claim to execute releases of Liens or such other documents as may be necessary
to obtain clear title to the Collateral under applicable law. In the event that
a holder of any Claim refuses to execute such releases or other documents with
respect to the Collateral securing such Claim, Newco may refuse to make
distributions with respect to such Claim under this Plan until such holder
executes appropriate releases or other documentation.
5. Means of Cash Payment
Except as otherwise provided in the Plan, Cash payments required to be
made pursuant to the Plan will be made either by wire transfer or check drawn on
an internationally recognized commercial bank mailed by first-class mail.
6. Prosecution of Claims Objections
On and after the Effective Date, Newco (with the assistance of Marker)
will be authorized, at its own expense, to file, settle, compromise, withdraw or
litigate to judgment objections to the allowance of Claims.
7. No Distributions Pending Allowance
Notwithstanding any other provision of the Plan, no distributions will
be made with respect to a Disputed Claim (or any Disputed portion of a Claim if
such Claim is not severable) by either Newco or Marker unless and until such
Disputed Claim becomes an Allowed Claim.
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8. Distributions After Allowance
Payments and distributions to each holder of a Disputed Claim or any
other Claim that is not an Allowed Claim, to the extent such Claim ultimately
becomes an Allowed Claim will be made in accordance with the provisions of the
Plan. As soon as practicable after the date that the order or judgment of the
Court allowing any Disputed Claim or any other Claim that is not an Allowed
Claim becomes a Final Order, Newco will distribute to the holder of such Claim
(without affecting Newco's rights to indemnification under the Newco Agreement)
any amounts that should have been distributed to such holder if the Claim had
been an Allowed Claim on the Effective Date.
E. Executory Contracts and Leases
1. Assumed and Assigned Contracts
On the Effective Date, all executory contracts and leases listed on
Exhibit 4 to the Plan, as such Exhibit may be amended (with the prior consent of
Newco) from time to time prior to the Confirmation Date (the "Newco Assigned
Contracts"), will be assumed and simultaneously assigned to Newco. All Cure
Costs, if any, under the Newco Assigned Contracts will be determined on or prior
to the Effective Date and will be paid by the Debtors (with funds provided by
Newco) on the Effective Date; or, in the event of a dispute, on the date of
determination of that dispute by a Final Order of the Court. All non-monetary
defaults as of the Effective Date, if any, under the Newco Assigned Contracts
will be cured by either the Debtors or Newco (to the extent required by the
Newco Agreement) on the Effective Date. The assignment of the Newco Assigned
Contracts to Newco will be adequate assurance of future performance of the Newco
Assigned Contracts in accordance with Section 365 of the Bankruptcy Code.
2. Rejected Contracts
All executory contracts and leases of the Debtors not assumed and
assigned to Newco pursuant to Section 12.1 of the Plan, set forth on Exhibit 5
to the Plan, will be rejected or deemed rejected as of the Effective Date;
provided, however, that in no event will the Distribution Agreement which was
assumed by Marker pursuant to the Assumption Order be deemed rejected by the
Debtors. See Section VII.E for a description of the Distribution Agreement and
Assumption Motion.
3. Claims Relating to Rejected Contracts
Any entity that has a Claim against any of the Debtors by virtue of
rejection of an executory contract or lease must file a proof of Claim with the
Clerk of the Court, and serve such proof of Claim upon counsel for the Debtors,
within twenty-five days (25) days following service upon such entity of notice
of entry of the order confirming the Plan or order authorizing such rejection,
as the case may be. If such proof of Claim is not filed within such specified
time, the holder of such Claim will be forever barred from asserting such Claim
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against the Debtors or their Estates. Objections to any such Claim must be filed
not later than thirty (30) days after such proof of Claim is filed or such later
date as the Court may approve. Any entity whose Claim arises from rejection of
an executory contract or lease will, to the extent such Claim becomes an Allowed
Claim, have the rights of a holder of a Small General Unsecured Claim or General
Unsecured Claims (as the case may be) with respect thereto.
F. Conditions Precedent
1. Conditions Precedent to Confirmation
The Plan will not be confirmed unless and until the following
conditions are satisfied or, if waivable pursuant to Section 13.3 of the Plan,
waived:
(a) the Breakup Fee Order, in form and substance acceptable to
Newco, will have been entered by the Court within the time period prescribed by
the Newco Agreement;
(b) the Assumption Order, in form and substance acceptable to
Newco, will have been entered by the Court within the time period prescribed by
the Newco Agreement;
(c) an Order approving the Disclosure Statement, in form and
substance acceptable to Newco, will have been entered by the Court within the
time period prescribed by the Newco Agreement;
(d) the Confirmation Order, in form and substance acceptable
to Newco, will have been entered by the Court within the time period prescribed
by the Newco Agreement, which provides, inter alia, that:
(i) all applicable requirements of Section 1129
of the Bankruptcy Code have been satisfied;
(ii) the Newco Agreement is approved;
(iii) the transfer of Sale Assets by Marker
contemplated by this Plan and the Newco Agreement (A) are or will be legal,
valid and effective transfers of property, and (B) vest or will vest in Newco
good title to such property free and clear of all Claims and Liens, except as
otherwise provided in this Plan or the Newco Agreement; and
(iv) Newco and the Debtors are empowered and
authorized to take or cause to be taken, prior to the Effective Date, all
actions which are necessary to enable them to activate and implement the
provisions of this Plan and satisfy all other conditions precedent to the
effectiveness of this Plan; and
(e) neither Newco nor Marker will have terminated the
Newco Agreement.
2. Conditions Precedent to the Effective Date
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The Effective Date will not occur unless the following are satisfied
or, if waivable pursuant to Section 15.3 of the Plan, waived:
(a) the Confirmation Order will have been entered by the Court
by October 27, 1999 or such later date as Newco may, in its sole and absolute
discretion, expressly consent to in writing or on the record in the Bankruptcy
Court (provided that such later date shall in no event be after November 30,
1999) and will have become a Final Order, or will not have been reversed,
revoked, modified in any manner unacceptable to the Debtors and Newco, or
stayed;
(b) all conditions precedent to the obligations of Marker and
Newco pursuant to the Newco Agreement will have been satisfied or waived in
accordance therewith;
(c) neither Newco nor Marker will have terminated the
Newco Agreement; and
(d) Newco or the Subsidiaries will have entered into the New
Financing Facility.
3. Waiver of Conditions
Each of the conditions precedent listed in Sections 13.1 and 13.2 of
the Plan and described above may be waived, in whole or part, or modified by
written agreement by the Debtors with Newco's consent.
G. Releases, Injunctions and Limitations on Liability
1. Extent of Release
Except as expressly set forth in the Plan, nothing contained in the
Plan will affect any right of any Entity (as defined in the Bankruptcy Code) to
assert or pursue any claim or cause of action against any Entity other than the
Debtors, Marker's Subsidiaries, Newco and Newco's Affiliates (as defined in the
Newco Agreement).
2. Release by Debtors
(a) On the Effective Date, the Debtors, their Affiliates (as
such term is defined in Section 101(2) of the Bankruptcy Code but in no event
will such term be deemed to include Newco for purposes of this release section)
and their shareholders derivatively are hereby deemed to have forever waived and
released unconditionally each of the Debtor's present and former directors,
officers, employees, agents, consultants, advisors, attorneys, accountants and
other representatives and their respective successors, assigns or Affiliates
(collectively, the "Debtor Releasees"), from any and all claims, obligations,
suits, judgments, damages, rights, causes of action and liabilities whatsoever,
whether known or unknown, foreseen, or unforeseen, existing or hereafter
arising, in law, equity or otherwise, based in whole or in part upon any act or
omission by, or any transaction, agreement, event or other occurrence (unless
due to the gross negligence or willful misconduct of the Debtor Releasee),
taking place prior to, on or after the Confirmation Date in any way relating to
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the Debtors, their businesses, the Chapter 11 Cases, the Plan, or the Newco
Agreement (collectively, the "Released Claims"). Debtors, their Affiliates and
their shareholders will be forever precluded from asserting whether directly,
derivatively or otherwise, any such claims against any Debtor Releasee.
(b) On the Effective Date, except as otherwise provided in the
Plan, the Debtors, their Affiliates and their shareholders derivatively are
hereby deemed to have forever waived and released unconditionally (i) the
holders of Equity Interests, (ii) the members of the Creditors Committee (if any
is appointed) in their capacity as such, (iii) First Security Bank, Hypo
Vereinsbank (New York), Isomura, M&T Bank, KeyBank, the German Banks, Piero,
Marker's Subsidiaries (in their capacity as holders of Claims), and Newco
(except as otherwise provided in the Newco Agreement) and (iv) all present and
former directors, officers, employees, agents, consultants, advisors, attorneys,
accountants and other representatives and their respective successors, assigns
or Affiliates of or to any of the foregoing in their capacity as such (all of
the foregoing collectively referred to as the "Third Party Releasees") from the
Released Claims; provided, however, that this release will not constitute a
release of any Allowed Claims treated under the Plan or any claims or causes of
action of Marker or Newco arising under the Newco Agreement (unless otherwise
provided in the Newco Agreement) or the Operating Agreement. Entities deemed to
have released claims pursuant to Section 14.2(b) of the Plan will be forever
precluded from asserting whether directly, derivatively or otherwise, any such
claims against the Third Party Releasees.
