<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended DECEMBER 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 0-24534
MERIDIAN SPORTS INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 13-3776096
----------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 CHEROKEE COVE DRIVE, VONORE, TN 37885
------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 423-884-6776
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
COMMON STOCK, $.01 PAR VALUE OTC BULLETIN BOARD
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the common stock of the registrant held
by non-affiliates as of March 10, 1998 was $2,800,000.
As of March 10, 1998, there were 8,000,000 shares of the registrant's
common stock outstanding, of which 5,200,000 shares are held by an indirect
wholly-owned subsidiary of Mafco Holdings Inc.
INCORPORATED BY REFERENCE
Portions of the Company's proxy statement for the Annual Meeting of
Shareholders which is to be filed within 120 days of the end of the fiscal
year, are incorporated by reference into Part III.
Exhibit Index begins at page 16.
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MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
Item 1. Business ...........................................................3
Item 2. Properties..........................................................5
Item 3. Legal Proceedings...................................................5
Item 4. Submission of Matters to a Vote of Security Holders.................7
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters...................................8
Item 6. Selected Consolidated Financial Data................................8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................10
Item 8. Financial Statements and Supplementary Data........................15
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures....................................15
PART III
Item 10. Directors and Executive Officers of the Registrant.................15
Item 11. Executive Compensation.............................................15
Item 12. Security Ownership of Certain Beneficial Owners and Management.....15
Item 13. Certain Relationships and Related Transactions.....................15
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K....16
Signatures.........................................................18
2
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PART I
ITEM 1. BUSINESS
GENERAL
Meridian Sports Incorporated ("Meridian" or the "Company") was
incorporated in Delaware in 1994 in connection with an initial public offering
of its common stock to succeed to the assets and liabilities of the water
sports businesses then owned by Meridian Sports Holdings Inc. (the "Water
Sports Businesses") and BW Sale Corp. ("BW"), formerly Boston Whaler, Inc.
("Boston Whaler"). Meridian Sports Holdings Inc. ("Old Meridian") is an
indirect wholly-owned subsidiary of MacAndrews & Forbes Holdings Inc. (together
with its affiliates, "MacAndrews & Forbes").
On October 19, 1994, the Company completed an initial public offering
(the "IPO") in which it issued and sold 2,800,000 shares of its common stock.
The net proceeds to the Company from the IPO were used to repay borrowings
outstanding under the Company's former bank credit agreement (the "Old Meridian
Credit Agreement") and certain debt payable to affiliates ("Affiliate Debt").
The IPO reduced MacAndrews & Forbes' ownership of the Company to approximately
65%.
On October 8, 1997, the Company entered into and consummated an
agreement with Johnson Worldwide Associates, Inc. ("JWA") pursuant to which JWA
purchased certain assets and assumed certain liabilities of the Company's
Soniform scuba equipment business ("Soniform") (the "Soniform Sale"), for
approximately $1.8 million.
On July 31, 1997, the Company entered into and consummated an
agreement with Earth and Ocean Sports, Inc. ("EOS") pursuant to which EOS
purchased certain assets and assumed certain liabilities of the Company's
O'Brien towable watersports business ("O'Brien") (the "O'Brien Sale"), for
approximately $4.9 million.
On May 31, 1996, the Company consummated a transaction with Brunswick
Corporation ("Brunswick") pursuant to which Brunswick purchased certain assets
and assumed certain liabilities of BW for approximately $26.2 million, net of
adjustments (the "BW Sale").
On January 31, 1996, the Company sold all of the capital stock of its
wholly-owned subsidiary Skeeter Products, Inc. ("Skeeter") to Yamaha Motor
Corporation, U.S.A. ("Yamaha") pursuant to a Stock Purchase Agreement by and
between Yamaha and the Company for $33.9 million, net of adjustments (the
"Skeeter Sale").
The results of operations of O'Brien, Soniform, Skeeter and Boston
Whaler are included in "Former Operations" in the accompanying consolidated
statements of operations for all periods presented through their respective
sale dates.
Meridian is a holding company which operates through its wholly-owned
subsidiary MasterCraft Boat Company ("MasterCraft"). MasterCraft is a designer,
manufacturer and marketer of specialized ski boats targeted principally at
boating and waterskiing enthusiasts.
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PRODUCTS AND BUSINESSES
The following table sets forth the net sales of the Company's
principal businesses for the years ended December 31, 1997, 1996 and 1995.
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
(In millions)
Ongoing operations................... $52.6 $ 47.6 $ 54.3
Former operations.................... 22.8 54.8 153.9
------ -------- -------
$75.4 $102.4 $208.2
===== ====== ======
MASTERCRAFT. Founded in 1968, MasterCraft is the largest producer of
premium inboard tournament ski boats and a growing manufacturer of luxury
performance V-Drive runabouts. MasterCraft models range in size from 19 to 22
feet, range in price from $19,995 to $37,100 and are sold both domestically and
internationally through more than 125 independent dealers. The boats are
primarily powered by fuel-injected inboard motors built by General Motors
Corporation. During 1997, MasterCraft introduced seven totally new models and
three fully updated models under the ProStar, MariStar and PowerStar brands as
part of its continuing commitment toward increasing its share of the premium
inboard tournament ski boat market and broadening its line of recreational
boats. This was the largest product introduction in MasterCraft's history. In
1996, MasterCraft began offering a wakeboard option aimed at the rapidly
growing wakeboard market. MasterCraft is committed to continuing its legacy as
an innovator in the ski boat market and plans to increase its presence in the
family market through new product introductions, innovative technological
improvements, and distribution through additions to and upgrading of its dealer
network.
In 1995, the Company began a restructuring of its personal watercraft
business ("WetJet"). In 1997, the Company substantially completed the program
and has discontinued the manufacture of personal watercraft.
MANUFACTURING
The Company manufactures its MasterCraft products at one plant in the
United States in Vonore, Tennessee ("Cherokee Cove").
The Company uses a variety of materials and products in the
manufacture of its boats. The resins used in the manufacturing of its boat
hulls are available from various suppliers. Engines and other components used
in the manufacture of the Company's products are produced to the Company's
specifications and are available from multiple sources.
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EMPLOYEES
As of December 31, 1997, the Company employed approximately 380 people
full time. None of the Company's employees are represented by unions.
The Company believes that its relations with its employees are
satisfactory and that its employees, many of whom have long experience with the
Company, represent a valuable resource. Management conducts regularly scheduled
meetings with its employees to inform them about developments in the Company's
businesses and to respond to employee questions and concerns.
ITEM 2. PROPERTIES
The Company's principal property is a manufacturing facility in
Vonore, Tennessee comprised of approximately 156,000 square feet.
The Vonore, Tennessee facility is owned by the Company. The Vonore,
Tennessee facility is pledged as collateral under a credit facility entered
into in 1997 between the Company and an affiliate (the "M&F Facility"). The
Company's facilities in Redmond, Washington, Kilgore, Texas, Edgewater, Florida
and Amsterdam, Netherlands were sold to third parties as part of the O'Brien
Sale, Skeeter Sale and BW Sale. The New York office was closed in 1996 in
connection with the restructuring of the headquarters office.
ITEM 3. LEGAL PROCEEDINGS
On August 29, 1996, an action known as Shelton Smith, on behalf of
himself and others similarly situated v. Sunchaser Marine, MasterCraft Boat
Company, Inc., WetJet, A Division of MasterCraft and Meridian Sports
Incorporated, was brought in the 207th District Court of Comal County, Texas by
Shelton Smith on behalf of himself and a putative nationwide class of WetJet
personal watercraft consumers, asserting claims against the Company, WetJet,
MasterCraft, and Sunchaser Marine, Inc. ("Sunchaser") under the Texas Deceptive
Trade Practices Act ("DTPA") and the Uniform Commercial Code for alleged
breaches of express and implied warranties with respect to the sale of the
WetJet personal watercraft units. The complaint also alleges that MasterCraft
and/or WetJet were utilized as alter egos or mere instrumentalities of the
Company. Shortly thereafter, Sunchaser, a WetJet dealer, filed a cross-action
against MasterCraft, WetJet, and the Company asserting various causes of action
based on allegations that the cross-defendants breached various warranties and
representations relating to the dealer contract and the supply of merchantable
WetJet units to the dealer. Sunchaser subsequently amended its third-party
petition to add those allegations on behalf of a class of all entities who were
retailers, dealers or distributors of the WetJet units or who performed
warranty work on the units. Sunchaser also seeks to hold the Company liable
under alter ego theories of liability. Finally, Watercraft Rentals, Inc.,
Randow L. Knodel and Harriet Fortson ("WaterCraft Rentals") intervened in the
lawsuit and now assert, on behalf of themselves and a putative class of
entities who purchased the WetJet units for purposes of renting or leasing
them, causes of action for violations of the Texas DTPA, breach of express and
implied warranties, and breach of contract. Watercraft Rentals, et al., also
seek to hold the Company liable under alter ego theories of liability.
Meridian has filed a special appearance in the case, contending that
the Texas court cannot assert personal jurisdiction over Meridian. MasterCraft
and WetJet have filed answers and a Motion to Deny
5
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Class Certification and Smith, Sunchaser and WaterCraft Rentals have filed
motions to certify the class they purport to represent. The case is presently
in the early stages of discovery. Management of the Company and of MasterCraft
intend to vigorously defend the claims against them.
The Company is involved in certain other claims and legal actions
arising in the ordinary course of business. The Company does not believe that
the outcome of such other claims and lawsuits, individually or in the
aggregate, will have a material adverse effect on the Company's financial
condition or results of operations.
PRODUCT LIABILITY MATTERS
The Company is party to various product liability lawsuits relating to
its products and incidental to its business. The Company believes that many of
the personal injury and damage claims brought against it arise from the misuse
or misapplication of the Company's products. In such cases, the Company
vigorously defends against such actions. Historically, product liability awards
have not had a material impact on the Company. There can be no assurance,
however, that the Company's future product liability experience will be
consistent with its past experience. The Company believes that the ultimate
conclusion of the various pending claims and lawsuits against the Company will
not exceed accruals, net of insurance recoveries, for such product liability
claims recorded on the consolidated balance sheet and will not have a material
adverse effect on the financial condition or results of operations of the
Company.
The Company independently purchases third-party liability insurance as
well as participates in insurance programs maintained by MacAndrews & Forbes,
and reimburses MacAndrews & Forbes for its allocable share of the cost of such
coverage. Such liability insurance is written on an occurrence basis. The
Company believes that the level of coverage is adequate.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws
and regulations relating to the environment, health and safety and other
regulatory matters. The Company's operations may from time to time involve the
use of substances that are classified as toxic or hazardous within the meaning
of these laws and regulations.
The Company's operations may be considered "major sources" of air
emissions, particularly volatile organic compounds, under the Clean Air Act,
and therefore will be required to obtain an operating permit pursuant to Title
V of the 1990 Amendments to the Clean Air Act. In addition, the Company's
facility emits styrene, which is designated as a hazardous air pollutant, and
these facilities will be subject to maximum achievable control technology
("MACT") emission standards. Compliance with MACT standards will be phased in
over the next five to ten years.
The Company believes that it has obtained all material permits and
that its operations are in substantial compliance with all material applicable
environmental laws and regulations. Any non-compliance with environmental laws
and regulations is not likely to have a material adverse effect on the Company,
its results of operations or its liquidity. Nevertheless, future events, such
as changes in, or modified interpretations of, existing laws or regulations or
enforcement policies may give rise to additional compliance and other costs
that could have a material adverse effect on the Company.
6
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Pursuant to the 1990 Amendments to the Clean Air Act, the EPA has been
studying the impact of marine engines on the environment. The EPA has proposed
regulations establishing air emission standards for new marine engines. To the
extent that such regulations, when finally adopted, make it more costly to
acquire a marine vessel and engine, such regulations could have a material
adverse effect on the Company's business.
OTHER REGULATORY REQUIREMENTS
The Company's boats must be certified as meeting U.S. Coast Guard
specifications. In addition, boat safety is subject to federal regulation under
the Boat Safety Act of 1971, as amended, pursuant to which boat manufacturers
may be required to recall products for replacement of parts or components that
have demonstrated defects affecting safety. The Company believes its operations
and products are in substantial compliance with all such regulations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1997.
7
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the over-the-counter bulletin
board under the symbol "MSPO". Prior to the second quarter of 1997, the
Company's Common Stock was listed and traded on the Nasdaq National Market. The
following table sets forth the high and low sales prices as reported on the
over-the-counter bulletin board for the Company's Common Stock for the second
through the fourth fiscal quarter of 1997 and as reported on the Nasdaq
National Market for the first fiscal quarter of 1996 through the first fiscal
quarter of 1997.