3. Release by Creditors and Holders of Equity Interests
On the Effective Date, each holder (or representative thereof) of a
Claim or Equity Interest (a) who has accepted or is deemed to have accepted the
Plan, (b) whose Claim or Equity Interest is in a class that has accepted or is
deemed to have accepted the Plan pursuant to Section 1126 of the Bankruptcy Code
or (c) who may be entitled to receive a distribution of property or retain
property pursuant to the Plan, will be deemed to have forever waived and
released unconditionally the Debtors, the Debtor Releasees and the Third Party
Releasees from the Released Claims; provided, however, that this release shall
not constitute a release of (i) any payment obligation with respect to the
treatment of Allowed Claims provided under this Plan, (ii) any claims or causes
of action of Marker or Newco arising under the Newco Agreement (unless otherwise
provided in the Newco Agreement) or the Operating Agreement, (iii) KeyBank's
claims, if any, against Marker Deutschland and Marker USA arising under or
relating to the KeyBank Foreign Exchange Contracts; provided, however, that upon
payment to KeyBank of all sums due to KeyBank under the Plan (including the Cash
payment and all amounts due under the KeyBank Note), Marker Deutschland GmbH and
Marker USA will be discharged and released of all such claims, or (iv) any
claims third parties may have against each other, which claims are not related
to the Debtors and the Chapter 11 Cases. Persons deemed to have released claims
pursuant to Section 16.3 of the Plan will be forever precluded from asserting
any such claims against the Debtors, the Debtor Releasees or the Third Party
Releasees.
4. Injunction
Except as otherwise expressly provided in the Plan or the Newco
Agreement, confirmation of the Plan will, provided that the Effective Date
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occurs, permanently enjoin all entities that have held, currently hold, or may
hold a Claim against or other debt or liability of any of the Debtors, whether
arising before, on or after the Effective Date, or that hold any Equity Interest
in the Debtors from taking any of the following actions with respect to such
Claim or Equity Interest against the Debtors, the Debtor Releasees, the Third
Party Releasees, or the Sale Assets (wherever located) or the Excluded Assets:
(i) commencing, conducting or continuing in any manner, directly or indirectly,
any suit, action or other proceeding of any kind; (ii) enforcing, levying,
attaching, collecting or otherwise recovering in any manner or by any means,
whether directly or indirectly, any judgment, award, decree or order; (iii)
creating, perfecting or enforcing in any manner directly or indirectly, any Lien
or encumbrance of any kind; (iv) asserting any setoff, right of subrogation or
recoupment of any kind, directly or indirectly; and (v) proceeding in any manner
in any place whatsoever that does not conform to or comply with or is
inconsistent with the provisions of the Plan; provided, however, that this
injunction shall not apply to (x) any Allowed Claims or Equity Interests that
may be asserted under the Plan, (y) any claims or causes of action of Marker or
Newco arising under the Newco Agreement or the Operating Agreement, or (z) any
claims holders of Claims or Equity Interests or other third parties may have
against each other, which claims are not related to the Debtors, the Sale Assets
and the Chapter 11 Cases, it being understood, however, that any defenses,
offsets or counterclaims of any kind or nature whatsoever which the Debtors may
have or assert in respect of any of the claims of the type described in (x), (y)
or (z) of this proviso to the extent not otherwise waived in the Newco Agreement
or the Plan, are fully preserved.
5. Discharge
Except as otherwise provided in the Plan and/or the Newco Agreement,
the entry of the Confirmation Order will operate as a discharge pursuant to
Section 1141(d)(1) of the Bankruptcy Code, effective as of the Effective Date,
of any and all debts of or Claims against one or more of the Debtors (other than
claims that Newco may have under the Newco Agreement and/or the Operating
Agreement) that arose at any time prior to the Confirmation Date, including, but
not limited to, all principal and all interest, whether accrued before, on or
after the Filing Date, and including, without limitation, any debt of a kind
specified in Section 502(g), 502(h) or 502(i) of the Bankruptcy Code, to the
full extent permitted by Section 1141(d)(1)(A) of the Bankruptcy Code.
6. No Liability for Solicitation
As specified in Section 1125(e) of the Bankruptcy Code, entities that
solicit acceptances or rejections of the Plan in good faith and in compliance
with the applicable provisions of the Bankruptcy Code, are not liable on account
of such solicitation for violation of any applicable law, rule, or regulation
governing the solicitation of acceptances or rejections of the Plan.
7. Limitation of Liability
Neither the Debtors, the Debtor Releasees or the Third Party Releasees
or any of their respective Affiliates or any of their respective officers,
directors, employees, members or agents, or any Professional employed by any of
them (collectively, the "Exculpated Persons"), will have or incur any liability
to any entity for any act taken or not taken in good faith in connection with or
in any way related to the negotiation, formulation, implementation, confirmation
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or consummation of the Plan, this Disclosure Statement, the Newco Agreement, or
any contract, instrument, release or other agreement or document created in
connection with or related to the Plan or the administration of the Chapter 11
Cases. The Exculpated Persons will have no liability to any holder of a Claim,
holder of an Interest or other party-in-interest herein or any other person for
actions taken under the Plan, in connection therewith or with respect thereto,
in good faith, including, without limitation, failure to satisfy any condition
or conditions, or refusal to waive any condition or conditions precedent to the
Confirmation Date or the Effective Date. Further, the Exculpated Persons will
not have or incur any liability to any holder of a Claim, holder of an Interest,
or other party-in-interest herein or any other Person for any act or omission in
connection with or arising out of their administration of the Plan or the
property to be distributed under the Plan, except for gross negligence or
willful misconduct as finally determined by the Court, and the Exculpated
Persons are entitled to rely on, and act or refrain from acting on, all
information provided by other Exculpated Persons without any duty to investigate
the veracity or accuracy of such information.
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8. Term of Injunction or Stays
Unless otherwise provided in the Plan, all injunctions or stays
provided for in the Chapter 11 Cases pursuant to Sections 105 or 362 of the
Bankruptcy Code or otherwise and in effect on the Confirmation Date will remain
in full force and effect until the Effective Date.
9. Justification of Releases
The Plan contains customary provisions for the release of the Debtors,
the Debtor Releasees (including officers and directors of the Debtors) and the
Third Party Releasees (including Newco and the Debtors' major creditors) from
liability to any creditor or Equity Interest holder who (i) has accepted or is
deemed to have accepted the Plan, (ii) whose Claim or Equity Interest is in a
class that has accepted or is deemed to have accepted the Plan or (iii) who may
be entitled to receive a distribution of property or retain property under the
Plan.
The Securities and Exchange Commission has expressed certain concerns
regarding the propriety of third party releases under the Plan which it believes
may contravene Section 524(e) of the Bankruptcy Code. The Debtors believe that
the releases provided under the Plan are authorized by Section 105(a) of the
Bankruptcy Code. Section 105(a) of the Bankruptcy Code provides that "the
[Bankruptcy] Court may issue any order, or judgment that is necessary or
appropriate to carry out the provisions of this title." 11 U.S. C. ss. 105(a).
It is well established that, pursuant to this provision, bankruptcy courts may
grant releases and issue permanent injunctions in favor of non-debtors in a
variety of contexts, including situations where, as here, such releases and
injunctions are an integral part of the Plan, are supported by consideration and
confer material benefits on the Debtors' estates, creditors and equity holders.
See, e.g., In re Drexel Burnham Lambert Group, Inc., 138 B.R. 723, 773 (Bankr.
S.D. N.Y. 1992); In re Johns-Manville Corp., 68 B.R. 618, 630-631 (S.D.N.Y.
1986), aff'd in part, rev'd in part, 78 B.R. 407 (S.D.N.Y. 1987); In re Texaco,
Inc., 84 B.R. 893, 904 (S.D.N.Y. 1988).
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The only third parties who are being released under the Plan are all
parties who have been intimately involved with the Plan process, including the
negotiation of the sale to Newco and the negotiation and implementation of the
debt restructurings contemplated by the Plan, which parties include the Debtors'
officers and directors, the Debtors' major creditors and Newco. These parties
have all played an integral role in the reorganization/sale process. Newco, in
assuming the restructured liabilities of the Debtors pursuant to the terms of
the Plan and the Newco Agreement, has or will contribute substantial assets to
the reorganization. Moreover, the Debtors' major creditors have agreed to accept
substantial reductions in their claims and to support the Plan which support is
a condition of the Newco Agreement. The Debtors' officers and directors have
contributed to the reorganization by playing a key role in negotiating the Newco
Agreement and related settlement agreements with the Debtors' major creditors.
As will be disclosed at or prior to the Confirmation Hearing, certain of the
Debtors' officers and directors will continue to be involved with Marker's
operations post-reorganization, some employed by Newco and others by Marker. In
addition, the officers and directors have a right to assert indemnification or
other claims against the Debtors to protect themselves in the event that claims
were made against them by a creditor or Equity Interest holder which might
compel them to file indemnification or other Administrative Claims against the
Debtors. The Debtors are not aware of any such claims which have been or could
be asserted against the Debtors' officers and directors. Nevertheless, the
Debtors believe that the releases are necessary and important to the Debtors'
reorganization as contemplated by the Plan and the Newco Agreement. All
creditors and Equity Interest holders granting releases under the Plan are
receiving or retaining property under the Plan. In particular, the Equity
Interest holders are retaining their Equity Interests in Marker under the Plan
even where the Debtors' major creditors, who are senior to the interest of the
Equity Interest Holders, are not being paid in full. The Debtors believe that
the Equity Interests retained by the holders of Marker Common Stock is
consideration for the releases being given under the Plan. Finally, the Debtors
believe that the release provisions are supported by all of the Debtors' major
creditors and a majority of the Debtors' Equity Interest holders who have
previously signed agreements pledging their support of the Plan.
10. Registration Exemption
The equity securities in Newco distributed to Marker on the Effective
Date are not subject to registration under the securities laws as Newco is a
privately held GmbH. Pursuant to the Operating Agreement, Marker is prohibited
from transferring its equity securities in Newco other than in connection with
CT's call option or the occurrence of an Investment Act Breach (defined in
Section XII.A hereof). In the event CT does not exercise its purchase Option and
the Newco Equity Securities are ultimately distributed to Marker's Common Stock
holders upon the subsequent liquidation of Marker, Newco will comply with all
applicable registration requirements under the securities laws.
11. Transfer Tax Exemption
The issuance, transfer, or exchange of a security, or the making or
delivery of an instrument of transfer under the Plan will not be taxed under the
law imposing a stamp tax or similar tax.
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H. Jurisdiction of the Bankruptcy Court
The Bankruptcy Court will retain exclusive jurisdiction of these cases
as long as necessary for the following purposes (but in no event will the Court
retain exclusive jurisdiction with respect to any controversies, suits or
disputes arising under or relating to the Operating Agreement):
(a) To determine any and all objections to the allowance,
disallowance or subordination of Claims or any controversy as to the
classification of Claims;
(b) To liquidate any disputed, contingent, or unliquidated
Claims including through estimation under Section 502(c) of the Bankruptcy Code,
and finally determine damages and other amounts in connection with such
disputed, contingent or unliquidated Claims;
(c) To determine any and all applications for professional and
similar fees and for the reimbursement of disbursements and expenses with
respect to services rendered and expenses incurred prior to the Confirmation
Date;
(d) To determine any and all pending motions and applications
for assumption or rejection of executory contracts and leases and the allowance
and classification of any Claims resulting from the rejection of executory
contracts and leases;
(e) To determine any and all motions, applications, adversary
proceedings, contested and litigated matters or such other matters over which
the Court has jurisdiction prior to the Confirmation Date, including the
enforcement, prosecution, litigation, settlement and/or other disposition of
claims and counterclaims of the Debtors;
(f) To enforce the provisions of, and resolve any and all
disputes under or pertaining to the Plan or the Newco Agreement;
(g) To modify the Plan or correct any defect, cure any
omission or reconcile any inconsistency in the Plan or in the order of the Court
confirming the Plan, or to enter such orders as may be necessary to effectuate
the terms and conditions of the Plan to the extent authorized by the Bankruptcy
Code as may be necessary to carry out the purpose and intent of the Plan;
(h) To hear and determine all controversies, suits and
disputes, if any, as may arise with regard to orders of this Court in the
Chapter 11 Cases;
(i) To hear and determine any and all controversies and
disputes arising under, or in connection with, the Plan or the order confirming
the Plan;
(j) To adjudicate all Claims to a security or ownership
interest in any property of the Debtors or in any proceeds hereof;
(k) To adjudicate all Claims or controversies arising out of
any purchases, sales or contracts made or undertaken by the Debtors during the
pendency of these Chapter 11 Cases;
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(l) To recover all assets and properties of the Debtors
wherever located, including the prosecution and adjudication of all rights and
Causes of Action available to the Debtors, including the Avoidance Actions
(which actions shall become assets of Newco on the Closing Date);
(m) To determine all questions and disputes regarding recovery
of and entitlement to the Debtors' assets and determine all claims and disputes
between the Debtors and any other Entity, whether or not subject to an action
pending as of the Confirmation Date (provided however, that with respect to any
disputes arising under or relating to the Operating Agreement, the Court's
jurisdiction shall not be exclusive);
(n) To enter any order, including injunctions, necessary to
enforce the title, rights and powers of the Debtors and to impose such
limitations, restrictions, terms and conditions on such title, rights and powers
as the Court may deem necessary or appropriate;
(o) To enter an order or final decree closing and terminating
the Chapter 11 Cases; and
(p) To make such orders as are necessary or appropriate to
carry out the provisions of the Plan, including but not limited to orders
interpreting, clarifying or enforcing the provisions thereof.
IX.
POSTCONSUMMATION MANAGEMENT OF MARKER
On the Effective Date, the business and affairs of Marker will be
managed by and under the direction of a Board of Directors. The Board of
Directors will consist of three persons. At or prior to the Confirmation
Hearing, the Debtors will disclose the identities of the members of the Board
and the officers of Marker and will provide information regarding each member to
the extent required by the Bankruptcy Code.
X.
GOVERNANCE AND MANAGEMENT OF NEWCO
The business and affairs of Newco will be managed by and under the
direction of the Board of Managing Partners (the "Board"). The Members of the
Board will consist of not less than four or more than seven managing members.
Pursuant to the terms of the Operating Agreement, Marker will be entitled, but
not required, to nominate one managing member of the Board; provided, however,
that such nominee is acceptable to CT. CT will be entitled, but not required, to
nominate the remaining managing members. At or prior to the Confirmation
Hearing, Newco will disclose the identities of the managing members of the Board
and other executive officers of Newco and will provide information regarding
each officer to the extent required by the Bankruptcy Code.
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In the event of an Investment Act Breach or Unauthorized Transfer
Attempt (as such terms are defined in the Operating Agreement), Marker will not
be entitled to designate a managing member of the Board, and any existing
nominee of Marker may be removed from the Board by Newco or CT without Cause (as
defined in the Operating Agreement).
It is anticipated that, within five Business Days following the
Closing, CT will transfer up to an aggregate of 10% of the equity interests in
Newco to managing members of the Board of Newco. Marker has consented in advance
to any such transfer.
The Articles of Association of Newco provide that the voting right of
each Partner is proportionate to the value of his or her contribution to Newco,
whereby each 1,000 Swiss Francs entitles the holder to one vote. The Partner's
Meeting is the supreme body of Newco and has certain non-delegable powers
(including, but not limited to, the power to amend the Articles of Association,
to elect the managing members of the Board, and to discharge the managing
members and officers). A Meeting of Partners is called by the Board and upon the
written demand of one or more Partners. An absolute majority of votes
represented at the Meeting of Partners is required for the adoption of
resolutions. A majority is calculated according to the total number of votes due
to the Partners. A resolution of the Partner's Meeting passed by at least
two-thirds of the represented votes is required for certain actions (including,
but not limited to, an increase in capital, the dissolution of Newco followed by
liquidation, a change in the Articles of Association or any other resolution
with significant effect on Newco).
It is a condition to the Closing that Newco will have entered into an
employment agreement with Peter Weaver, the current President and Chief
Executive Officer of Marker.
As long as no Investment Act Breach or Unauthorized Transfer Attempt
(as such terms are defined in the Operating Agreement) has occurred, pursuant to
the Operating Agreement, Newco agrees that it will not take any of the following
actions and CT agrees that it will not cause Newco to take any such actions:
(i) enter into any transaction with CT or any Affiliate
thereof other than transactions or agreements that are not less favorable to
Newco as would have been obtained on an arm's length basis with a third party,
as determined by the good faith judgment of the Board; provided, however, that
prior to any such determination, Newco will provide Marker's nominated managing
member of the Board with all documentation and information as is reasonably
requested by the Marker nominee in order to permit the Marker nominee to review
the determination to be made by the Board;
(ii) pay any management or service fees to CT or any Affiliate
thereof other than fees for services actually rendered;
(iii) declare any distributions that are limited to the holder
of the CT Equity Interest (the 85% ownership interest in Newco);
(iv) amend any provision of Newco's Articles of Association or
Bylaws that would circumvent any provision of the Operating Agreement;
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(v) consolidate or be a party to a merger (unless Newco is the
surviving entity after giving effect to such consolidation or merger);
(vi) convey, transfer or sell all or substantially all of its
assets (other than to a wholly-owned subsidiary of Newco);
(vii) after a conveyance, transfer or sale of all or
substantially all of its assets to a wholly-owned subsidiary, (x) the sale or
transfer of all or a portion of Newco's ownership interest in such subsidiary,
(y) the issuance of warrants, options or other rights to acquire an ownership
interest in such subsidiary to any person other than Newco or (z) the transfer
or sale of all or substantially all of such subsidiary's assets; and
(viii) dissolve, liquidate or wind-up.
XI.
VOTING PROCEDURES AND CONFIRMATION REQUIREMENTS
A. General Voting Requirements
Pursuant to the Bankruptcy Code, only holders of Claims against and
Equity Interests in the Debtors that are Allowed pursuant to Section 502 of the
Bankruptcy Code or under the provisions of the Plan and that are Impaired under
the terms and provisions of the Plan are entitled to vote to accept or reject
the Plan. The Plan provides that that the following Classes of Claims and Equity
Interests are Impaired and, accordingly, the Debtors are seeking the acceptance
of the Plan by holders of Allowed Claims and Equity Interests in such Impaired
Classes: Marker Class 1 (First Security Bank Claim), Marker Class 2 (First
Mortgage Claim), Marker Class 3 (Hypo Vereinsbank (New York) Claim), Marker
Class 4 (Series A Bonds Claim), Marker Class 5 (German Banks Guarantee Claims),
Marker Class 6 (Foreign Exchange Contract Claims), Marker Class 10 (Preferred
Stock Interests in Marker), Marker Class 11 (Common Stock Interests in Marker),
DNR USA Class 1 (First Security Bank Claim), DNR USA Class 3 (Marker's Equity
Interests in DNR USA), DNR N.A. Class 1 (First Security Bank Claim) and DNR N.A.
Class 3 (Marker's Equity Interests in DNR N.A.). All other holders of Claims
including Allowed Administrative Claims, Allowed Priority Claims, Allowed
Priority Tax Claims, Allowed Insured Product Liability Claims, Allowed Piero
Claims, Allowed Small General Unsecured Claims Against Marker and Allowed
General Unsecured Claims Against DNR USA and DNR N.A. are not Impaired under the
Plan and are conclusively presumed to have accepted the Plan pursuant to Section
1126(f) of the Plan and will not receive Ballots. Although Marker Class 3 (Hypo
Vereinsbank Claim), Marker Class 5 (German Banks Guarantee Claims), DNR USA
Class 3 Interests and DNR N.A. Class 3 Interests will not receive any
distribution or retain any property under the Plan on account of such Claims and
Interests and are deemed to have rejected the Plan pursuant to Section 1126(g)
of the Bankruptcy Code, the respective holders of such Claims and Equity
Interests have agreed to accept the treatment accorded to such Claims and
Interests under the Plan and will vote to accept the Plan.
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The Bankruptcy Code provides that only the holders of Allowed Claims
and Equity Interests are entitled to vote on the Plan. A Claim or Equity
Interest which is listed on the Debtors' Schedules as disputed, unliquidated or
contingent, or, a Claim or Equity Interest to which an objection has been filed,
is not an Allowed Claim or Equity Interest unless and until the Court rules on
the objection and/or allows the Claim or Equity Interest or, on proper request
under Bankruptcy Rule 3018(a), temporarily allows the Claim or Equity Interest
for the purposes of voting on the Plan.