High Low
---- ---
1997
----
First Quarter........................ $1 5/8 $ 15/16
Second Quarter....................... 1 17/32 3/8
Third Quarter........................ 1 1/2 3/4
Fourth Quarter....................... 1 9/32 1/2
1996
First Quarter........................ $6 7/8 $3 7/8
Second Quarter....................... 5 1/8 2 1/2
Third Quarter........................ 4 1/4 1 3/8
Fourth Quarter....................... 2 3/4
As of the close of business on March 10, 1998, there were
approximately 100 holders of record of the Company's Common Stock.
The Company did not declare a cash dividend on its Common Stock in
1997 or in 1996. The Company does not anticipate that any dividends will be
declared on its Common Stock in the foreseeable future. Any future declaration
of dividends would be subject to the discretion of the board of directors of
the Company and subject to certain limitations under the General Corporation
Law of the State of Delaware. The timing, amount and form of dividends, if any,
will depend, among other things, on the Company's results of operations,
financial condition, cash requirements and other factors deemed relevant by the
board of directors. Meridian receives cash distributions from its subsidiaries
to finance corporate liquidity requirements. See Management's Discussion and
Analysis of Financial Condition--Liquidity and Capital Resources.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented herein relate to
the Water Sports Businesses, including the results of O'Brien through July 31,
1997, Soniform through October 8, 1997, Skeeter through January 31, 1996, and,
from July 30, 1993 through May 31, 1996, the results of BW. O'Brien and
Soniform were sold on July 31, 1997 and October 8, 1997, respectively. Skeeter
and BW were sold on January 31, 1996 and May 31, 1996, respectively.
8
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The following selected consolidated financial data for the years
presented in the table below were derived from the Consolidated Financial
Statements. The selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and the notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997(a) 1996(b) 1995 1994 1993(c)
------- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales $75,345 $ 102,349 $208,188 $187,625 $122,447
Cost of sales (1)(d) 57,907 97,678 191,241 140,192 91,642
Selling, general and
administrative expenses (2)(3)(d) 16,827 32,858 56,673 35,065 29,181
------ ------ ------ ------ ------
611 (28,187) (39,726) 12,368 1,624
Interest and related amortization expense (2,172) (1,499) (3,449) (4,194) (2,327)
(Loss) gain on sale of businesses and
unusual item (4) (550) 16,850 -- -- --
------ ------ ------ ------ ------
(Loss) income before income taxes
and extraordinary charge (2,111) (12,836) (43,175) 8,174 (703)
Provision (benefit) for income taxes -- 6,958 (5,620) 1,470 352
------ ------ ------ ------ ------
(Loss) income before extraordinary charge (2,111) (19,794) (37,555) 6,704 (1,055)
Extraordinary charge 408 1,332 -- 1,191 --
------ ------ ------ ------ ------
Net (loss) income ($2,519) ($21,126) ($37,555) $ 5,513 ($ 1,055)
======= ======== ======== ========== =========
Basic and diluted earnings per
common share (e):
(Loss) income before
extraordinary charge ($0.26) ($ 2.47) ($ 4.69) $ 1.17 ($0.20)
Extraordinary charge (0.05) (0.17) -- (0.21) --
------ ------ ------ ------ ------
Net (loss) income ($0.31) ($ 2.64) ($ 4.69) $ 0.96 ($0.20)
======= ======== ======== ========== =========
</TABLE>
- ---------------------
(1) In 1996 and 1995, includes charges of $18,200 and $22,581, respectively,
related to WetJet which include: (a) writedowns of inventory to estimated
net realizable value; (b) provisions for expected warranty costs on
product sold; and (c) the writedown of tooling and equipment to estimated
net realizable value.
(2) In 1996, includes a charge of $1,600 related to the restructuring of the
corporate office. In 1996 and 1995, includes charges of $3,800 and
$10,617, respectively, related to WetJet which include: (a) provisions for
expected costs to ensure sell-through of products in retail dealer
inventories; (b) writedowns of accounts receivable to estimated net
realizable value; and (c) estimated costs of litigation.
(3) In 1995, includes a charge of $1,893 to writeoff all remaining goodwill
related to WetJet.
(4) In 1997, includes a gain of $200 resulting from the O'Brien Sale and a
loss of $750 resulting from the Soniform Sale. In 1996, includes gains
resulting from the Skeeter Sale of $13,289 and BW Sale of $4,900, net of a
valuation adjustment of $1,339 related to O'Brien.
SEE NOTES ON SUCCEEDING PAGE
9
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<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Total assets........................ $23,884 $44,225 $103,827 $117,512 $99,352
Total debt (including current portion) 17,515 19,295 42,400 35,429 48,613
Stockholders' (deficit) equity...... (9,473) (6,954) 14,258 51,884 18,266
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997(a) 1996(b) 1995 1994 1993(c)
------- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Depreciation expense (d)............ $1,587 $2,527 $4,379 $3,579 $2,054
Capital expenditures................ 1,199 2,354 5,317 7,384(f) 9,048(g)
</TABLE>
(a) Includes the results of O'Brien and Soniform through July 31, 1997 and
October 8, 1997, respectively.
(b) Includes the results of operations of Skeeter and BW through January 31,
1996 and May 31, 1996, respectively.
(c) Includes the results of operations of BW since July 30, 1993, the date of
acquisition.
(d) Depreciation expense is allocated within the historical statements of
operations data between cost of sales and selling, general and
administrative expenses. Selling, general and administrative expenses
includes fees to affiliates of $2,034, $200, $200 and $50 for the years
ended December 31, 1993 through 1996, respectively and amortization of
intangibles of $524, $615, $2,464 and $116 for the years ended December
31, 1993 through 1996, respectively.
(e) Basic and diluted earnings per share is calculated based upon weighted
average shares outstanding for the year (8,000,000 for 1997, 1996 and
1995, 5,768,000 shares for 1994 and 5,200,000 shares for 1993.)
(f) Capital expenditures in 1994 include: approximately $900 related to the
completion of the relocation to Cherokee Cove and approximately $800
related to the completion of O'Brien's plant reorganization.
(g) Capital expenditures in 1993 include: approximately $4,600 related to the
acquisition of Cherokee Cove, approximately $900 for the initial tooling
and machinery purchases at WetJet and approximately $200 related to the
reorganization of O'Brien's manufacturing facility.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net sales were $75.4 million and $102.4 million for 1997 and 1996,
respectively, a decrease of $27.0 million, comprised of a 10% increase in
ongoing operations of $5.0 million, offset by a decrease of $32.0 million
related to sales of former operations. Ongoing operations increased primarily
because of higher dealer demand for newly introduced models and dealer reorders
to maintain desired inventory levels. Sales of former operations decreased from
$54.8 million in 1996 to $22.8 million in 1997, reflecting the effect of the
Skeeter Sale and the BW Sale in 1996 and the O'Brien Sale in July 1997.
Gross profit was $17.4 million and $4.7 million for the 1997 and 1996
periods, respectively, an increase of $12.7 million. Gross profit in 1996 is
net of $18.2 million related to the Company's restructuring of its personal
watercraft business. No restructuring charges were recorded in 1997. Gross
profit of former operations, excluding restructuring charges, was reduced by
$8.3 million in 1997 primarily due to the sale of two businesses in each of
1996 and 1997. Ongoing operations produced $11.2
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million and $8.4 million of gross profit in 1997 and 1996, respectively, due
to sales increases, improvements in material usage and reduced warranty
spending.
Selling, general and administrative expenses ("SG&A") were $16.8
million and $32.9 million for 1997 and 1996, respectively. SG&A in 1996
included $3.8 million of charges related to the Company's restructuring of its
personal watercraft business. Such charges include: (i) provisions for
management's estimate of expected costs to ensure sell-through of products in
retail dealer inventories; (ii) writedowns of accounts receivable to estimated
net realizable value; and (iii) estimated costs of litigation. No restructuring
charges were recorded in 1997. Ongoing businesses recorded $2.0 million lower
SG&A in 1997 primarily due to lower compensation expense of the headquarters
office. The remaining decrease of $10.3 million principally related to the sale
of businesses and the reduction of WetJet SG&A.
Interest and related amortization expense of $2.2 million in 1997 was
approximately $0.7 million above 1996 levels due to the effect of higher
average outstanding borrowings.
The O'Brien Sale resulted in a pre-tax gain of approximately $0.2
million in 1997. The Soniform Sale resulted in a pre-tax loss of approximately
$0.7 million in 1997. In 1996, the Skeeter Sale resulted in a pre-tax gain of
$13.3 million, net of a goodwill writeoff of $10.1 million and the BW Sale
resulted in a pre-tax gain of $4.9 million. The Company, in 1996, also recorded
a valuation adjustment of $1.3 million related to its O'Brien business.
In connection with the permanent reduction of outstanding commitments
under the O'Brien Credit Agreement in 1997 resulting from the O'Brien Sale, and
under the Company Credit Agreement in 1996 resulting from the Skeeter Sale and
the BW Sale, the Company recorded extraordinary charges of $0.4 million and
$1.3 million, respectively, to writeoff deferred financing costs.
The Company incurred a loss in 1997 and as such did not record an
income tax benefit as the Company was not assured it would be able to realize a
benefit for such loss in the future. The Company recorded an income tax
provision of $7.0 million in 1996. The income tax provision in 1996 principally
includes the establishment of a valuation allowance against previously recorded
deferred tax assets and a state and local provision related to the Skeeter Sale
and BW Sale. Income before income taxes and extraordinary charge in 1996 is net
of a non-deductible goodwill writeoff of $14.4 million recognized in connection
with the Skeeter Sale and BW Sale.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net sales were $102.4 million and $208.2 million for 1996 and 1995,
respectively, a decrease of $105.8 million, of which $99.1 million relates to
sales of former operations. Ongoing operations sales decreased 12% to $47.6
million primarily because of lower dealer demand resulting from higher than
desired dealer inventory levels. The effect of high dealer inventory levels was
accentuated due to generally unfavorable weather conditions during the selling
season in 1996. Sales of former operations decreased from $153.9 million in
1995 to $54.8 million in 1996, reflecting the effect of the Skeeter Sale on
January 31, 1996, the BW Sale on May 31, 1996 and the reduction of WetJet sales
due to its restructuring.
Gross profit was $4.7 million and $17.0 million for the 1996 and 1995
periods, respectively, a decrease of $12.3 million. Gross profit in 1996 and
1995 is net of $18.2 million and $22.6 million, respectively, related to the
Company's restructuring of its personal watercraft business. The restructuring
charge in 1996 reflects a revision of management's estimate to repair
previously manufactured product,
11
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reflecting the cost of additional warranty parts and labor and lower estimates
on realizable value of inventories. Gross profit of former operations was
reduced by $16.1 million in 1996 primarily due to less than a full year's
results of operations of Skeeter and BW being included in the consolidated
results of operations of the Company. Ongoing operations produced $8.4 million
and $9.0 million of gross profit in 1996 and 1995, respectively, as declines in
sales were offset by improvements in material usage and reduced warranty
spending.
SG&A were $32.9 million and $56.7 million for 1996 and 1995,
respectively. SG&A in 1996 and 1995 included $3.8 million and $10.6 million,
respectively, of charges related to the Company's restructuring of its personal
watercraft business. Such charges include: (i) provisions for management's
estimate of expected costs to ensure sell-through of products in retail dealer
inventories; (ii) writedowns of accounts receivable to estimated net realizable
value; and (iii) estimated costs of litigation. Ongoing operations recorded
$3.6 million lower SG&A in 1996, before one-time charges, due to lower
compensation expense and reduced costs related to the closure of the
headquarters office. In 1996, SG&A included a one-time charge of $1.6 million
related to the restructuring of the New York headquarters office. The remaining
decrease of $15.0 million principally related to the Skeeter Sale, the BW Sale
and the reduction of WetJet SG&A.
Interest and related amortization expense of $1.5 million in 1996 was
approximately $1.9 million below 1995 levels due to the effect of lower
outstanding borrowings.
The Skeeter Sale resulted in a pre-tax gain of $13.3 million, net of a
goodwill writeoff of $10.1 million. The BW Sale resulted in a pre-tax gain of
$4.9 million. The Company also recorded a valuation adjustment of $1.3 million
related to its Equipment businesses.
In 1996, in connection with the permanent reduction of outstanding
commitments under the Company Credit Agreement resulting from the Skeeter Sale
and the BW Sale, the Company recorded an extraordinary charge of $1.3 million
to writeoff deferred financing costs.