B. Voting On The Plan
If a creditor holds a Claim or Equity Interest classified in a voting
class under the Plan, the creditors' acceptance or rejection of the Plan is
important and must be in writing and filed on time. A Ballot to be used to
accept or reject the Plan has been enclosed with all copies of this Disclosure
Statement mailed to holders of Claims and Equity Interests entitled to vote on
the Plan. If a creditor holds a Claim or Equity Interest against one of the
Debtors, the Ballot will identify the Debtor against whom the Claim is held. If
A creditor holds a Claim or Equity Interest against more than one Debtor, the
Creditor will receive separate Ballots for each Claim or Equity Interest held
against each Debtor.
All votes to accept or reject the Plan must be cast by using the
appropriate Ballot or, in certain cases, the appropriate Master Ballot. Votes
which are cast in any other manner will not be counted. The purpose of the
Master Ballot is to provide a mechanism for an entity holding a claim or
interest on behalf of another party to be able to vote on such other party's
behalf. The Debtors are aware of only one group, the holders of the Common Stock
Interests in Marker, which may require the use of a Master Ballot. The entities
in whose names the shares of Marker Common Stock are registered are known as
record holders ("Record Holders"). Some Record Holders may hold shares on behalf
of additional parties. The additional parties are considered to be beneficial
owners ("Beneficial Owners"), and are entitled to cast their votes via the
Record Holder of their shares of Marker Common Stock. A Record Holder holding
shares of Marker Common Stock for Beneficial Owners can vote on behalf of such
owners by (a) promptly distributing the solicitation packages (including the
Plan, Disclosure Statement and the appropriate Ballot and postage-paid return
envelope addressed to the Record Holder) to such Beneficial Owners, (b)
collecting such Ballots from the Beneficial Owners, (c) completing a Master
Ballot by compiling the votes and other information collected from such
Beneficial Owners and (d) promptly transmitting such completed Master Ballot to
the Ballot Agent. Record Owners may cast their own vote on a Ballot or Master
Ballot. In order for the Record Holder to complete and return the Master Ballot
to the Ballot Agent by the Voting Deadline set forth below, Beneficial Holders
must complete and return their Ballots to their Record Holders so that they are
received no later than 5:00 p.m. (E.S.T.) on October 18, 1999 (the "Beneficial
Owners Voting Deadline").
StockTrans, Inc. will act as the Ballot Agent in connection with the
solicitation of votes from holders of Marker's Class 11 Stock Interests. All
deliveries, correspondence and questions with respect to Marker Class 11 Common
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Stock Interests Ballots should be directed to the Ballot Agent at the following
address or telephone number: StockTrans, Inc., 7 East Lancaster Avenue, Ardmore,
PA 19003, or Christina Bastas at (610) 649-7300.
Stroock & Stroock & Lavan LLP will act as Ballot Agent in connection
with the solicitation of votes from holders of Claims or Equity Interests in all
classes other than Marker Class 11 (Common Stock Interests). All deliveries,
correspondence and questions with respect to all Ballots other than Marker Class
11 Common Stock Interests Ballots should be directed to Edward O. Sassower at
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York, 10038, (212)
806-5515.
IF YOU HAVE A CLAIM OR INTEREST THAT IS IMPAIRED UNDER THE PLAN
ENTITLING YOU TO VOTE AND YOU DID NOT RECEIVE A BALLOT, PLEASE CONTACT EDWARD O.
SASSOWER AT 212-806-5515. IF YOU HOLD CLAIMS IN MORE THAN ONE CLASS, YOU MAY
RECEIVE MORE THAN ONE BALLOT. YOU SHOULD COMPLETE, SIGN AND RETURN EACH BALLOT
YOU RECEIVE.
The Court has fixed the close of business on September 15, 1999 as the
Voting Record Date for determining the holders of Claims and Interests entitled
to receive a copy of this Disclosure Statement and to vote to accept or reject
the Plan.
After carefully reviewing the Plan and this Disclosure Statement and
its exhibits, please indicate your vote on the enclosed Ballot, sign and date
and return the Ballot in the envelope provided. In voting for or against the
Plan, please use only the Ballot sent to you with this Disclosure Statement.
IN ORDER FOR YOUR BALLOT OR MASTER BALLOT TO BE COUNTED, IT MUST BE
COMPLETED AND SIGNED AS SET FORTH ABOVE AND RETURNED: (i) FOR ALL MARKER CLASS
11 COMMON STOCK INTERESTS BALLOTS, TO STOCKTRANS, INC., AT 7 EAST LANCASTER
AVENUE, ARDMORE, PA 19003, OR (ii) FOR ALL OTHER BALLOTS, TO STROOCK & STROOCK &
LAVAN LLP, ATTN: EDWARD O. SASSOWER, 180 MAIDEN LANE, NEW YORK, NY 10038. ALL
BALLOTS AND MASTER BALLOTS MUST BE RECEIVED BY THE BALLOT AGENT OR STROOCK &
STROOCK & LAVAN LLP, AS APPROPRIATE, NO LATER THAN 5:00 P.M., NEW YORK TIME ON
OCTOBER 22, 1999 (THE "VOTING DEADLINE").
PLEASE FOLLOW THE DIRECTIONS ON THE ENCLOSED BALLOT CAREFULLY. BALLOTS THAT
ARE RECEIVED AFTER THE VOTING DEADLINE WILL NOT BE ACCEPTED OR USED BY THE
DEBTORS IN SEEKING CONFIRMATION OF THE PLAN. IT IS OF THE UTMOST IMPORTANCE TO
THE DEBTORS THAT YOU VOTE PROMPTLY TO ACCEPT THE PLAN.
Under the Bankruptcy Code, for purposes of determining whether
requisite acceptances have been received, only those holders that vote to accept
or reject the Plan will be counted. Votes cannot be transmitted orally or by
facsimile transmission. Accordingly, it is important that you return your signed
and completed Ballot(s) promptly. Failure by any holder to send a duly executed
ballot with an original signature will be deemed an abstention by such holder
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with respect to a vote on the Plan and will not be counted as a vote for or
against the Plan. A vote may be disregarded if the Court determines, after
notice and hearing, that such acceptance or rejection was not solicited or
procured in good faith or in accordance with the provisions of the Bankruptcy
Code or if a Claim was voted in bad faith. If more than one Ballot is received
from any holder of an impaired Claim or Equity Interest for the same Claim or
Interest, the later dated Ballot will be deemed to supersede the earlier dated
Ballot.
ANY EXECUTED BALLOT RECEIVED THAT DOES NOT INDICATE EITHER AN
ACCEPTANCE OT REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE AN ACCEPTANCE
OF THE PLAN.
C. Confirmation of the Plan
1. The Confirmation Hearing
Section 1128 of the Bankruptcy Code requires the Court, after notice,
to hold a confirmation hearing. The Confirmation Hearing in respect of the Plan
has been scheduled for October 27, 1999 at 2:30 p.m., Eastern Time, before The
Honorable Mary F. Walrath at the United States Bankruptcy Court for the District
of Delaware, 824 Market Street, Sixth Floor, Wilmington, Delaware 19801. The
Confirmation Hearing may be adjourned from time to time without further notice
except for an announcement of the adjourned date made at the Confirmation
Hearing. Any objection to confirmation must be made in writing and specify in
detail the name and address of the objector, all grounds for the objection and
the amount of the Claim or number of shares of common stock or other Interests
held by the Objector. Any such objection must be filed with the Court, together
with proof of service thereof, and served so that it is received by the Court
and the following parties on or before October 25, 1999 at 4:00 p.m., Eastern
Time:
Stroock & Stroock & Lavan LLP Young Conaway Stargatt & Taylor LLP
Attorneys for the Debtors Attorneys for the Debtors
180 Maiden Lane Rodney Square North, 11th Floor
New York, NY 10038 Wilmington, DE 19801
Attn: Robert Raskin Attn: Laura Davis Jones
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O'Melveny & Myers LLP Richards, Layton & Finger
Attorneys for Newco Attorneys for Newco
153 East 53rd Street One Rodney Square
New York, NY 10022 P.O. Box 551
Attn: Peter V. Pantaleo Wilmington, DE 19899-0551
Attn: Thomas L. Ambro
Deborah E. Spivack
Office of the United States Trustee
601 Walnut Street
Curtis Center, Suite 950 West
Philadelphia, PA 19106
Objections to confirmation of the Plan are governed by Bankruptcy Rule
9014 and orders of the Court.
2. Requirements for Confirmation of the Plan
In order for the Plan to be confirmed, the Bankruptcy Code requires
that the Court determine that the Plan complies with all of the requirements of
Section 1129 of the Bankruptcy Code and that the disclosures concerning the Plan
have been adequate and have included information concerning all payments made or
promised in connection with the Plan and the Bankruptcy Cases. The Bankruptcy
Code also requires that: (i) the Plan is accepted by all Impaired classes of
claims and equity interests or, if rejected by an Impaired class, that the Plan
satisfies the applicable provisions of Section 1129(b) of the Bankruptcy Code
such that the Plan "does not discriminate unfairly" and is "fair and equitable"
as to such class, (ii) the Plan is feasible (that is, there is a reasonable
probability that the Debtors will be able to perform their respective
obligations under the Plan without needing further financial reorganization not
contemplated by the Plan), (iii) the Plan is in the "best interests" of
creditors and stockholders that are Impaired under the Plan and (iv) that the
Plan has classified Claims and Equity Interests in a permissible manner. In
addition, the Bankruptcy Code requires that the Plan has been proposed in good
faith and not by any means forbidden by law.