The Company recorded an income tax provision (benefit) of $7.0 million
and ($5.6) million in 1996 and 1995, respectively. The income tax provision in
1996 principally includes the establishment of a valuation allowance against
previously recorded deferred tax assets and a state and local provision related
to the Skeeter Sale and BW Sale. Income before income taxes and extraordinary
charge in 1996 is net of a non-deductible goodwill writeoff of $14.4 million
recognized in connection with the Skeeter Sale and BW Sale. In 1995, the
Company recorded a federal tax benefit of $5.9 million on its loss for the year
to the extent that it projected income before income taxes in 1996, due to the
expected gain from the Skeeter Sale. In 1995, the income tax provision includes
state and local taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flows from operating activities were ($3.8)
million, ($31.9) million and ($4.3) million for the years ended December 31,
1997, 1996 and 1995, respectively. The Company's cash flows from operating
activities in 1997 and 1996 reflect cash used to fund operating losses and
interest expense and the payment of $9.2 million in 1997, $23.0 million in 1996
and $4.1 million in 1995, of WetJet and corporate restructuring liabilities.
The Company's net capital expenditures were $1.2 million, $2.4 million
and $5.3 million in the years ended December 31, 1997, 1996 and 1995,
respectively. Capital expenditures in 1997 were $0.4
12
<PAGE>
million less than depreciation as the Company's former operations had lower
expenditures related to new products. Capital expenditures in 1996 were $0.2
million less than depreciation as the Company curtailed capital spending.
Capital expenditures in 1995 slightly exceeded depreciation expense due to the
retooling of the WetJet product line and the addition of molds to expand
capacity in the boat businesses. Capital expenditures during these periods were
funded by bank financings and loans from affiliates. The Company anticipates
that its capital expenditures requirements in 1998 will approximate its annual
depreciation expense. In 1997 and 1996, cash flows from investing activities
included proceeds from the sale of businesses of $6.3 million and $58.4
million, respectively. Such proceeds were used to repay indebtedness of the
Company.
At December 31, 1997, total debt was approximately $17.5 million,
which amount represents a $1.8 million decrease from December 31, 1996. The
Company's working capital requirements are currently funded by borrowings under
the M&F Facility. In 1995 and 1996, through May 31, 1996, the Company's working
capital and other requirements were funded by borrowings under a bank credit
agreement, which was effectively terminated subsequent to the BW Sale, and
borrowings from an affiliate.
The Company continues to assess its liquidity needs, both immediate
and longer-term. As of March 10, 1998, outstanding borrowings under the M&F
Facility were approximately $16.6 million. The M&F Facility provides for
borrowings on a revolving basis of up to $20 million, bears interest at the
prime rate plus 1% and matures at December 1, 1999. Borrowings under the M&F
Facility are guaranteed by the subsidiaries of the Company and a pledge of
Cherokee Cove. Although none of the Company's affiliates are required to
provide funding to the Company other than pursuant to the M&F Facility, the
Company anticipates that additional liquidity needs, if any, will be met by
additional loans from affiliates.
EFFECT OF YEAR 2000
Some of the Company's computer programs were written using two digits
rather than four digits to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date using
"00" as the year 1900 rather than the year 2000. In 2000, this could cause a
system failure or miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities. The Company is in
the process of replacing all such software as part of an overall systems
upgrading, the estimated cost of which is approximately $500,000. Upon
completion of the systems upgrading, its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The project is
estimated to be substantially completed during 1998. The Company believes that
with conversions to new software, the year 2000 issue will not pose significant
operations problems.
SEASONALITY AND BACKLOG
The marine industry is seasonal, with retail sales generally strongest
in the months of April through September. Between October and March,
manufacturers' shipments depend on dealer restocking activity and requests for
new season models presented at trade shows and through promotional programs.
New product introductions and fluctuations in demand due to the popularity of
the Company's products may also contribute to quarterly or other periodic
fluctuations. In 1997, new products introduced in the third quarter contributed
to strong sales in the last two quarters. Sales of new products in connection
with model changeovers have traditionally caused third quarter sales to be
strong. In 1995, unfavorable climate and an uncertain economy in the second
quarter caused some delay in marine sales until the third quarter.
13
<PAGE>
In the fourth quarter of 1995, MasterCraft deliberately reduced production to
balance field inventories at dealers.
The following table sets forth net sales for each quarter from January
1, 1995 through December 31, 1997 (in millions) and includes the results of
O'Brien through July 31, 1997, Soniform through October 8, 1997, Skeeter
through January 31, 1996, and through May 31, 1996, the results of BW. O'Brien
and Soniform were sold on July 31, 1997 and October 8, 1997, respectively.
Skeeter and BW were sold on January 31, 1996 and May 31, 1996, respectively.
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Ongoing operations........................ $12.8 $11.2 $13.2 $15.4 $52.6
Former operations ........................ 9.2 10.5 3.1 -- 22.8
------- ------ ------ ------- ------
$22.0 $21.7 $16.3 $15.4 $75.4
======= ====== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Ongoing operations........................ $11.2 $11.9 $13.0 $11.5 $47.6
Former operations ........................ 22.4 21.0 4.8 6.6 54.8
------ ------ ------- ------- -------
$33.6 $32.9 $17.8 $18.1 $102.4
======= ====== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------
1Q 2Q 3Q 4Q TOTAL
------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Ongoing operations........................ $14.3 $12.6 $16.8 $10.6 $54.3
Former operations......................... 44.9 46.1 29.8 33.1 153.9
------ ------ ------ ------ -------
$59.2 $58.7 $46.6 $43.7 $208.2
======= ====== ====== ======= ======
</TABLE>
- -----------
At December 31, 1997 and 1996, the Company had order backlog of
approximately $8 million and $9 million (which excludes backlog of former
operations), respectively.
INFLATION
In general, manufacturing costs are affected by inflation and the
effects of inflation may be experienced by the Company in future periods.
Management believes, however, that such effect has not been material to the
Company during the past three years.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The forward-looking statements
contain in this Form 10-K, specifically, the anticipation of future results,
are subject to certain risks and uncertainties. Actual results could differ
materially from current expectations. Among the factors which could affect the
Company's actual results and could cause results to differ from those contained
in the forward-looking statements are customer's acceptance of the Company's
new model year products, the ability of boat dealers to obtain financing for
their purchases of boats and the satisfaction of the WetJet liabilities within
the reserves established.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements and supplementary data
listed in the accompanying Index to Financial Statements and Schedule on Page
F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
The information required by Part III, Items 10 through 13, of Form
10-K is incorporated by reference from the registrant's definitive proxy
statement for its 1998 annual meeting of shareholders, which is to be filed
pursuant to Regulation 14A no later than 120 days following the end of the
fiscal year reported upon.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedule.
See Index to Financial Statements and Schedule which appears on page
F-1 herein.
(3) Exhibits
Exhibit No. Description
----------- -----------
2.1 Stock Purchase Agreement by and between Yamaha and the
Company dated January 22, 1996. (Incorporated by reference
to Exhibit 1 to Form 8-K dated February 14, 1996)
2.2 Amendment No. 1 to Stock Purchase Agreement by and between
Yamaha and the Company dated January 31, 1996.
(Incorporated by reference to Exhibit 2 to Form 8-K dated
February 14, 1996)
2.3 Asset Purchase Agreement, dated March 29, 1996, among
Brunswick Corporation, Boston Whaler, Inc. (now known as BW
Sale Corp.) and the Company. (Incorporated by reference to
Exhibit 2.3 to Form 10-K for the year ended December 31,
1995)
2.4 Asset Purchase Agreement among Earth and Ocean Sports, Inc.,
O'Brien International, Inc. (now known as OB Sale Corp.) and
the Company dated July 31, 1997. (*)
2.5 Asset Purchase Agreement among Johnson Worldwide Associates,
Inc., Soniform, Inc. (now known as GK Sale Corp.) and the
Company dated October 8, 1997. (*)
3.1 Certificate of Incorporation of the Company. (Incorporated
by reference from Form S-1 dated July 7, 1994)
3.1.1 Certificate of Amendment of the Certificate of Incorporation
of the Company, filed with the Delaware Secretary of State
on July 22, 1994. (Incorporated by reference to Exhibit 3.1.1
to Amendment No.1 to Form S-1 dated September 21, 1994)
3.2 By-laws of the Company. (Incorporated by reference to
Exhibit 3.2 to Form S-1 dated July 7, 1994)
4.1 Articles of Incorporation of the Company. (See Exhibit 3.1)
4.2 By-laws of the Company. (See Exhibit 3.2)
10.1 Subordinated Revolving Credit Agreement between the Company
and Revlon Group Incorporated, now known as RGI Group
Incorporated, dated as of January 11, 1996 (Incorporated by
reference to Exhibit 10.7 to Form 10-K for the year ended
December 31, 1995)
10.2 Meridian Sports Incorporated 1994 Stock Option Plan
(Incorporated by reference to Exhibit 10.6 to Amendment
No.1 to Form S-1 dated September 21, 1994)
16
<PAGE>
Exhibit No. Description
----------- -----------
10.3 Registration Rights Agreement between Old Meridian and
Meridian Sports Incorporated. (Incorporated by reference to
Exhibit 10.13 to Form 10-K for the year ended December 31,
1994)
10.4 Cross-Indemnification Agreement Between National Health
Care Group, Inc. and Meridian Sports Incorporated.
(Incorporated by reference to Exhibit 10.14 to Form 10-K
for the year ended December 31, 1994)
10.5 Tax Indemnification Agreement among Mafco Holdings Inc.,
MacAndrews & Forbes Holdings Inc., New Coleman Holdings Inc.,
Old Meridian, Meridian Sports Incorporated and the
Subsidiaries of Meridian Sports Incorporated. (Incorporated
by reference to Exhibit 10.15 to Form 10-K for the year ended
December 31, 1994)
10.6 Revolving Credit Agreement between the Company and Revlon
Group Incorporated, now known as RGI Group Incorporated,
dated March 28, 1997. (Incorporated by reference to Exhibit
10.17 to Form 10-K for the year ended December 31, 1996)
10.7 First Amendment dated as of September 30, 1997 to Revolving
Credit Agreement between the Company and RGI Group
Incorporated, dated March 28, 1997. (*)
10.8 Second Amendment dated as of March 3, 1998 to Revolving
Credit Agreement between the Company and RGI Group
Incorporated, dated March 28, 1997. (*)
21.1 List of Subsidiaries of the Registrant. (*)
24.1 Powers of Attorney. (*)
27 Financial Data Schedule. (*)
(*) Filed herewith
(b) There were no reports on Form 8-K filed in the fourth quarter of 1997.
17
<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.
MERIDIAN SPORTS INCORPORATED
(Registrant)
Date: March 31, 1998 By: /s/ J. Eric Hanson
------------------- --------------------------
J. Eric Hanson
President and Chief
Executive Officer; Director
Date: March 31, 1998 By: /s/ James A. Valkenaar
------------------- --------------------------
James A. Valkenaar
Vice President and
Principal Accounting Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: March 31, 1998 By: Ronald O. Perelman*
------------------- --------------------------
Ronald O. Perelman
Chairman of the Board and Director
Date: March 31, 1998 By: Jerry W. Levin*
------------------- --------------------------
Jerry W. Levin
Director
Date: March 31, 1998 By: John P. Murray, Jr.*
------------------- --------------------------
John P. Murray, Jr.
Director
Date: March 31, 1998 By: Martin D. Payson*
------------------- --------------------------
Martin D. Payson
Director
Date: March 31, 1998 By: Bruce Slovin*
------------------- --------------------------
Bruce Slovin
Director
* Executed on behalf of the named director pursuant to a power of attorney.
Date: March 31, 1998 By: /s/Thomas E. Kohut
------------------- --------------------------
Thomas E. Kohut
Attorney-in-fact
18
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND (d)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1997
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
Page
----
The following consolidated financial statements of Meridian Sports
Incorporated and Subsidiaries are included in Item 8:
Report of Independent Auditors................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996..... F-3
Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and 1995........... F-4
Consolidated Statements of Stockholders' (Deficit) Equity
for the years ended December 31, 1997, 1996 and 1995........... F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995........... F-6
Notes to Consolidated Financial Statements....................... F-7
The following consolidated financial statement schedule of Meridian
Sports Incorporated and Subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts and Reserves..... F-21
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Meridian Sports Incorporated
We have audited the accompanying consolidated balance sheets of
Meridian Sports Incorporated and Subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' (deficit)
equity, and cash flows for each of the three years in the period ended December
31, 1997. Our audits also included the consolidated financial statement
schedule listed in the Index at Item 14(a). These consolidated financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Meridian Sports Incorporated and Subsidiaries at December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 5, 1998
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
December 31,
------------------
1997 1996
--------- --------
ASSETS
Current assets:
Cash $ 1,123 $ 1,968
Accounts receivable, net of allowances of
$401 and $2,578, respectively 3,681 8,467
Inventories 8,040 15,537
Prepaid expenses and other 3,974 3,152
------- -------
Total current assets 16,818 29,124
Property, plant and equipment, net 6,716 13,243
Other assets 350 1,858
------- -------
$23,884 $44,225
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 13
Accounts payable $ 2,103 6,487
Accrued expenses and other current liabilities 8,122 23,139
-------- ---------
Total current liabilities 10,225 29,639
Long-term debt 17,515 19,282
Other liabilities 5,617 2,258
Commitments and contingencies
Stockholders' deficit:
Preferred stock, par value $0.01 per share;
10,000,000 shares authorized; no shares
issued and outstanding
Common stock, par value $0.01 per share;
50,000,000 shares authorized; 8,000,000
shares issued and outstanding 80 80
Additional paid-in capital 131,951 131,951
Accumulated deficit (141,504) (138,985)
-------- ---------
Total stockholders' deficit (9,473) (6,954)
-------- ---------
$ 23,884 $ 44,225
======== =========
See Notes to Consolidated Financial Statements
F-3
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
---------- ------------ -----------
<S> <C> <C> <C>
Net sales:
Ongoing operations $52,582 $47,631 $54,289
Former operations 22,763 54,718 153,899
---------- ------------ -----------
75,345 102,349 208,188
---------- ------------ -----------
Cost of sales:
Ongoing operations 41,262 39,214 45,307
Former operations 16,645 58,464 145,934
---------- ------------ -----------
57,907 97,678 191,241
---------- ------------ -----------
Selling, general and administrative expenses:
Ongoing operations 10,857 12,801 14,784
Former operations 5,970 20,057 41,889
---------- ------------ -----------
16,827 32,858 56,673
---------- ------------ -----------
Operating income (loss):
Ongoing operations 463 (4,384) (5,802)
Former operations 148 (23,803) (33,924)
---------- ------------ -----------
611 (28,187) (39,726)
---------- ------------ -----------
(Loss) gain on sale of businesses and unusual item (550) 16,850 0
Interest and related amortization expense (2,172) (1,499) (3,449)
---------- ------------ -----------
Loss before income taxes and extraordinary charge (2,111) (12,836) (43,175)
(Provision) benefit for income taxes 0 (6,958) 5,620
---------- ------------ -----------
Loss before extraordinary charge (2,111) (19,794) (37,555)
Extraordinary charge (408) (1,332) 0
========== ============ ===========
Net loss ($2,519) ($21,126) ($37,555)
========== ============ ===========
Basic and diluted loss per common share:
Loss before extraordinary charge ($0.26) ($2.47) ($4.69)
Extraordinary charge (0.05) (0.17) 0.00
========== ============ ===========
Net loss ($0.31) ($2.64) ($4.69)
========== ============ ===========
Weighted average shares outstanding (000s) 8,000 8,000 8,000
========== ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-in Accumulated Translation
Stock Capital Deficit Adjustment Total
----- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
December 31, 1994 $80 $131,951 ($80,304) $157 $51,884
Net loss (37,555) (37,555)
Currency translation adjustment (71) (71)
------ ---------- ------------ ---------- --------
December 31, 1995 80 131,951 (117,859) 86 14,258
Net loss (21,126) (21,126)
Currency translation adjustment (86) (86)
------ ---------- ------------ ---------- --------
December 31, 1996 80 131,951 (138,985) 0 (6,954)
Net loss (2,519) (2,519)
------ ---------- ------------ ---------- --------
December 31, 1997 $80 $131,951 ($141,504) $0 ($9,473)
====== ========== ============ ========== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($2,519) ($21,126) ($37,555)
-------- --------- ---------
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization 1,640 2,777 5,297
Loss (gain) on sale of businesses and
unusual item, net of income taxes 550 (9,892)
Restructuring charges 23,600 35,091
Extraordinary charges 408 1,332
Change in assets and liabilities:
Decrease in receivables 4,786 1,326 443
Decrease (increase) in inventories 3,686 (1,705) (4,457)
(Decrease) increase in accounts payable and accrued expenses (4,919) (6,034) 4,542
Payment of restructuring liabilities (9,192) (22,988) (4,108)
Other, net 1,734 822 (3,533)
-------- --------- ---------
(1,307) (10,762) 33,275
-------- --------- ---------
Net cash flows from operating activities (3,826) (31,888) (4,280)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses, net of cash sold of $391 and $394 6,295 58,411
Capital expenditures, net (1,199) (2,354) (5,317)
Other, net (20) (51)
-------- --------- ---------
Net cash flows from investing activities 5,096 56,037 (5,368)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings, net of fees (385) (43,363) 6,971
Net (decrease) increase in borrowings from affiliates (1,730) 19,245 0
-------- --------- ---------
Net cash flows from financing activities (2,115) (24,118) 6,971
-------- --------- ---------
Net (decrease) increase in cash (845) 31 (2,677)
Cash at beginning of period 1,968 1,937 4,614
-------- --------- ---------
Cash at end of period $1,123 $1,968 $1,937
======== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION
Meridian Sports Incorporated ("Meridian", or the "Company") was formed
in June 1994. As a result of an initial public offering of its common stock
(the "IPO") in October 1994, the Company is a 65% indirectly owned subsidiary
of MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), a corporation
wholly-owned through Mafco Holdings Inc. (together with its affiliates,
"MacAndrews & Forbes").
On October 8, 1997, the Company entered into and consummated an
agreement with Johnson Worldwide Associates, Inc. ("JWA") pursuant to which JWA
purchased certain assets and assumed certain liabilities of the Company's
Soniform scuba equipment business ("Soniform") for approximately $1,756 (the
"Soniform Sale"). The results of operations of Soniform are included in "Former
operations" in the accompanying consolidated statements of operations for all
periods presented through the date of the Soniform Sale.
On July 31, 1997, the Company entered into and consummated an
agreement with Earth and Ocean Sports, Inc. ("EOS") pursuant to which EOS
purchased certain assets and assumed certain liabilities of the Company's
O'Brien towable watersports business ("O'Brien"), for approximately $4,930 (the
"O'Brien Sale"). The results of operations of O'Brien are included in "Former
operations" in the accompanying consolidated statements of operations for all
periods presented through the date of the O'Brien Sale.
On May 31, 1996, the Company consummated a transaction with Brunswick
Corporation ("Brunswick") pursuant to which Brunswick purchased certain assets
and assumed certain liabilities of BW Sale Corp., formerly Boston Whaler, Inc.
("BW") for approximately $26,155 (the "BW Sale"). The results of operations of
BW are included in "Former operations" in the accompanying consolidated
statements of operations for all periods presented through the date of the BW
Sale.
On January 31, 1996, the Company sold all of the capital stock of its
wholly-owned subsidiary Skeeter Products, Inc. ("Skeeter") to Yamaha Motor
Corporation, U.S.A. ("Yamaha") for approximately $33,900 (the "Skeeter Sale").
The results of operations of Skeeter are included in "Former operations" in the
accompanying consolidated statements of operations for all periods presented
through the date of the Skeeter Sale.
Meridian is a holding company which operates through its wholly-owned
subsidiary MasterCraft Boat Company ("MasterCraft"). MasterCraft is a designer,
manufacturer and marketer of specialized ski boats targeted principally at
boating and waterskiing enthusiasts.
F-7
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2. DISPOSALS OF BUSINESSES, UNUSUAL ITEM AND EXTRAORDINARY ITEMS
On October 8, 1997, the Company entered into and consummated an
agreement with JWA pursuant to which JWA purchased certain assets and assumed
certain liabilities of the Company's Soniform scuba equipment business for
approximately $1,756. The Soniform Sale resulted in a pre-tax loss of
approximately $750. The proceeds of the Soniform Sale were used to repay
indebtedness of the Company under the M&F Facility, as hereafter defined. In
connection with the Soniform Sale, the Company entered into a lease with JWA,
pursuant to which it will lease the Soniform manufacturing facility to JWA for
a minimum one year period for $80.
On July 31, 1997, the Company entered into and consummated an
agreement with EOS pursuant to which EOS purchased certain assets and assumed
certain liabilities of the Company's O'Brien towable watersports business, for
approximately $4,930. The O'Brien Sale resulted in a pre-tax gain of
approximately $200. The proceeds of the O'Brien Sale were used to permanently
repay indebtedness of the Company under a credit agreement with a bank entered
into in March 1997 (the "O'Brien Credit Agreement") and to repay other
indebtedness under the M&F Facility, as hereafter defined. In connection with
the permanent repayment of borrowings under the O'Brien Credit Agreement, the
Company recorded an extraordinary charge of $408 to write off all related
deferred financing costs.
On May 31, 1996, the Company consummated a transaction with Brunswick
pursuant to which Brunswick purchased certain assets and assumed certain
liabilities of BW for $26,155, of which $1,250 is held in escrow through May
1998. The proceeds of the BW Sale were used to repay indebtedness of the
Company. The BW Sale resulted in a pre-tax gain of $4,900. The Company also
recorded, in 1996, a valuation adjustment of $1,339 related to O'Brien. Due to
the permanent commitment reduction in 1996 under the Company's then existing
credit agreement with a group of banks (the "Company Credit Agreement") as a
result of the Skeeter Sale and BW Sale, the Company recorded an extraordinary
charge of $1,332 to writeoff all remaining deferred financing costs. In January
1997, the Company Credit Agreement was terminated and all collateral thereunder
was released.
On January 31, 1996, the Company sold Skeeter to Yamaha pursuant to a
Stock Purchase Agreement by and between Yamaha and the Company for
approximately $33,900. The proceeds of the Skeeter Sale were used to repay
indebtedness of the Company. The Skeeter Sale resulted in a pre-tax gain of
$13,289, net of a goodwill writeoff of $10,094.
3. RESTRUCTURING
In 1995, the Company recorded a provision for the then estimated cost
of the restructuring of its personal watercraft business ("WetJet"). In 1996,
the Company recorded additional provisions to reflect revisions to its earlier
cost estimates due, in part, to (i) unanticipated delays in implementing the
restructuring program and (ii) a longer than anticipated period of time
required to complete the
F-8
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
execution of the restructuring program. Such additional time requirements
coincided with a general deterioration in the overall market for personal
watercraft and resulted in the Company's offering of more costly incentives to
facilitate the sell-through of product in retail dealer inventories. The
Company recorded charges in cost of sales of $18,200 and $22,581 in 1996 and
1995, respectively, which include: (i) writedowns of inventory to estimated net
realizable value; (ii) provisions for expected warranty costs on models sold;
and (iii) writedowns of tooling and equipment to estimated net realizable
value. Additionally, the Company recorded charges in selling, general and
administrative expenses of $3,800 and $10,617 in 1996 and 1995, respectively,
which include: (i) provisions for expected costs to ensure sell-through of
products in retail dealers inventories; (ii) writedowns of accounts receivable
to estimated net realizable value; and (iii) estimated costs of litigation
related to the personal watercraft business. In addition, the Company recorded
in selling, general and administrative expenses a charge of $1,893 in 1995 to
writeoff all remaining goodwill related to the personal watercraft business. In
1995, the Company began a restructuring of its WetJet business. In 1997, the
Company substantially completed the program and no further charges were
recorded in connection with such program. The Company no longer manufactures
personal watercraft. There can be no assurance the WetJet liabilities can be
satisfied within the reserves established.
In 1996, the Company recorded in selling general and administrative
expenses, a one-time charge of $1,600 comprised primarily of severance costs
related to the restructuring of its headquarters office. All liabilities for
the headquarters restructuring were paid as of December 31, 1997.
4. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all material intercompany
accounts and transactions.
REVENUE RECOGNITION:
The Company recognizes net sales upon shipments of merchandise when
title and all other incidents of ownership transfer have been completed. Net
sales are comprised of gross sales less expected customer returns and
allowances.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
Outstanding letters of credit aggregated approximately $3,342 and
$1,776 at December 31, 1997 and 1996, respectively, of which letters of credit
aggregating $1,745 and $1,739, respectively, are cash collateralized. Trade
receivables for boats sold to dealers are generally collateralized by the
related boat inventory or letters of credit. Sales made through floor plan
arrangements transfer substantially all credit risk to the financing entity.