(i) Acceptance
Except as described herein, the Bankruptcy Code generally requires as a
condition to confirmation that each class of Claims or Interests that is
Impaired under the Plan accept the Plan. A Class of Claims has accepted the Plan
if the Plan has been accepted by holders of Claims that hold at least two-thirds
in dollar amount and more than one-half in number of the Allowed Claims of such
class that actually vote to accept or reject the Plan. Holders of Claims that
fail to vote are not counted as either accepting or rejecting the Plan. Under
the Plan, Marker Class 1 (First Security Bank Claim), Marker Class 2 (First
Mortgage Claim), Marker Class 3 (Hypo Vereinsbank (New York) Claim, Marker Class
4 (Series A Bonds Claim), Marker Class 5 (German Banks Guarantee Claim), Marker
Class 6 (Foreign Exchange Contract Claims), Marker Class 10 (Preferred Stock
Interests in Marker), Marker Class 11 (Common Stock Interests in Marker), DNR
USA Class 1 (First Security Bank Claim), DNR USA Class 3 (Marker's Equity
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Interests in DNR USA), DNR N.A. Class 1 (First Security Bank Claim) and DNR N.A.
Class 3 (Marker's Equity Interests in DNR N.A.) are Impaired or deemed Impaired
and are entitled to vote on the Plan. Marker Class 7 (Piero Claims), Marker
Class 8 (Insured Product Liability Claims), Marker Class 9 (Small General
Unsecured Claims), DNR USA Class 2 (General Unsecured Claims) and DNR N.A. Class
2 (General Unsecured Claims) are unimpaired and, therefore, are conclusively
deemed to have voted to accept the Plan.
(ii) Best Interests Test
Before the Plan may be confirmed, the Bankruptcy Court must find with
respect to any Impaired class containing members that have rejected the Plan,
that the Plan provides that each holder of a Claim or Equity Interest will
receive or retain under the Plan on account of such Claim property that has a
value, as of the Effective Date of the Plan, that is not less than the value of
the distribution each such entity would receive or retain if the Debtor was, on
the Effective Date, liquidated under Chapter 7 of the Bankruptcy Code. As set
forth herein and in the Liquidation Analysis annexed hereto as Exhibit E, the
Debtors believe that this test will be satisfied.
To determine what members of each impaired Class of Claims would
receive if the Debtors were liquidated under Chapter 7, the Court must consider
the values that would be generated from a liquidation of the Debtors' assets and
properties in the context of a hypothetical liquidation case under Chapter 7.
Since the Plan contemplates a sale of Marker's Assets, if the Debtors were to be
liquidated under Chapter 7 of the Bankruptcy Code pursuant to the Newco
Agreement, the result would be similar to the result achieved under the Plan.
If, however, Newco were to determine not to proceed under the Newco Agreement,
the alternatives are uncertain and unlikely, in management's opinion, to
generate greater values for creditors. The primary alternative is a series of
orderly but piecemeal going-concern sales of the Debtors' assets, assuming
offers could be found. The Debtors believes the time delay, added costs, and
risks of such piecemeal sales could cause reduced recoveries to creditors. The
Debtors also believe that distressed sale liquidations of any of its assets, in
the absence of orderly going-concern sales, would generate substantially reduced
values. Moreover, there is no assurance of funding for Marker and its
Subsidiaries during any such liquidation period.
Further, a conversion of the Chapter 11 cases to Chapter 7 would entail
the mandatory appointment of a trustee. Thus, the costs of liquidation under
Chapter 7 would include reasonable compensation payable to the Chapter 7
trustee1, as well as those which might be payable to attorneys and other
professionals that such trustee may engage.
To administer the estates responsibly, a Chapter 7 trustee, and the
trustee's staff and professionals, would necessarily devote substantial time and
effort to familiarizing themselves with the affairs of the Debtors and the
Bankruptcy Case, including asset dispositions and investigation of claims. This
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would likely entail hundreds of hours of additional professional services and
concomitant expense. Not only will the costs increase as a result thereof, but
the creditors will suffer a loss on the time value of their money as the Chapter
7 trustee will necessarily require more time to liquidate the assets, resolve
disputed and unliquidated Claims and ultimately make distributions to creditors.
Further, even assuming that a Chapter 7 trustee employed one or more of
the Debtors' current officers and Company's current counsel to assist the
trustee, there would still be an additional cost and delay to the estate from
bringing the Chapter 7 trustee up the learning curve.
Based upon the foregoing analysis, it is the view of the Debtors that
in a Chapter 7 liquidation there (i) would be an additional layer of
administrative expense (including the trustee's commissions and fees for
professionals) which would materially increase the obligations to be satisfied
out of the funds remaining from the sale of the Company's assets, and would,
correspondingly, reduce the funds available to satisfy General Unsecured Claims,
(ii) would likely be significant delays in distributions and (iii) would be
possible reductions in recoverable values of the Sale Assets and the Excluded
Assets due to the conversion of the case. Thus the Debtors believe that the Plan
meets the "best interests" test by providing each holder of an Impaired Claim
with a recovery that is not less than it would receive pursuant to a liquidation
of the Company under Chapter 7 of the Bankruptcy Code as of the Effective Date
of the Plan.
(iii) Feasibility
Section 1129(a) (11) of the Bankruptcy Code requires a finding that
confirmation of a plan is not likely to be followed by the liquidation, or the
need for further financial reorganization, of the debtor or any successor in
interest, unless as here, liquidation is expressly contemplated by the Plan.
Given that the Plan contemplates the sale of substantially all of Marker's
business and Assets to Newco in accordance with the terms and conditions set
forth in the Newco Agreement, the Debtors submit that no further showing of
"feasibility" is necessary. Management believes that all of the conditions for
Closing can be satisfied, and thus the Plan can become effective. However,
reference is made to Section XIII of this Disclosure Statement for an analysis
of risk factors relating to the Plan.
(iv) Classification
Section 1122 of the Bankruptcy Code sets forth the requirements
relating to classification of claims. Section 1122(a) provides that claims or
interests may be placed in a particular class only if they are substantially
similar to the other claims or interests in that class. The Debtors believe that
all Classes under the Plan satisfy the requirements of Section 1122(a).
(v) Confirmation Without Acceptance By All Impaired
Classes
The Bankruptcy Code contains provisions which could enable the
Bankruptcy Court to confirm the Plan, even though the Plan has not been accepted
by all Impaired classes, provided that the Plan has been accepted by at least
one Impaired class of Claims without including the votes of Insiders. The
Debtors believes that the Plan will be able to meet the statutory standards set
forth in the Bankruptcy Code.
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Section 1129(b)(1) of the Bankruptcy Code states:
Notwithstanding Section 510(a) of this title, if all of the
applicable requirements of subsection (a) of this Section other than
paragraph (8) are met with respect to a plan, the court, on request of
the proponent of the plan, shall confirm the plan notwithstanding the
requirements of such paragraph if the plan does not discriminate
unfairly, and is fair and equitable, with respect to each class of
Claims or Equity Interests that is impaired under, and has not accepted
the plan.
This Section makes clear that a plan must be confirmed notwithstanding
the failure of an Impaired class to accept the plan, so long as the plan "does
not discriminate unfairly" and it is "fair and equitable" with respect to each
class that is Impaired under, and has not accepted, the plan. This "fair and
equitable" requirement applies only with respect to dissenting classes.
The Bankruptcy Code sets forth three different standards for
establishing that a plan is "fair and equitable" with respect to a dissenting
class, depending on whether the class is comprised of secured or unsecured
Claims or Interests. In general, Section 1129(b) of the Bankruptcy Code permits
confirmation notwithstanding non-acceptance by an Impaired class if that class
and all classes junior to it are treated in accordance with the "absolute
priority" rule, which requires either that the dissenting class be paid in full,
or if it is not, that no junior class receives or retains property under the
plan. In addition, the "fair and equitable" standard has been interpreted to
prohibit any class senior to a dissenting class from receiving under a plan more
than one hundred percent of its Allowed Claims.
As a further condition to approving a cramdown, the Bankruptcy Court
must find that the Plan does not "discriminate unfairly" in its treatment of
dissenting Classes. A plan does not "discriminate unfairly" if (a) the Plan does
not treat any dissenting impaired Class of Claims or Interests in a manner that
is materially less favorable than the treatment afforded to another Class with
similar legal Claims against or Interests in the debtor and (b) no Class
receives payments in excess of that which it is legally entitled to receive for
its Claims or Interests. The Debtors believe that the Plan meets all the
requirements of the fair and equitable standard, and that it does not
discriminate unfairly as to any Impaired Class of Claims or Interests. DNR USA
Class 3 and DNR N.A. Class 3, while deemed to have rejected the Plan, can be
"crammed-down" under Section 1129(b) since no junior class is receiving any
distributions.
Under the provisions of the Bankruptcy Code, if all of the applicable
requirements of subsection (a) of Section 1129 are met, with the single
exception that all classes of claims and equity interests accept the Plan, the
Plan will nevertheless be confirmed if the Bankruptcy Court determines that it
does not discriminate unfairly and is fair and equitable with respect to any
class which might dissent.
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XII.
SECURITIES LAWS MATTERS
A. Investment Company Considerations
Pursuant to Section 7.4 of the Newco Agreement, Marker is required to
conduct its activities so as not to be deemed an "investment company" required
to be registered under the Investment Company Act of 1940 (the "Investment
Act"). Pursuant to the Operating Agreement, if an "Investment Act Breach"
occurs, then Marker will be required, at the option of Newco, to transfer its
Equity Interest in Newco to Newco. Under the Operating Agreement, an Investment
Act Breach includes, among other things, (i) Marker's failure to perform or
comply with any term or covenant contained in Section 7.4 of the Newco Agreement
(including its obligation not to be deemed an "investment company") and such
failure to perform or comply adversely affects any of Newco's or CT's rights
under the Newco Agreement or Operating Agreement, (ii) the failure of Marker or
any of its affiliates to give Newco notice of any communication it receives that
alleges Marker failed or is failing to comply with the Investment Act or the
assumptions and intentions set forth in the No Enforcement Request and (iii)
such failure to perform or comply adversely affects any of Newco's or CT's
rights under the Newco Agreement or the Operating Agreement. Any of the
foregoing constitutes an Investment Act Breach requiring Marker, at the option
of Newco, to transfer its Equity Interest in Newco to Newco. In exchange, Marker
will receive the difference between (x) 15% of the then fair market value of
Newco minus (y) such amounts payable by Marker to Newco or CT under the Newco
Agreement and/or the Operating Agreement (see "Newco Agreement - Indemnification
and Offset"). Such payment by Newco may be made in Cash or in the form of a
promissory note bearing interest at a rate of 5% per annum and payable no later
than three years from the date of issuance of the note.