F-9
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. Credit
risk on trade receivables is minimized as a result of the Company's floor plan
arrangements, the use of trade letters of credit and the large and diversified
nature of the Company's customer base, which includes customers located
throughout the entire United States as well as several international customers.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of the Company's long-term debt approximates its
fair value.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of three to forty years.
Leasehold improvements are amortized over their estimated useful lives or terms
of the leases, whichever is shorter. Repairs and maintenance are charged to
operations as incurred, and expenditures for additions and improvements are
capitalized.
STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has elected to account for stock-based compensation plans using the
intrinsic value method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of the Company's stock at
date of the grant over the amount an employee must pay to acquire the stock.
INCOME TAXES:
The Company accounts for income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws.
FLOOR PLAN REIMBURSEMENT COSTS:
The Company may enter into various programs whereby it agrees to
reimburse its dealers for certain floor plan interest costs incurred by such
dealers for limited periods of time, in accordance with industry practice. Such
costs are included in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
F-10
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
RESEARCH AND DEVELOPMENT:
Research and development expenditures are expensed as incurred. The
amounts charged against operations for the years ended December 31, 1997, 1996
and 1995 were $1,883, $1,795, and $3,254, respectively.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The accruals established for the WetJet restructuring are based on
management's estimates of the costs of the restructuring programs. The
restructuring programs are substantially complete. There can be no assurance
that the programs will be completed within the reserves established.
5. INVENTORIES
Inventories are valued at the lower of cost or market. Inventory costs
are determined principally by the last-in, first-out ("LIFO") method.
Inventories consisted of the following:
December 31,
--------------------------
1997 1996
---------- -------
Raw material and supplies....................... $3,394 $6,372
Work-in-process................................. 753 1,378
Finished goods.................................. 4,781 8,896
----- -----
8,928 16,646
Less: Lifo allowance............................ (888) (1,109)
-------- ---------
$8,040 $15,537
====== =======
F-11
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
December 31,
------------------
1997 1996
------- ---------
Land .................................. $622 $1,372
Buildings and improvements............. 5,072 8,472
Machinery and equipment ............. 4,336 12,911
------- ---------
10,030 22,755
Accumulated depreciation............... (3,314) (9,512)
-------- ---------
$6,716 $13,243
======== =========
Depreciation expense was $1,587, $2,527 and $4,379 for the years
ended December 31, 1997, 1996 and 1995, respectively.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the
following:
December 31,
------------
1997 1996
-------- --------
Insurance retentions....................... $2,254 $1,821
Advertising and promotion.................. 1,567 1,159
Warranty................................... 1,056 3,920
Compensation and related accruals.......... 870 1,724
Pension plans.............................. 541 1,580
Interest................................... 170 141
State income and other taxes............... 149 1,202
Payable to affiliates...................... 188 127
WetJet product sell-through................ 510 5,888
Corporate restructuring ................... -- 897
Other...................................... 817 4,680
-------- --------
$8,122 $23,139
====== =======
F-12
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
8. LONG-TERM DEBT
Long-term debt consisted of the following:
December 31,
------------
1997 1996
-------- -------
M&F Facility (a)......................... $17,515 $ --
Borrowings from affiliates (b)........... -- 19,245
Capitalized lease obligations............ -- 50
------- -------
17,515 19,295
Less: Current portion................... -- (13)
------- -------
$17,515 $19,282
======= =======
--------------------
(a) In March 1997, the Company entered into a credit agreement with an
affiliate (as amended, the "M&F Facility") to refinance existing
borrowings from affiliates, to finance the operations, including
seasonal working capital needs and restructuring liabilities of the
Company. The M&F Facility originally provided for borrowings on a
revolving basis of up to $30,000. In connection with the Soniform
Sale, the M&F Facility was amended to reduce the M&F Facility
commitment to $20,000, reflecting the Company's lower seasonal
working capital requirements. The M&F Facility bears interest at the
prime rate, as defined, plus 1% (9.5% at December 31, 1997) and
matures at December 1, 1999. Loans under the M&F Facility are
guaranteed by the subsidiaries of the Company and a pledge of
Cherokee Cove. Borrowings outstanding under the M&F Facility are
required to be prepaid with the net cash proceeds of the sales of
any subsidiaries of the Company. The commitment under the M&F
Facility shall be reduced by such required prepayments. The M&F
Facility contains a minimum net worth covenant. The M&F Facility
contains typical events of default including change of control,
material adverse change and non-payment of obligations.
(b) Prior to the establishment of the M&F Facility, the Company relied
upon borrowings from MacAndrews & Forbes for its liquidity needs.
Such borrowings were made on a revolving basis and bore interest,
payable quarterly at each fiscal quarter end, at the prime rate
(8.25% at December 31, 1996). Borrowings from affiliates were
classified as long-term debt on the consolidated balance sheet since
the Company refinanced such borrowings with borrowings under the M&F
Facility.
F-13
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
9. INCOME TAXES
The Company files separate income tax returns. The Company has
recorded a provision (benefit) for income taxes as follows:
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Current:
Federal................ $ -- $ -- $ --
State and local........ -- 1,147 164
Foreign................ -- -- 122
------- ------- -------
-- 1,147 286
------- ------- -------
Deferred:
Federal................ -- 5,811 (5,906)
State and local........ -- -- --
------- ------- -------
$ -- $ 6,958 $(5,620)
======= ======= =======
During 1997, the Company incurred a loss for which it has not recorded
a tax benefit as the Company is not assured it will be able to realize a
benefit for such loss in the future.
During 1996, the Company recorded a valuation allowance against
previously recorded deferred tax assets and a provision for state and local
income taxes related to the gains arising from the Skeeter Sale and BW Sale.
During 1995, the Company recorded a federal benefit on its loss for
the year ended December 31, 1995 to the extent that it projected income before
income taxes in 1996, due to the gain expected from the Skeeter Sale.
At December 31, 1997, the Company had net operating loss carryforwards
of approximately $41,000 expiring in the years 2005 through 2012. Certain loss
carryforwards are subject to certain limitations under the separate return
limitation year ("SRLY") rules. The effect of the SRLY rules is to limit the
utilization of these losses to the separate income of the subsidiaries of the
Company after October 19, 1994. As a result, the Company may have taxable
income in future years that cannot be offset by these net operating loss
carryforwards.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
approximate effect of temporary differences as of December 31, 1997 and 1996
were as follows:
F-14
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
December 31,
------------
1997 1996
---- ----
Deferred tax assets:
Net operating loss carryforwards................. $15,638 $10,486
Doubtful accounts................................ 156 1,000
Reserve for self insurance & warranty costs...... 1,467 2,391
Postretirement benefits and pension liabilities.. 453 330
Other restructuring reserves..................... 1,253 3,524
Other, net....................................... 1,024 2,386
------- -------
Total deferred tax assets.................... 19,991 20,117
Valuation allowance.............................. (19,637) (18,549)
------- -------
Deferred tax asset, net..................... 354 1,568
Deferred tax liabilities:
Fixed assets.................................... 354 1,568
------- -------
Total deferred tax liability ................... 354 1,568
------- -------
Net deferred tax asset (liability)............ $ 0 $ 0
======= =======
The difference between the Company's effective tax rate and the
Federal statutory rate is reconciled below:
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Benefit at statutory rate.............. (35.0)% (35.0)% (35.0)%
Nondeductible amortization............. -- 39.4 0.4
State and local taxes, net............. -- 5.8 0.2
Increase in valuation allowance........ 32.8 44.0 21.2
Other.................................. 2.2 -- 0.2
------ ------ ------
Effective tax rate provision (benefit). 0.0% 54.2% (13.0)%
====== ====== ======
10. PAYABLES TO AFFILIATES AND OTHER RELATED PARTY TRANSACTIONS
The Company relies upon borrowings from affiliates and operating cash
flow to fund its liquidity needs. Interest expense on such borrowings from
affiliates was $1,912 and $410 for the years ended December 31, 1997 and 1996,
respectively and is included in interest and related amortization expense in
the consolidated statement of operations. In March 1997 the Company entered
into the M&F Facility with an affiliate.
The Company and certain affiliates of MacAndrews & Forbes are afforded
coverage under selected common insurance policies obtained by MacAndrews &
Forbes. The Company reimburses MacAndrews & Forbes its allocable portion of the
cost of this insurance coverage. At December 31,
F-15
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1997 and 1996, the Company owed $188 and $127, respectively, to MacAndrews &
Forbes for services and out-of-pocket expenses. The Company purchases from and
sells products to an affiliate on an arms-length basis. These amounts are not,
in the aggregate, material.
MacAndrews & Forbes, certain of its affiliates and the Company are
parties to a tax indemnification agreement (the "Tax Indemnification
Agreement"). Pursuant to the Tax Indemnification Agreement, MacAndrews & Forbes
will indemnify the Company, on an after-tax basis, against (i) any liability to
the Internal Revenue Service for any consolidated federal income taxes of the
Company for any period (or portion thereof) beginning on or after April 28,
1989 and ending on or before the date of the IPO, (ii) any liability to a state
or local taxing authority for any combined state and local income taxes of the
Company for any period (or portion thereof) beginning on or after April 28,
1989 and ending on or before the date of the IPO, to the extent such taxes
arise in any return in which the Company or any affiliate thereof filed a
combined return with MacAndrews & Forbes or any MacAndrews & Forbes affiliate,
and (iii) any liability to the Internal Revenue Service or a state or local
taxing authority, as the case may be, for any consolidated federal or combined
state or local income taxes incurred by the Company as a result of the Company
or any affiliate thereof being part of any consolidated or combined tax return
with MacAndrews & Forbes or any MacAndrews & Forbes affiliate.
11. EMPLOYEE BENEFIT PLANS
PENSION PLANS:
The Company maintains pension and other retirement plans in various
forms covering employees of the Company who meet eligibility requirements. The
salaried retirement plan is a non-contributory defined benefit plan and
provides benefits based on a formula of each participant's final average pay
and years of service. The hourly pension plan is a non-contributory defined
benefit plan and contains a flat benefit formula. The salaried and hourly plans
provide reduced benefits for early retirement and the salaried plan takes into
account offsets for Social Security benefits. The Company's policy is generally
to contribute annually the minimum amount required pursuant to the Employee
Retirement Income Security Act, as amended. Under certain circumstances, the
Company may make additional contributions to the pension plans up to the
maximum deductible amounts for income tax purposes.
The Skeeter Sale and the transfer of assets and related liabilities to
plans established in 1996 resulted in one of the Company's plans having assets
in excess of accumulated benefits as of December 31, 1996. The Skeeter Sale
resulted in a curtailment of the pension plans which reduced the projected
benefit obligation by $479, which was recorded in unrecognized net loss. The
O'Brien Sale and Soniform Sale together resulted in a curtailment of the
pension plans which reduced the projected benefit obligation by $777, which was
primarily recognized in loss on sale of businesses.
F-16
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following tables reconcile the funded status of the Company's
pension plans in 1997 and 1996 with the amount recognized in the Company's
consolidated balance sheets as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1997 1996
------------- -------------------------
Assets Assets Accumulated
Exceed Exceed Benefits
Accumulated Accumulated Exceed
Benefits Benefits Assets
-------- -------- ------
<S> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, includes vested
benefits of $2,649 in 1997 and
$1,270 and $1,366 in 1996............... ($2,960) ($1,552) ($1,646)
======== ======== ========
Projected benefit obligation for service
rendered to date........................ ($3,749) ($3,119) ($1,999)
Plan assets at fair value...................... 3,926 1,698 1,143
-------- -------- --------
Plan assets in excess of (less than)
projected benefit obligation............ 177 (1,421) (856)
Unrecognized prior service cost................ (8) (14) --
Unrecognized net loss (gain)................... (710) 325 386
-------- -------- --------
Net pension liability.......................... ($541) ($1,110) ($470)
======== ======== ========
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.50% as of December 31,
1997 and 1996. The rate of increase in future compensation levels reflected in
such determination was 5% as of December 31, 1997 and 1996. The expected
long-term rate of return on assets was 9% as of December 31, 1997, 1996 and
1995. Plan assets are primarily invested in U.S. government securities,
corporate bond and equity funds and money market investments. Unrecognized
items are amortized over the estimated remaining service lives of active
employees.