Marker intends to implement the sale/liquidation transactions
contemplated by the Newco Agreement and the Plan without registering as an
investment company under the Investment Act in reliance on Section 7(a) of the
Investment Act. The Debtors believe that the following facts support its view
that it need not register as an investment company and will not be deemed an
"investment company" pursuant to the Investment Act:
(i) Marker will not engage in any operating business before its
liquidation. It simply will hold the Newco Equity Securities,
maintain its existence, satisfying any obligations to
creditors and others out of distributions from the Newco
Equity Securities or otherwise, fulfill its reporting
obligations and take steps necessary to accomplish its
liquidation. If Marker has cash in excess of its obligations,
it intends to distribute the cash to its shareholders. If it
retains cash to satisfy anticipated obligations, it intends to
hold the cash in a bank account, a money market fund or,
perhaps, short term money market instruments which it will not
trade for gains.
(ii) For as long as it is required by law to do so, it will
continue, as a reporting company, to disseminate regular 1934
Act filings and customary press releases, which, among other
matters, will disclose the bankruptcy proceeding, the
existence of the transaction, Marker's intention to cease
conducting any business other than that incidental to holding
its sole asset, and its decision to liquidate.
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(iii) Marker will not advertise its business or promote itself on
the basis of the return, if any, on the Newco Equity
Securities.
(iv) Marker will not issue any additional securities requiring
registration under the Securities Act of 1933.
(v) Marker will establish internal procedures to prevent
self-dealing. The only anticipated transaction between Marker
and Newco will be with respect to the exercise of Newco's
right to purchase its securities that are held by Marker, and
then only in accordance with the terms of the Operating
Agreement.
(vi) To permit it to monitor its investment, Marker will have the
right to appoint a person to serve on Newco's Board of
Directors. Newco will put into place minority shareholder
protections designed to permit Marker to review the fairness
of any transactions between the majority shareholders and
Newco.
(vii) Marker will not reapply for trading in NASDAQ National Markets
or any exchange.
(viii) Marker will not promote more active trading of its securities.
In this regard, Marker will not engage the services of a
market maker or advertise its securities' prices or terms upon
which they can be bought or sold, nor will it encourage third
parties to do so.
B. Hart-Scott-Rodino Antitrust Improvement Act
As of the Effective Date, no filings under the
Hart-Scott-Rodino Antitrust Improvement Act will be necessary in order to
consummate the transactions contemplated by the Newco Agreement.
XIII.
CERTAIN RISK FACTORS
HOLDERS OF CLAIMS AGAINST, AND EQUITY INTERESTS IN, THE DEBTORS, SHOULD
READ AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW AS WELL AS THE OTHER
INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT PRIOR TO VOTING TO ACCEPT OR
REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS
CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS
IMPLEMENTATION.
There are a number of conditions to the Sale Closing, the occurrence of
the Confirmation Date and the Effective Date under the Plan. See Article VIII of
the Newco Agreement, and Article XIII of the Plan. While the Debtors believe
that all such conditions will be satisfied, it cannot control the timing or
outcome of all of those conditions. Failure of satisfaction of any conditions
under Article VIII of the Newco Agreement might prevent the consummation of the
Sale and of the Plan.
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A. Risk of Non-Confirmation of the Plan
Although the Debtors believe that the Plan will satisfy all
requirements necessary for confirmation by the Bankruptcy Court, there can be no
assurance that the Bankruptcy Court will reach the same conclusion. Moreover,
there can be no assurance that modifications to the Plan will not be required
for confirmation or that such modifications would not necessitate the
resolicitation of votes.
B. New Financing for Newco
One of the conditions to the Sale Closing is that Newco and/or the
Subsidiaries shall have entered into a new credit facility ("New Financing
Facility") in order to provide Newco and its Subsidiaries with working capital
following the Sale Closing in amounts and on terms and conditions acceptable to
Newco. There can be no assurance that Newco will be able to obtain such
financing or that such financing will be obtained on acceptable terms. Pursuant
to the Hypo Vereinsbank Settlement Agreement, Hypo Vereinsbank has agreed to
provide financing to Marker Deutschland. See Section II.A.2(ii). If, however,
for any reason Newco and/or the Subsidiaries are unable to secure such
financing, the Sale Closing may not occur.
The new credit facility will likely contain, among other things,
certain restrictive covenants. A breach of any of these covenants could result
in a default under the New Financing Facility. Further, the restrictions in the
New Financing Facility will likely restrict Newco's ability to obtain additional
financing for working capital, capital expenditures and general corporate
purposes. In addition, substantially all of the assets of Marker Deutschland
will be pledged as security under the New Financing Facility.
C. Risk Factors Relating to the Newco Securities Distributed to Marker
1. Lack of Established Market; Illiquidity
Newco is a privately held GmbH, and there is no existing market for the
Newco Equity Securities. There are no current expectations to list the Newco
Equity Securities on any national securities exchange or trading market.
2. Dividends
Newco does not anticipate that dividends will be paid with respect to
the Newco Equity Securities.
D. Newco Financial Projections
The financial projections for Newco included in this Disclosure
Statement are dependent upon the successful implementation of Newco's business
plan and the reliability of the assumptions contained therein. The projections
reflect numerous assumptions, including confirmation and consummation of the
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Plan and the Sale in accordance with their terms, the anticipated future
performance of Newco, industry performance and economic conditions and other
matters, most of which are beyond the control of the Debtors and Newco and some
of which may not materialize. In addition, unanticipated events and
circumstances occurring subsequent to the preparation of the projections may
affect the financial results of Newco. While the Debtors and Newco believe that
the assumptions underlying the projections, considered on an overall basis, are
reasonable in light of current circumstances, no assurances can be, or is being,
given that the projections will be realized. Therefore, the actual results
achieved throughout the periods covered by the projections may vary from the
projected results, and these variations may be material. Nevertheless, the
Debtors believe that confirmation of the Plan is not likely to be followed by
the liquidation or the need for further financial reorganization, of Newco.
E. Risks Relating to the Marker Common Stock
1. Lack of Trading Market for Marker Common Stock
Marker's common stock traded on the Nasdaq National Market until
October 28, 1998 and is now quoted on the over-the-counter bulletin board.
Pursuant to Section 7.4 of the Newco Agreement, Marker is prohibited from
reapplying for trading on the Nasdaq National Market or any exchange. Further,
Marker is prohibited from promoting active trading of its common stock, thereby
preventing Marker from engaging the services of a market maker or advertising
the prices or terms upon which the common stock can be bought or sold. There can
be no assurance that an active trading market will develop. Further, there can
be no assurance as to the degree of price volatility in any such market.
Accordingly, no assurance can be given that any holder of Marker's common stock
will be able to sell such common stock or as to the price at which any sale may
occur. Marker has also agreed not to issue any additional securities requiring
registration under the Securities Act of 1933.
2. Lack of Dividends
Marker will not pay any dividends on the Marker Common Stock.
F. Investment Company Act
If an Investment Act Breach occurs prior to the exercise of the Option,
Marker will be required to transfer its Equity Interest to Newco (see
"Investment Company Considerations") and may not receive the benefit of the
appreciation of the value of its Equity Interest in Newco. In addition, if
Marker were forced to register as an "investment company" under the Investment
Act, Marker would not be able to conduct its activities as it had done
immediately prior to the date of the Investment Act Breach.
G. Significant Holders
Tauber owns approximately 34.1% (not including conversion rights with
respect to the Preferred Stock Interests) of the outstanding common stock of
Marker. As a result, Tauber has the ability to significantly influence matters
79
<PAGE>
requiring the approval of Marker's shareholders, including the election of
directors. Further, the possibility that Tauber may determine to sell all or a
large portion of his shares of common stock in a short period of time may
adversely affect the market price of the common stock.
XIV.
RELEVANT FINANCIAL INFORMATION
A. Historical Financial Information
Marker's Annual Report on Form 10-K for the fiscal year ended March 31,
1999 and Marker's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999 are annexed as Exhibit C to this Disclosure Statement. The financial
information is provided to permit the holders of Claims and Equity Interests to
better understand the Debtors' historical business performance.
B. Projected Financial Information
Pro forma financial statements for Newco in the form of Projected
Consolidating Income Statements, Projected Consolidating Cash Flow Statements
and Projected Consolidating Balance Sheets for Marker and its Subsidiaries (the
"Projections") for the three-year period from fiscal year ended March 31, 2000
through March 31, 2002 (the "Projection Period"), including adjustments
reflecting the impact of consummation of the Plan, are set forth in Exhibit D
hereto.
The Projections should be read in conjunction with the assumptions,
qualifications and explanations set forth in Exhibit D and the historical
financial statements for Marker contained in Exhibit C. Newco does not publish
its business plan or strategies or make external projections or forecasts of its
anticipated financial position or results of operations. Accordingly, Newco does
not anticipate that it will, and disclaims any obligation to, furnish updated
business plans or projections to holders of Claims or Interests prior to the
Effective Date, except as may be necessary to meet legal requirements for
Confirmation of the Plan, or to equity holders or debtholders after the
Effective Date, or include such information in documents required to be filed by
Marker with the SEC or otherwise make such information public.