Net pension expense before curtailment gains in 1997 for the Company's
pension plans in 1997 and 1996 and for the Company's allocable portion of
Holdings' pension plans in 1995 includes the following components:
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Service cost-benefits attributed to
service during the year................ $370 $543 $478
Interest cost on projected
benefit obligation..................... 287 322 270
Actual return on plan assets.............. (437) (262) (250)
Net amortization and deferrals............ 126 115 138
---- ---- ----
Net pension expense before curtailment
gains in 1997.......................... $346 $718 $636
==== ==== ====
F-17
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
SAVINGS PLAN:
The Company maintains employee savings plans under Section 401(k) of
the Internal Revenue Code. These plans cover substantially all of the Company's
full-time U.S. employees and allows employees to contribute a portion of their
salary to the plans. The Company matches employee contributions at
predetermined rates. Amounts charged to expense for matching contributions were
$114, $298 and $523 for the years ended December 31, 1997, 1996 and 1995,
respectively.
STOCK OPTION PLAN:
The Company adopted the Meridian Sports Inc. 1994 Stock Option Plan
(the "Stock Option Plan") prior to the effectiveness of the IPO. The Company
applies APB Opinion No. 25 and related Interpretations in accounting for the
Stock Option Plan. Under APB Opinion No. 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation cost has been recognized. Had
compensation cost for the Stock Option Plan been determined consistent with
SFAS No. 123, the effect would not be significant.
Under the terms of the Stock Option Plan, incentive stock options
("ISOs") may be granted to key employees of the Company and any of its
affiliates from time to time. Such options vest ratably over three or four-year
periods. The aggregate number of shares of common stock as to which options and
rights may be granted under the Stock Option Plan may not exceed 500,000.
The following table summarizes the stock option transactions under the
Stock Option Plan:
Option Price
Shares per share ($)
------ -------------
Option outstanding at January 1, 1995...... 200,000 11.00
Canceled................................. (32,750) 11.00
--------
Options outstanding at December 31, 1995... 167,250 11.00
Granted.................................. 50,000 3.50
Canceled................................. (149,750) 11.00
--------
Options outstanding at December 31, 1996... 67,500 3.50-11.00
Granted.................................. 125,000 0.75
Canceled................................. (53,000) 3.50-11.00
--------
Options outstanding at December 31, 1997... 139,500 0.75-11.00
========
Of such options, 10,875 were exercisable at December 31, 1997, 25,417
were exercisable at December 31, 1996, and 41,813 were exercisable at December
31, 1995. The weighted average remaining contractual life of the options
outstanding was approximately 9.4 years, 8.9 years and 8.8 years at December
31, 1997, 1996 and 1995, respectively. The weighted average fair value of
options granted during 1997 and 1996 was approximately $84 and $95,
respectively.
F-18
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
12. COMMITMENTS AND CONTINGENCIES
On August 29, 1996, an action known as Shelton Smith, on behalf of
himself and others similarly situated v. Sunchaser Marine, MasterCraft Boat
Company, Inc., WetJet, A Division of MasterCraft and Meridian Sports
Incorporated, was brought in the 207th District Court of Comal County, Texas by
Shelton Smith on behalf of himself and a putative nationwide class of WetJet
personal watercraft consumers, asserting claims against the Company, WetJet,
MasterCraft, and Sunchaser Marine, Inc. ("Sunchaser") under the Texas Deceptive
Trade Practices Act ("DTPA") and the Uniform Commercial Code for alleged
breaches of express and implied warranties with respect to the sale of the
WetJet personal watercraft units. The complaint also alleges that MasterCraft
and/or WetJet were utilized as alter egos or mere instrumentalities of the
Company. Shortly thereafter, Sunchaser, a WetJet dealer, filed a cross-action
against MasterCraft, WetJet, and the Company asserting various causes of action
based on allegations that the cross-defendants breached various warranties and
representations relating to the dealer contract and the supply of merchantable
WetJet units to the dealer. Sunchaser subsequently amended its third-party
petition to add those allegations on behalf of a class of all entities who were
retailers, dealers or distributors of the WetJet units or who performed
warranty work on the units. Sunchaser also seeks to hold the Company liable
under alter ego theories of liability. Finally, Watercraft Rentals, Inc.,
Randow L. Knodel and Harriet Fortson ("WaterCraft Rentals") intervened in the
lawsuit and now assert, on behalf of themselves and a putative class of
entities who purchased the WetJet units for purposes of renting or leasing
them, causes of action for violations of the Texas DTPA, breach of express and
implied warranties, and breach of contract. Watercraft Rentals, et al., also
seek to hold the Company liable under alter ego theories of liability.
Meridian has filed a special appearance in the case, contending that
the Texas court cannot assert personal jurisdiction over Meridian. MasterCraft
and WetJet have filed answers and a Motion to Deny Class Certification and
Smith, Sunchaser and WaterCraft Rentals have filed motions to certify the class
they purport to represent. The case is presently in the early stages of
discovery. Management of the Company and of MasterCraft intend to vigorously
defend the claims against them.
The Company currently leases manufacturing and sales facilities and
various types of equipment under operating lease agreements expiring through
2033. Rental expense was $472, $592, and $961 for the years ended December 31,
1997, 1996 and 1995, respectively. Minimum rental commitments under all
noncancellable operating leases with remaining lease terms in excess of one
year from December 31, 1997, was approximately $1,346; such commitments for
each of the five years subsequent to December 31, 1997 are $152, $63, $63, $32
and $32 respectively.
Under certain conditions, the Company is also obligated to repurchase
new inventory repossessed from distributors by financial institutions which
provide credit to boat dealerships and distributors. Such inventory is
generally resold to other customers of the Company, without a significant
effect on the results of operations of the Company. The contingent obligation
of the
F-19
<PAGE>
MERIDIAN SPORTS INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Company under such floorplanning agreements aggregated approximately $27,000
and $29,000 at December 31, 1997 and 1996, respectively.
The Company and MacAndrews Holdings are involved in certain claims and
legal actions arising in the ordinary course of business, including
environmental matters. In the opinion of management, the ultimate disposition
of these matters is not expected to have a material adverse effect on the
Company's consolidated financial condition or results of operations. The
Company has entered into a cross-indemnification agreement with MacAndrews
Holdings pursuant to which it will indemnify Holdings against all liabilities
related to businesses transferred to the Company, and MacAndrews Holdings will
indemnify the Company against all liabilities of MacAndrews Holdings other than
liabilities related to the businesses transferred to the Company.
13. CASH FLOW REPORTING
The Company uses the indirect method to report cash flows from
operating activities. Interest paid for the years ended December 31, 1997, 1996
and 1995 was approximately $2,119, $1,745 and $3,295, respectively. Income
taxes paid were $281, $122 and $609 for the years ended December 31, 1997, 1996
and 1995, respectively.
14. PREFERRED STOCK
The Company has authorized 10,000,000 shares of preferred stock, par
value $0.01 per share. The Company's Certificate of Incorporation authorizes
the Board of Directors to provide for the issuance of a series of preferred
stock, to establish the number of shares of each such series and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof.
15. EARNINGS PER COMMON SHARE
During the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share", the effect of
which was not significant.
Basic and diluted earnings per common share has been computed based on
8,000,000 weighted average shares outstanding for the years ended December 31,
1997, 1996 and 1995, respectively. The effect of the outstanding stock options
is anti-dilutive for each of the periods presented as the Company reported net
losses for such periods.
F-20
<PAGE>
MERIDIAN SPORTS INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------
Additions
- ----------------------------------------------------------------------------------------------------------------
(1) (2)
Balance at Charged to Charged to Balance at
Description beginning costs and other Deductions end
of year expenses * accounts ** of year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1995:
Allowance for Doubtful Accounts $1,364 $1,987 $0 $670 $2,681
Year ended
December 31, 1996:
Allowance for Doubtful Accounts $2,681 $1,165 $0 $1,268 $2,578
Year ended
December 31, 1997:
Allowance for Doubtful Accounts $2,578 $210 $0 $2,387 $401
</TABLE>
- ------------------
* Includes $100 and $1,241 of restructuring charges related to the personal
watercraft business in 1996 and 1995, respectively.
** The allowance for doubtful accounts was reduced by $364 in 1997 as a result
of the O'Brien Sale and the Soniform Sale and by $540 in 1996 as a result of
the Skeeter Sale and the BW Sale.
F-21
<PAGE>
ASSET PURCHASE AGREEMENT
among
EARTH AND OCEAN SPORTS, INC.,
a Massachusetts corporation
("PURCHASER"),
O'BRIEN INTERNATIONAL, INC.,
a Washington corporation
("SELLER"),
and
MERIDIAN SPORTS INCORPORATED,
a Delaware corporation
("PARENT")
Date: July 31, 1997
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Definitions....................................................1
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 Purchase of Assets........................................... 11
2.2 Excluded Assets.............................................. 13
2.3 Assumed Liabilities.......................................... 14
2.4 Closing...................................................... 15
2.5 Payment of Purchase Price.................................... 15
2.6 Consistent Treatment......................................... 19
2.7 Procedures for Purchased Assets Not
Transferable................................................. 19
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER
3.1 Due Incorporation; Subsidiaries.............................. 20
3.2 Due Authorization............................................ 20
3.3 Consents and Approvals....................................... 20
3.4 Financial Statements......................................... 21
3.5 No Adverse Effects or Changes................................ 21
3.6 Title to Properties.......................................... 22
3.7 Real Property................................................ 23
3.8 Personal Property............................................ 25
3.9 Inventories.................................................. 25
3.10 No Third Party Options....................................... 26
3.11 Intellectual Property........................................ 26
3.12 Contracts.................................................... 27
3.13 Permits...................................................... 30
3.14 Insurance.................................................... 30
3.15 Employee Benefit Plans and Employment
Agreements................................................... 30
3.16 Employees.................................................... 32
3.17 Taxes........................................................ 33
3.18 No Defaults or Violations.................................... 33
3.19 Environmental Matters........................................ 34
3.20 Litigation; Product Liabilities.............................. 35
3.21 Related Parties.............................................. 36
3.22 Intercompany Services and Transactions....................... 36
3.23 Product Warranties........................................... 36
3.24 Brokers...................................................... 36
3.25 Customers and Suppliers...................................... 37
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Page
3.26 Disclosure................................................... 37
3.27 Accounts Payable............................................. 37
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1 Due Incorporation............................................ 38
4.2 Due Authorization............................................ 38
4.3 Consents and Approvals....................................... 38
4.4 Brokers...................................................... 39
ARTICLE V
COVENANTS
5.1 Noncompetition; Confidentiality.............................. 39
5.2 Existence of Seller.......................................... 40
5.3 Use of Name.................................................. 40
5.4 Product Liability............................................ 40
5.5 Employees and Employee Benefits.............................. 41
5.6 Access....................................................... 46
5.7 Collection of Accounts Receivable............................ 46
5.8 Production of Witnesses and Individuals...................... 50
5.9 Environmental Matters........................................ 51
ARTICLE VI
INDEMNIFICATION
6.1 Survival..................................................... 51
6.2 Indemnification by Parent and Seller......................... 52
6.3 Indemnification by Purchaser................................. 52
6.4 Claims....................................................... 53
6.5 Third Party Claims; Assumption of De-
fense........................................................ 54
ARTICLE VII
MISCELLANEOUS
7.1 Expenses..................................................... 55
7.2 Amendment.................................................... 55
7.3 Notices...................................................... 55
7.4 Effect of Investigation...................................... 56
7.5 Waivers...................................................... 56
7.6 Counterparts................................................. 57
7.7 Interpretation............................................... 57
7.8 Applicable Law............................................... 57
7.9 Binding Agreement............................................ 57
7.10 No Third Party Beneficiaries................................. 58
7.11 Publicity.................................................... 58
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Page
7.12 Further Assurances............................................ 58
7.13 Severability.................................................. 59
7.14 Remedies Cumulative........................................... 59
7.15 Liability of Parent and Seller................................ 59
7.16 Allocation of Taxes........................................... 59
7.17 Forum......................................................... 59
7.18 Assignment.................................................... 60
7.19 Entire Understanding.......................................... 60
EXHIBITS
A - Bill of Sale and Assignment
B - Assumption Agreement
C - Intellectual Property Assignments
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SCHEDULES
1.1(e) - Permitted Exceptions -- Liens
1.1(f) - Permitted Exceptions -- Liens to be
Released at Closing
2.1(k) - Bank Accounts
2.2(a) - Excluded Assets -- Contracts and
Agreements
2.5(b) - Fixed Assets Memo
2.6 - Purchase Price Allocations
3.1 - Jurisdictions
3.3 - Consents and Approvals
3.3(a) - Consents and Approvals Not Received as of
the Closing Date
3.4 - Financial Statements
3.5 - No Adverse Effects or Changes
3.6 - Title to Properties -- Personal and Real
Property Leases
3.7(a) - Real Property -- Owned Real Property
and Leases
3.7(b) - Real Property -- Outstanding Payments Relat-
ed to Real Property
3.7(c) - Real Property -- Maintenance
3.8(a) - Personal Property -- Equipment and
Vehicles
3.8(b) - Personal Property -- Tooling
3.11 - Intellectual Property
3.11(a) - Intellectual Property - Trademark Licenses
3.11(b) - Intellectual Property - Patent and Trade-
mark Disputes
3.12 - Contracts
3.12(b) - Contracts -- Not in the Ordinary Course
3.13 - Permits
3.14 - Insurance
3.15(a) - Employee Benefit Plans and Employment
Agreements
3.15(b) - Employee Benefit Plans and Employment
Agreements -- Exception to "Employee
Pension Benefit Plan" Qualifications
3.16 - Employees
3.18 - No Defaults of Violations
3.19 - Environmental Matters
3.20(a) - Litigation
3.20(b) - Product Liability
3.21 - Related Parties
3.22 - Intercompany Services
3.23 - Product Warranties
3.25 - Customers and Suppliers
3.27 - Accounts Payable
4.3 - Purchaser Consents and Approvals
5.1 - Subsidiaries of Parent
5.7(b) - AR Reconciliation
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ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 31st day of July, 1997, by
and among Earth and Ocean Sports, Inc., a Massachusetts corporation
("PURCHASER"), O'Brien International, Inc., a Washington corporation
("SELLER"), and Meridian Sports Incorporated, a Delaware corporation
("PARENT"). Certain capitalized terms used herein are defined in Article I
below.