The Projections were developed and prepared by the management of Newco
and Marker for purposes of determining whether the Plan satisfies the
feasibility standard and whether Newco can meet its obligations under the Plan
with sufficient liquidity and capital resources to conduct its businesses. The
Projections reflect numerous assumptions, including various assumptions with
respect to the anticipated future performance of Newco, industry performance,
general business and economic conditions and other matters, most of which are
beyond the control of Newco. In addition, unanticipated events and circumstances
may affect the actual financial results of Newco. THEREFORE, WHILE THE
PROJECTIONS ARE PRESENTED WITH SOME SPECIFICITY, THE ACTUAL RESULTS ACHIEVED
THROUGHOUT THE PROJECTION PERIOD WILL LIKELY VARY FROM THE PROJECTED RESULTS,
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<PAGE>
AND THESE VARIATIONS MAY BE MATERIAL. ACCORDINGLY, NO REPRESENTATION CAN BE, OR
IS BEING MADE, WITH RESPECT TO THE ACCURACY OF THE PROJECTIONS OR THE ABILITY OF
NEWCO TO ACHIEVE THE PROJECTED RESULTS. See Section XIII, "Certain Risk Factors"
for a discussion of certain factors that may affect the future financial
performance of Newco and of various risks associated with the securities of
Newco to be issued under the Plan
While the management of Newco believes that assumptions underlying the
Projections for the Projection Period, when considered on an overall basis, are
reasonable in light of current circumstances, no assurance can be, or is being,
given that the assumptions underlying the Projections are accurate or that the
results embodied in the Projections will be realized. Holders of Claims and
Equity Interests entitled to vote on the Plan must make their own determinations
as to the reasonableness of such assumptions and the reliability of the
Projections in reaching their determinations of whether to accept or reject the
Plan.
XV.
ALTERNATIVES TO CONFIRMATION OF THE PLAN
As noted above, pursuant to the Newco Agreement, Marker intends to sell
the Sale Assets to Newco in exchange for the Newco Equity Securities. However,
confirmation of the Plan is a condition to the Closing and thus if the Plan is
not confirmed, the Closing of the Newco Agreement may not occur in the absolute
discretion of Newco.
If Marker cannot consummate the Newco Agreement, its options include
(i) a search for a new purchaser for its stock or all of its Assets; (ii) a
search for piecemeal purchasers of the various businesses; (iii) a standalone
reorganization or dismissal of the Bankruptcy Cases; or (iv) a Chapter 7
liquidation. With respect to alternative sale options, as discussed more fully
in Section XI.C.2 above, the Debtors believe that piecemeal sales of its assets
in Chapter 11 or Chapter 7 will be costly, uncertain of occurrence, and cause
greater delay and could potentially result in lesser recoveries to creditors
than the currently proposed Plan. Further, based on the solicitation process
conducted by the Debtors' financial advisor in late 1998, the Debtors believe
that it is unlikely that a better offer can be obtained from a single purchaser,
and knows of no other single purchaser that might be interested in acquiring all
of its Assets.
The Debtors believe that the proposed Plan is in the best interest of
its creditors because under the Plan it is expected that holders of Claims will
receive in excess of what otherwise would be recovered by such holders if the
Debtors were liquidated under Chapter 7, sold piecemeal, if the Debtors did a
standalone reorganization or if their Bankruptcy Cases were dismissed.
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<PAGE>
XVI.
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN
THE FOLLOWING DISCUSSION IS A SUMMARY OF CERTAIN SIGNIFICANT POTENTIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN WITH RESPECT TO THE
COMPANY AND HOLDERS OF COMMON STOCK INTERESTS IN THE COMPANY ("COMMON STOCK
HOLDERS"). THE DISCUSSION IS BASED UPON LAWS, INCLUDING THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (THE "TAX CODE"), REGULATIONS, RULINGS AND COURT
DECISIONS NOW IN EFFECT, ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY WITH
RETROACTIVE EFFECT. THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO COMMON
STOCK HOLDERS MAY VARY BASED ON THE PARTICULAR CIRCUMSTANCES OF EACH SUCH
HOLDER. THIS SUMMARY DOES NOT ADDRESS ASPECTS OF UNITED STATES FEDERAL INCOME
TAXATION APPLICABLE TO COMMON STOCK HOLDERS WHICH ARE SUBJECT TO SPECIAL
TREATMENT FOR UNITED STATES FEDERAL INCOME TAX PURPOSES INCLUDING, BUT NOT
LIMITED TO, FINANCIAL INSTITUTIONS, TAX-EXEMPT ENTITIES, INSURANCE COMPANIES AND
FOREIGN PERSONS. EXCEPT TO THE EXTENT SPECIFICALLY DISCUSSED BELOW, IT ALSO DOES
NOT DEAL WITH THE ONGOING TAX CONSEQUENCES OF HOLDING AN INTEREST IN NEWCO, OF
ANY OPTIONAL PURCHASE OF NEWCO OWNERSHIP INTERESTS BY CT, OR OF THE LIQUIDATION
OF THE COMPANY. MOREOVER, THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
CERTAIN ASPECTS OF THE PLAN ARE UNCERTAIN DUE TO A LACK OF DEFINITIVE LEGAL
AUTHORITY. NO RULING HAS BEEN OBTAINED OR WILL BE REQUESTED FROM THE INTERNAL
REVENUE SERVICE (THE "IRS") WITH RESPECT TO ANY OF THE UNITED STATES FEDERAL
INCOME TAX ASPECTS OF THE PLAN, AND NO OPINION OF COUNSEL HAS BEEN OR WILL BE
OBTAINED BY THE DEBTORS WITH RESPECT THERETO. EACH COMMON STOCK HOLDER IS
STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE UNITED STATES
FEDERAL, STATE AND LOCAL INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN, AND THE
FOREIGN INCOME AND OTHER FOREIGN TAX CONSEQUENCES OF THE PLAN.
AS THIS DISCUSSION DOES NOT PURPORT TO ADDRESS ANY HOLDERS OF ALLOWED
CLAIMS OR PREFERRED STOCK INTERESTS, EACH SUCH HOLDER SHOULD CONSULT ITS OWN TAX
ADVISORS REGARDING THE UNITED STATES FEDERAL, STATE AND LOCAL INCOME AND OTHER
TAX CONSEQUENCES TO IT OF THE PLAN (INCLUDING WHETHER SUCH HOLDER WILL BE
ENTITLED TO TAKE A LOSS IF IT DOES NOT RECEIVE A FULL RECOVERY OF ITS CLAIMS),
AND THE FOREIGN INCOME AND OTHER FOREIGN TAX CONSEQUENCES TO IT OF THE PLAN
(INCLUDING THE SWISS OR OTHER FOREIGN INCOME AND WITHHOLDING TAX CONSEQUENCES OF
HOLDING ANY NOTES ISSUED TO SUCH HOLDER BY NEWCO).
82
<PAGE>
A. Tax Consequences to the Company
The Debtors, together with the other members of their United States
consolidated group, anticipate reporting on their consolidated United States
federal income tax return for the taxable year ended March 31, 1999 net
operating losses and loss carryovers ("NOLs") of approximately $41.0 million.
The amount of these NOLs, however, remains subject to examination in future
taxable years, and there is no assurance that they might not be reduced or
substantially limited by the IRS. In addition, as discussed below, the amount of
these NOLs will be reduced in connection with certain discharges of indebtedness
resulting from the consummation of the Plan and the gain, if any, resulting from
the transfer of substantially all of the Company's assets to Newco pursuant to
the Newco Agreement. The availability of these NOLs may also be subject to the
limitations of Section 382 if there has been, or there is in the future, certain
direct or indirect changes in the stock ownership of the Debtors (see "Section
382 Limitation on Use of NOLs and Future Deductions," below). In accordance with
the Plan, all amounts payable in respect of an Allowed Claim will be treated by
the Company as having been applied first in payment of accrued interest, if any,
and then in payment of the principal amount with respect to such Allowed Claim.
1. Discharge of Indebtedness
Under the Tax Code, a taxpayer generally must include in gross income
the amount of any cancellation of indebtedness ("COD") income that is realized
during the taxable year. COD income is the difference between the amount of the
taxpayer's indebtedness that is canceled and the amount or value of the
consideration exchanged therefor. Section 108 of the Tax Code, however, provides
that a debtor in a bankruptcy proceeding is not required to recognize COD income
(the "Bankruptcy Exception"), but must instead reduce certain of its "Tax
Attributes" by the amount of unrecognized COD income. "Tax Attributes" include
NOLs, capital losses and loss carryovers, certain tax credits and, subject to
certain limitations, the tax basis of property. The Tax Attributes are not
reduced, however, until after the tax for the year of discharge has been
determined. COD income is also not recognized with respect to the discharge of
indebtedness which, if paid, would have given rise to a deduction.
It is expected that any COD income realized by the Debtors will be
applied against and reduce the amount of the Debtors' NOLs. Because, however,
the reduction in Tax Attributes is made after the determination of any tax
imposed for the taxable year of the discharge, any reduction in the Debtors' Tax
Attributes should not affect the determination of the United States federal
income tax liability of the Debtors in respect of gains, if any, recognized upon
the transfer of the Company's assets to Newco under the Newco Agreement (see
"Tax Consequences of Transfer of Assets to Newco," below).
2. Tax Consequences of Transfer of Assets to Newco
CT has agreed in the Newco Agreement to cause Newco to elect to be
treated as a partnership for United States federal income tax purposes. The
transfer of substantially all of the Company's assets to Newco pursuant to the
Newco Agreement in connection with the consummation of the Plan will be treated
83
<PAGE>
as a contribution of assets to a partnership, or as a partial sale and partial
contribution. Generally, no loss may be recognized on the contribution or
partial contribution. Gain or loss will be recognized to the extent of any
partial sale. The Company will also recognize gain in connection with the
contribution (or partial contribution) if the liabilities assumed by Newco under
the Newco Agreement which are treated for tax purposes as allocated to CT exceed
the Company's aggregate tax bases in its assets contributed to Newco. Based on
existing IRS tax rules, it is not expected that there will be any such gain. Any
portion of the NOLs of the subsidiaries of the Company that are transferred to
Newco generally will not be available to the Company following the transfer, and
the use of any such NOLs by the subsidiaries transferred to Newco to shelter
their own income likely will be substantially limited under the rules of Section
382 discussed below.
The IRS has the authority to issue regulations which could require the
Company to recognize income from certain intangible assets transferred to Newco
commensurate with income generated by such assets.