W I T N E S S E T H:
WHEREAS, Purchaser wishes to purchase from Seller, and Seller
desires to sell to Purchaser, all of the Purchased Assets (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, agreements and warranties herein contained, the parties agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms shall have the
following meanings for the purposes of this Agreement:
"ACCOUNTS PAYABLE" shall have the meaning set forth in
Section 3.27 hereof.
"ACTIVE EMPLOYEE" shall have the meaning set forth in
Section 5.5 hereof.
"AFFILIATE" shall mean, with respect to any specified Person,
(a) any other Person which, directly or indirectly, owns or controls, is under
common ownership or control with, or is owned or controlled by, such specified
Person, (b) any other Person which is a director, officer or partner or is,
directly or indirectly, the beneficial owner of ten (10) percent or more of any
class or series of equity securities of the specified Person or a Person
described in clause (a) of this paragraph, or (c) any other Person of which the
specified Person is a director, officer or partner or is, directly or
indirectly, the beneficial owner of ten (10) percent or more of any class or
series of equity securities.
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"AGREEMENT" shall mean this Asset Purchase Agreement,
including all exhibits and schedules hereto, as it may be amended from time to
time.
"AMENDED ARTICLES OF INCORPORATION" shall mean the Articles
of Incorporation, as amended, of Seller, as in effect on the date hereof.
"AR NOTICE" shall have the meaning set forth in Section 5.7
hereof.
"AR RECONCILIATION" shall have the meaning set forth in
Section 5.7 hereof.
"ASSUMED LIABILITIES" shall have the meaning set forth in
Section 2.3 hereof.
"ASSUMPTION AGREEMENT" means the Assumption Agreement, to be
dated the Closing Date, substantially in the form of Exhibit B hereto.
"BENEFIT ARRANGEMENT" shall have the meaning set forth in
Section 3.15 hereof.
"BILL OF SALE AND ASSIGNMENT" means the Bill of Sale and
Assignment, to be dated the Closing Date, substantially in the form of
Exhibit A hereto.
"BUSINESS" shall mean the business conducted by Seller as of
the date of this Agreement and during the one (1) year period prior to the date
hereof, including, without limitation, the manufacture and marketing of water
skis, wake boards, knee boards and related towable water sports products and
accessories.
"BUSINESS DAY" shall mean any day other than (a) any Saturday
or Sunday or (b) any other day on which banks located in New York City
generally are closed for business.
"BY-LAWS" shall mean the By-laws of the Seller, as in effect
on the date hereof.
"CASH" shall have the meaning set forth in Section 2.1
hereof.
"CLOSING" shall mean the consummation of the transactions
contemplated herein.
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"CLOSING DATE" shall mean the date on which the Closing
occurs or is to occur.
"CLOSING DATE STATEMENT OF NET TANGIBLE EQUITY" shall have
the meaning set forth in Section 2.5 hereof.
"CLOSING NET TANGIBLE EQUITY" shall have the meaning set
forth in Section 2.5 hereof.
"CLOSING SCHEDULE" shall have the meaning set forth in
Section 2.5 hereof.
"CODE" shall mean the Internal Revenue Code of 1986,
as amended.
"CONTRACT" shall mean any contract, lease, commitment,
understanding, sales order, purchase order, agreement, indenture, mortgage,
note, bond, right, warrant, instrument, plan, permit or license, whether
written or oral, which is intended or purports to be binding and enforceable.
"CREDIT AGREEMENT" shall mean the Revolving Credit and
Security Agreement, dated as of March 17, 1997, between BNY Financial
Corporation and Seller.
"DEUTSCHE FINANCING AGREEMENT" shall have the meaning set
forth in Section 3.12 hereof.
"EMPLOYEE PENSION BENEFIT PLAN" shall have the meaning set
forth in Section 3.15 hereof.
"EMPLOYEE PLAN" shall have the meaning set forth in
Section 3.15 hereof.
"ENVIRONMENTAL LAW" shall mean any applicable Laws pertaining
to (a) the protection of the environment (including air, surface water, ground
water, land surface or subsurface strata), or the protection of natural
resources; (b) the treatment, storage, disposal, generation, transportation or
Release of Hazardous Substances; (c) the protection of wetlands; (d)
underground or other storage tanks or vessels, abandoned or discarded barrels,
containers and other closed receptacles; and including (e) the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C.
Section 9601 et seq.), the Resource Conservation and Recovery Act ("RCRA") (42
U.S.C. Section 6901 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et
seq.), the Clean Air Act (33 U.S.C. Section 7401 et seq.), the Toxic Substances
Control Act (15
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U.S.C. Section 7401 et seq.) and the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. Section 136 et seq.), and the regulations promulgated
pursuant to any of the foregoing, and any such applicable foreign, state or
local statutes, and the regulations promulgated pursuant thereto, as such laws
have been and may be amended or supplemented through the Closing Date.
"ENVIRONMENTAL PERMIT" shall mean any permit, license,
approval, consent or other authorization required by or pursuant to any
applicable Environmental Law.
"EQUIPMENT" shall have the meaning set forth in
Section 2.1 hereof.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"ERISA AFFILIATE" shall have the meaning set forth in
Section 3.15 hereof.
"ESTIMATED NET TANGIBLE EQUITY" shall have the meaning set
forth in Section 2.5 hereof.
"EXCLUDED ASSETS" shall have the meaning set forth in
Section 2.2 hereof.
"FINAL BALANCE SHEET" shall have the meaning set forth in
Section 2.5 hereof.
"FINANCIAL STATEMENTS" shall mean, collectively, Seller's
audited balance sheet at December 31, 1996, audited statement of operations,
audited statement of stockholder's equity, and audited statement of cash flows,
each for the twelve (12) month period ended Decem-ber 31, 1996, the respective
notes thereto, and the Interim Financial Statements.
"GAAP" shall mean U.S. generally accepted accounting
principles in effect on the date hereof.
"GOVERNMENTAL AUTHORITY" shall mean the government of the
United States or any foreign country, any state or political subdivision
thereof, or any entity, body or authority exercising executive, legislative,
judicial, regulatory, administrative or other governmental functions or any
court, department, commission, board, agency, instrumentality or administrative
body of any of the foregoing.
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"HAZARDOUS SUBSTANCE" shall mean any substance, material or
waste which is regulated under any provision of any Environmental Law.
"INACTIVE EMPLOYEES" shall have the meaning set forth in
Section 5.5 hereof.
"INTELLECTUAL PROPERTY" shall have the meaning set forth in
Section 2.1 hereof.
"INTELLECTUAL PROPERTY ASSIGNMENTS" shall mean the
assignments of the Intellectual Property, to be dated the Closing Date,
substantially in the form of Exhibit C hereto.
"INTERIM FINANCIAL STATEMENTS" shall mean, collectively,
Seller's unaudited statement of operations and unaudited statement of cash
flows, each for the five (5) month period ended May 31, 1997, the unaudited
balance sheet at May 31, 1997 (the "INTERIM BALANCE SHEET"), and the respective
notes thereto.
"INVENTORIES" shall have the meaning set forth in Section 2.1
hereof.
"IRS" shall have the meaning set forth in Section 5.5 hereof.
"LAW" shall mean any law, statute, regulation, ordinance,
rule, order, decree, judgment, consent decree, settlement agreement or
governmental requirement enacted, promulgated or entered into, agreed to or
imposed by any Governmental Authority.
"LEASED PREMISES" shall mean the property subject to the
Leases.
"LEASES" shall mean the leases described on Schedule 3.7(a)
hereto.
"LENDER" shall mean the financial institution granted Liens
against the Purchased Assets pursuant to the Credit Agreement.
"LIEN" shall mean any mortgage, lien, charge, restriction,
pledge, security interest, option, claim, easement, encroachment or
encumbrance.
"LOSS" or "LOSSES" shall mean all liabilities, losses
(excluding consequential damages), costs, claims,
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damages, penalties and expenses (including reasonable attorneys' fees and
expenses and reasonable investigation and litigation costs incurred in relation
to the indemnified matter or in enforcing such indemnity).
"MATERIAL ADVERSE CHANGE" shall mean a change in the
business, operations, assets, liabilities, results of operations, cash flows or
financial condition of Seller or the Business, which could reasonably be
expected to be materially adverse, other than the adverse reaction of any
customer or supplier of Seller to the fact that Purchaser is acquiring the
Purchased Assets.
"MATERIAL CONTRACTS" shall mean the Contracts to which Seller
is a party or to which its assets are subject, all of which are listed,
described or required to be listed or described in Section 3.12 of this
Agreement or any schedule thereto except Contracts calling for aggregate
payments of less than $25,000.
"MULTIEMPLOYER PLAN" shall have the meaning set forth in
Section 3.15 hereof.
"NET TANGIBLE EQUITY" shall mean the tangible assets included
in the Purchased Assets reduced by the amount of the Assumed Liabilities, as at
the date of determination, determined in accordance with Section 2.5 hereof.
"OUT OF SEASON GOODS" shall have the meaning set forth in
Section 2.5 hereof.
"PARENT SAVINGS PLAN" shall have the meaning set forth in
Section 3.15 hereof.
"PERMITS" shall have the meaning set forth in Section 2.1
hereof.
"PERMITTED EXCEPTIONS" shall mean (a) easements, covenants,
rights-of-way, claims and other encumbrances of record specifically disclosed
on the Title Report, (b) zoning, building and other similar governmental
restrictions applicable to the Real Property, (c) any conditions shown on the
Survey, (d) Taxes and general and special assessments not yet due and payable
and not in default on the date of determination and payable without penalty and
interest, (e) Liens set forth on Schedule 1.1(e) hereto, (f) Liens set forth on
Schedule 1.1(f) hereto, provided that such Liens shall be released on or prior
to the Closing Date and shall not constitute Per-
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mitted Exceptions following the Closing Date, and (g) in the case of tangible
personal property, those irregularities in title that do not, individually or
in the aggregate, materially detract in any way from the value of, or impair in
any way the use by Purchaser of, such tangible personal property.
"PERSON" shall mean any individual, corporation,
proprietorship, firm, partnership, limited partnership, limited liability
company, trust, association, Governmental Authority or other entity.
"POST-CLOSING ENVIRONMENTAL CONDITIONS" shall mean (i) any
environmental liability at the Real Property or the Leased Premises arising
from acts or omissions first occurring after the Closing Date and (ii) any
liability under any Environmental Law caused by the shipment of Hazardous
Substances following the Closing Date from the Real Property or the Leased
Premises.
"PRE-CLOSING ENVIRONMENTAL CONDITIONS" shall mean any
liability under any Environmental Laws (i) relating to off-site disposal of
Hazardous Substances from the Real Property or from any property leased, or
previously owned or leased, by Seller, (ii) relating to conditions disclosed on
Schedule 3.19 hereto, or (iii) caused by Seller, or any condition at the Real
Property, or from any property leased, or previously owned or leased, by
Seller, consisting of the presence or Release on or prior to the Closing Date
of Hazardous Substances on, under or emanating from the Real Property or from
any property leased, or previously owned or leased, by Seller, arising from or
related to conditions or circumstances existing, or actions taken, on or before
the Closing Date, that are discovered by Purchaser and disclosed to Seller
within four (4) years after the Closing Date in accordance with Section 5.9
hereof.