3. Section 382 Limitation on Use of NOLs and Future Deductions
Section 382 of the Tax Code limits or eliminates the ability of a loss
corporation to utilize NOLs and certain so called "Built-In Losses or
Deductions" following a more than fifty percent (50%) change in corporate
ownership within a three-year period (an "Ownership Change"). The general rule
is that following an Ownership Change, the maximum amount of a corporation's NOL
that can be used in any post-change year is equal to the value of the stock of
the corporation immediately prior to such Ownership Change, multiplied by the
federal tax exempt rate (the "Annual Limitation"). If, however, a corporation
does not continue its business enterprise for two years following the date of
its Ownership Change, such corporation will not be able to use any of its NOLs.
Further, if there is a net "Built-In Loss" (generally, the amount by which a
company's tax basis for its assets exceeds the fair market value of such assets
on the date of the Ownership Change) or there are "Built-In Deductions"
(generally, any amounts which are allowable as deductions following an Ownership
Change, but which are attributable to events occurring prior to the Ownership
Change), any losses or deductions realized within the five-year period following
an Ownership Change (which are attributable to such "Built-In Losses" or
"Built-In Deductions") are also subject to the Annual Limitation.
While the redemption of the Preferred Stock Interests pursuant to the
Plan will result in an ownership shift, the Debtors do not believe that the
consummation of the Plan and the transactions contemplated by the Newco
Agreement will result in an Ownership Change. No assurance can be given that an
Ownership Change will not occur in the future (as a result of past, current and
future ownership shifts, when viewed together) and limit or eliminate the
Company's ability to utilize its NOLs, Built-In Losses and Built-In Deductions
in the future. Upon consummation of the Plan, the books and records of the
United States subsidiaries of the Company will be closed and the activity
through that date shall be included in the Company's consolidated United States
federal income tax return for the year ending March 31, 2000. The activities of
the United States subsidiaries subsequent to consummation of the Plan will be
separately reported by each subsidiary on its own tax return. The utilization of
any NOL carryforwards of the United States subsidiaries of the Company likely
will be limited significantly by the rules of Section 382 due to the change in
ownership resulting from the transfer of ownership in the subsidiaries of the
Company to Newco.
84
<PAGE>
4. Alternative Minimum Tax
Corporations are subject to an alternative minimum tax ("AMT") at a
rate of twenty (20%) percent. For purposes of calculating alternative minimum
taxable income ("AMTI"), the AMT NOL may not reduce AMTI by more than ninety
(90%) percent. This would have the effect of subjecting any income or gain
earned by the Debtor (other than any COD income incurred as a result of the
Plan) which is not sheltered by current deductions or losses to a tax at an
effective rate of two (2%) percent (i.e., 10% times 20%).
5. Ownership of Interest in Newco
Because an election will be made to treat Newco as a partnership for
United States federal income tax purposes, the Company generally will be
required to take account of its allocable share of Newco's items of income,
gain, deduction, loss and credit when determining its United States federal
income tax liability. Accordingly, it may be required to include an item of
income currently without receiving a commensurate distribution from the Company.
Gain or loss will also be realized by the Company if CT exercises the option to
acquire the Company's interest in Newco.
B. Tax Consequences to the Common Stock Holders
Because, pursuant to the Plan, the Common Stock Holders will retain
their Common Stock Interests in the Company, the consummation of the Plan will
not result in a taxable event to such holders. Accordingly, the Common Stock
Holders will not recognize any gain or loss as a result of the transactions
contemplated by the Plan and their holding period in their Common Stock
Interests will include their holding period in such Common Stock Interests prior
to the consummation of the Plan. All Common Stock Holders should review "Tax
Consequences to the Company" above to understand the effects of the Plan and the
Newco Agreement on their investment. At the time the Company is liquidated,
Common Stock Holders will generally recognize gain (or loss) equal to the
positive (negative) difference between the amount, if any, received on the
liquidation and their tax basis in their Common Stock Interests. The gain or
loss will generally be a capital gain or loss.
C. Importance of Obtaining Professional Tax Assistance
The foregoing is intended as a summary only, and is not a substitute
for careful tax planning with a tax professional. The United States federal,
state and local income and other tax consequences of the Plan, as well as the
foreign tax consequences of the Plan, are complex and, in some cases, uncertain.
Such consequences may also vary based on the particular circumstances of each
Common Stock Holder. Accordingly, each Common Stock Holder is strongly urged to
consult with his, her or its own tax advisor regarding the United States
federal, state and local, and foreign tax consequences under the Plan.
85
<PAGE>
XVII.
CONCLUSION
The Debtors believe that the Plan provides the best possible recoveries
for creditors and Equity Interest holders that can be achieved in any reasonable
time frame and that possible alternatives are likely to result in delayed
distributions for all and ultimately diminished recoveries for holders of Claims
and Equity Interests. Therefore, the Debtors urge all holders of Claims and
Equity Interests entitled to vote to accept the Plan.
Dated: September 22, 1999
MARKER INTERNATIONAL, et al., Debtors
By: /s/ Kevin Hardy
-----------------
Name: Kevin Hardy
Title: Chief Financial Officer
COUNSEL:
Robert Raskin STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
(212) 806-5400
Laura Davis Jones
YOUNG CONAWAY STARGATT & TAYLOR, LLP
P.O. Box 391
Rodney Square North, 11th Fl.
Wilmington, DE 19801
(302) 571-6600
86
<PAGE>
- --------
1 Section 326(a) of the Bankruptcy Code provides that a chapter 7
trustee's compensation shall not exceed 3% of the moneys in excess of
$1 million disbursed or turned-over in the case by the trustee to
parties-in-interest, including holders of secured claims.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re: )
) Chapter 11
DNR USA, INC., DNR NORTH )
AMERICA, INC. AND MARKER ) Case No. 99-2880 (MFW)
INTERNATIONAL )
) (Jointly Administered)
Debtors. )
AMENDMENT TO FIRST AMENDED JOINT CHAPTER 11 PLAN
OF REORGANIZATION OF MARKER INTERNATIONAL, DNR USA, INC.
AND DNR NORTH AMERICA, INC.
---------------------------
The Debtors' First Amended Joint Chapter 11 Plan of
Reorganization dated September 22, 1999 (the "Plan") is hereby amended as
follows:
Section 14.2(b) of the Plan is hereby amended and restated in
its entirety to read as follows:
"On the Effective Date, except as otherwise provided in the
Plan, the Debtors, their Affiliates (as such term is defined in Section 101(2)
of the Bankruptcy Code) and their shareholders derivatively are hereby deemed to
have forever waived and released unconditionally (i) the holders of Equity
Interests, (ii) First Security Bank, Hypo Vereinsbank (New York), Isomura, M&T
Bank, KeyBank (except that all of the rights, defenses and claims of Marker
Deutschland GmbH and Marker USA against KeyBank relating to or arising under
KeyBank's Foreign Exchange Contract Claims are expressly preserved until such
time as KeyBank's claims, if any, against Marker Deutschland GmbH and Marker USA
are discharged and released pursuant to Section 14.3 of the Plan), the German
Banks, Piero, Marker's Subsidiaries (in their capacity as holders of Claims),
and Newco (except as otherwise provided in the Newco Agreement) and (iii) all
present and former directors, officers, employees, agents, consultants,
advisors, attorneys, accountants and other representatives and their respective
successors, assigns or Affiliates (as defined in the Newco Agreement) of or to
any of the foregoing in their capacity as such (all of the foregoing
collectively referred to as the "Third Party Releasees") from the Released
Claims; provided, however, that this release shall not constitute a release of
any Allowed Claims treated under this Plan or any claims or causes of action of
Marker or Newco against the other arising under the Newco Agreement (unless
otherwise provided in the Newco Agreement) or the Operating Agreement. Entities
deemed to have released Claims pursuant to
<PAGE>
this Section 14.2(b) shall be forever precluded from asserting whether directly,
derivatively or otherwise, any such Claims against the Third Party Releasees."
Section 14.3 of the Plan is hereby amended and restated in its
entirety to read as follows:
On the Effective Date, each holder (or representative thereof)
of a Claim or Equity Interest (a) who has accepted or is deemed to have accepted
this Plan, (b) whose Claim or Equity Interest is in a class that has accepted or
is deemed to have accepted this Plan pursuant to Section 1126 of the Bankruptcy
Code or (c) who may be entitled to receive a distribution of property or retain
property pursuant to this Plan, shall be deemed to have forever waived and
released unconditionally, to the extent permitted by law, the Debtors, the
Debtor Releasees and the Third Party Releasees from the Released Claims;
provided, however, that this release shall not constitute a release of (i) any
payment obligation with respect to the treatment of Allowed Claims provided
under this Plan, (ii) any claims or causes of action of Marker or Newco against
the other arising under the Newco Agreement (unless otherwise provided in the
Newco Agreement) or the Operating Agreement, (iii) KeyBank's rights and claims,
if any, against Marker Deutschland GmbH and Marker USA arising under or relating
to KeyBank's Foreign Exchange Contracts; provided, however, that upon payment to
KeyBank of all sums due to KeyBank under the Plan (including the Cash payment
and all amounts due under the KeyBank Note), Marker Deutschland GmbH and Marker
<PAGE>
USA will be discharged and released of all such claims, or (iv) any claims third
parties may have against each other, which claims are not related to the Debtors
and the Chapter 11 Cases. Persons deemed to have released claims pursuant to
this Section 14.3 shall be forever precluded from asserting any such claims
against the Debtors, the Debtor Releasees or the Third Party Releasees."
Dated: Wilmington, Delaware
October 25, 1999
Respectfully Submitted,
MARKER INTERNATIONAL, et al., Debtors
By: /s/ Kevin Hardy
---------------
Name: Kevin Hardy
Title: Chief Financial Officer
COUNSEL:
Robert Raskin
STROOCK & STROOCK & LAVAN LLP
180 Maiden Lane
New York, New York 10038
(212) 806-5400
Laura Davis Jones
YOUNG CONAWAY STARGATT & TAYLOR, LLP
P.O. Box 391
Rodney Square North, 11th Fl.
Wilmington, DE 19801
(302) 571-6600
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