"PRIME RATE" shall have the meaning set forth in Section 2.5
hereof.
"PURCHASE PRICE" shall have the meaning set forth in
Section 2.5 hereof.
"PURCHASED ASSETS" shall have the meaning set forth in
Section 2.1 hereof.
"PURCHASER SAVINGS PLAN" shall have the meaning set forth in
Section 5.5 hereof.
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"PURCHASER'S AUDITORS" shall have the meaning set forth in
Section 2.5 hereof.
"PURCHASER'S PLANS" shall have the meaning set forth in
Section 5.5 hereof.
"REAL PROPERTY" shall mean all of Seller's right, title and
interest in and to the premises owned by Seller, identified on Schedule 3.7(a)
hereto, together with all rights, privileges, appurtenances and easements
pertaining thereto, and all buildings, plants, facilities, fixtures,
structures, improvements and other real property situated or located at such
location.
"RECEIVABLE" shall mean each individual account
receivable included in Receivables.
"RECEIVABLES" shall have the meaning set forth in Section 2.2
hereof.
"REFEREE" shall have the meaning set forth in Section 2.5
hereof.
"RELEASE" shall mean any release, spill, efflu-ent, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the environment or movement through or in the air, soil,
surface water or ground water or other property.
"REMEDIAL ACTION" shall mean all actions, including any
studies, investigations, capital expenditures and/or operational expenditures,
required by a Governmental Authority or required under any Environmental Law,
to (a) clean up, remove, treat, or in any other way ameliorate or address any
Hazardous Substances or other substance in the environment; (b) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger the public health or
environment; or (c) bring a Person into compliance with any Environmental Law.
"SAVINGS TRANSFER DATE" shall have the meaning set forth in
Section 5.5 hereof.
"SCHEDULE OF ESTIMATED NET TANGIBLE EQUITY" shall have the
meaning set forth in Section 2.5 hereof.
"SEC" shall have the meaning set forth in
Section 3.3 hereof.
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"SELLER ASSIGNED CONTRACTS" shall have the meaning set forth
in Section 2.1 hereof.
"SELLER'S AUDITORS" shall have the meaning set forth in
Section 2.5 hereof.
"SELLER'S LIABILITIES" shall mean all debts, claims,
obligations or other liabilities of Seller or any of its Affiliates, absolute
or contingent, known or unknown, including, without limitation:
(a) all liabilities with respect to any Taxes, including
state, local or federal Taxes (including interest, penalties and
additions to such Taxes) for, or properly attributable to, any periods
ending on or prior to the Closing Date (including, with respect to any
taxable period that includes but does not end on the Closing Date,
Taxes with respect to the portion of such period that includes and
ends on the Closing Date calculated as if such taxable period ended at
the consummation of the Closing on the Closing Date), including any
Taxes payable by Seller as a result of the consummation of the
transactions contemplated by this Agreement (except to the extent that
Purchaser expressly assumes responsibility for taxes pursuant to
Section 7.1 hereof);
(b) subject to the provisions of Section 5.9 hereof, all
liabilities arising from Pre-Closing Environmental Conditions;
(c) all accounts payable not constituting Assumed
Liabilities and all liabilities for borrowed funds;
(d) all liabilities (i) retained by Seller pursuant to this
Agreement or (ii) under any Excluded Asset;
(e) all liabilities and obligations for product liability
matters to the extent that Seller retains such liabilities and
obligations pursuant to Section 5.4(a) hereof; and
(f) all liabilities relating to any litigation pending as of
the Closing Date against Seller including, without limitation, the
matters set forth on Schedule 3.20(b) hereto, except for litigation
(i) described on Schedule 3.20(a) hereto and (ii) to the extent
arising out of warranty claims insofar as
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such warranty claims are assumed by Purchaser under Section 2.3(b)
hereof or other claims for which accruals are provided on the Closing
Schedule.
"SUBSIDIARY" shall mean with respect to any Person, any
corporation or other organization, whether incorporated or unincorporated, of
which more than 50% of either the equity interests in, or the voting control
of, such corporation or other organization is, directly or indirectly, through
subsidiaries or otherwise, beneficially owned by such Person.
"SURVEY" shall mean the survey for the Real Property dated
February 25, 1997 and prepared by Triad Associates.
"TAX RETURN" shall mean any report, return or other
information required to be supplied to a Governmental Authority in connection
with any Taxes.
"TAXES" shall mean all taxes, charges, fees, duties
(including customs duties), levies or other general or special assessments,
including without limitation, income, gross receipts, net proceeds, ad valorem,
turnover, real and personal property (tangible and intangible), sales, use,
franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel,
excess profits, occupational, interest equalization, windfall profits,
severance, license, payroll, environmental, capital stock, disability,
employee's income withholding, other withholding, unemployment and Social
Security taxes, which are imposed by any Governmental Authority, and such term
shall include any interest, penalties or additions to tax attributable thereto.
"TITLE REPORT" shall mean the title policy for the Real
Property issued by Chicago Title Insurance Company, dated July 23, 1997, and
bearing commitment number 485130.
"TOOLING" shall have the meaning set forth in Section 2.1
hereof.
"TRANSFERRED EMPLOYEES" shall have the meaning set forth in
Section 5.5 hereof.
"VEHICLES" shall have the meaning set forth in Section 2.1
hereto.
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ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 Purchase of Assets. Subject to the terms and conditions
of this Agreement, at the Closing, Seller shall sell, assign, convey, transfer
and deliver to Purchaser, and Purchaser shall purchase, acquire and take
assignment and delivery of, the Purchased Assets. The "PURCHASED ASSETS" shall
mean all assets of Seller at the Closing Date other than the Excluded Assets,
wherever located and in whatever form, real, personal, tangible or intangible,
including, without limitation, all of Seller's right, title and interest in and
to the following:
(a) The Real Property;
(b) Equipment. All machinery, equipment, furniture,
telephones, spare and replacement parts, supplies, maintenance
equipment, computer equipment, materials and other personal property
located or usually located at the Real Property or the Leased Premises
or otherwise used in connection with or necessary to the Business
(collectively, the "EQUIPMENT"), including the Equipment described on
Schedule 3.8(a) hereto;
(c) Vehicles. All trucks, trailers, automobiles and
other vehicles of Seller used in connection with the Business
(collectively, the "VEHICLES"), including the Vehicles described on
Schedule 3.8(a) hereto;
(d) Inventories. All inventories, wherever located,
including all raw materials, work in process, finished goods and
supplies inventories (the "INVENTORIES");
(e) Information and Records. All records, files, notebooks,
confidential and nonconfidential information (including electronic
information), price lists, marketing information, sales records,
customer lists and files (including customer credit and collection
information), legal and accounting records, personnel and labor
relations records, employee benefits and compensation plans and
records, environmental control, monitoring and test records, plats and
surveys of the Real Property, plans and designs of buildings,
structures, fixtures and equipment, tax records, historical and
financial
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records and files, and all other proprietary information related
to, or used in connection with, the Business;
(f) Intellectual Property. The name "O'Brien" and any
derivation thereof, and all tradenames, trade dress, corporate names
and logos, trademarks, service marks, patents, copyrights (and any
registrations with any Governmental Authority of, and applications for
registration pending with respect to, any of the foregoing), trade
secrets, mask works, technology, inventions, processes, designs,
know-how, computer software and data, formulas, prototypes,
enhancements, improvements, or other tangible work product or
technology or process developed, created or otherwise acquired in
connection with the design, research and development, market research
or marketing of products of the Business, goodwill, any licenses
related to any of the foregoing, to the extent assignable, and all
other intangible intellectual property assets related to the Business,
including (without limitation) those items described on Schedule 3.11
hereto, including such rights to sue and recover for past infringement
or misappropriation thereof, whether presently pending or not, and to
receive all income, royalties, damages and payments for past and
future infringements thereof (collectively, the "INTELLECTUAL
PROPERTY");
(g) Permits. To the extent assignable, all licenses, permits,
variances, interim permits, permit applications, approvals or other
authorizations under any Law applicable to the Business or otherwise
required in connection with the Business or the ownership or operation
of the Purchased Assets, including those listed on Schedule 3.13
hereto (the "PERMITS");
(h) Contracts. All contracts of the Seller related to the
Business ("SELLER ASSIGNED CONTRACTS"), including, without limitation,
all contracts set forth on Schedule 3.12 hereto, the Leases set forth
on Schedule 3.7(a) hereto (for which Purchaser and Seller agree no
consideration is being given with respect thereto), the leases set
forth on Schedule 3.6 hereto, all marketing or promotional contracts,
all contracts for the purchase of goods, services and materials
entered into in the ordinary course of the Business, all contracts for
the sale of goods or services entered into in the ordinary
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course of the Business and all customer deposits relating thereto, the
Deutsche Financing Agreement listed on Schedule 3.12 hereto and the
retention agreements listed on Schedule 3.15(a) hereto;
(i) Tooling. All tools, dies, molds, plugs and castings
(collectively, the "TOOLING") used in connection with the Business,
including, without limitation, the Tooling described on Schedule
3.8(b) hereto;
(j) Phone Numbers. All phone numbers and facsimile numbers
used in the Business;
(k) Cash. All of Seller's cash and cash equivalents on hand
including all cash held in the bank accounts of Seller, all of which
are listed on Schedule 2.1(k) hereto, and all petty cash located at
operating facilities of the Business ("CASH"); and
(l) Other Assets. To the extent not included in the
foregoing, any assets which were included in the Interim Balance Sheet
and all other assets of Seller (except for Excluded Assets), including
the Seller Assigned Contracts and any warranties or other rights,
claims, demands or causes of action relating to the Purchased Assets.
2.2 Excluded Assets. Notwithstanding the foregoing, Seller
shall not assign and transfer, and Purchaser shall not take assignment of (a)
any Contract or agreement listed on Schedule 2.2(a) hereto, (b) all books and
records of Seller to the extent related to the other Excluded Assets (other
than the books and records relating to the Receivables, to which Seller hereby
grants Purchaser the right to use and maintain such books and records as
contemplated by this Agreement) or the Seller's Liabilities and not to the
Purchased Assets or Assumed Liabilities, (c) all claims of Seller for refunds,
credits, carrybacks or carryforwards in connection with any Taxes for tax
periods ending on or prior to the Closing Date and the proceeds thereof, (d)
all insurance policies, binders and related prepaid expenses and any amounts
receivable in respect of such insurance policies, (e) all rights, claims,
demands and causes of action which Seller or any of its Affiliates may have
against any Person to the extent related to any of the Seller's Liabilities or
any Excluded Assets, including all proceeds remitted to Seller or any of its
Affiliates from
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claims, rights, demands and causes of action with respect thereto, or to any
Assumed Liability to the extent Purchaser has been fully indemnified by Seller
with respect to such Assumed Liability, (f) all accounts receivable, notes
receivable and other receivables as of the Closing Date (the "RECEIVABLES")
arising from the operation of the Business, (g) the litigation bond of BNY
Financial Corporation with respect to the action entitled O'Brien
International, Inc. v. Migros Genossenschaftsbund pending in Switzerland, (h)
any right or interest whatsoever to or in the name "Coleman Skis, Inc." and (i)
all deferred financing costs arising in connection with the Credit Agreement
(collectively, the "EXCLUDED ASSETS"). The Excluded Assets shall be retained by
Seller and are not being sold or assigned to Purchaser hereunder.
2.3 Assumed Liabilities. At the Closing, Purchaser shall
assume, and agree to pay, perform, fulfill and discharge, the following
obligations of Seller:
(a) all liabilities and obligations of Seller under the
Seller Assigned Contracts and Permits (other than to the extent such
obligations would be a violation of Law);
(b) all liabilities and obligations of Seller for warranty
claims for goods sourced, manufactured or sold by Seller on or before
the Closing Date;
(c) all employment-related liabilities and obligations of a
nature required by GAAP to be disclosed on a balance sheet and
those assumed pursuant to Section 5.5 hereof;
(d) (i) all liabilities and obligations of Seller that are
reflected on the Interim Balance Sheet (except those liabilities and
obligations relating to the Credit Agreement) unless such liabilities
and obligations have been paid or discharged prior to the Closing
Date, and (ii) such categories of liabilities and obligations incurred
in the ordinary course of the Business consistent with past practice
since the date of the Interim Balance Sheet, including, without
limitation, all accounts payable, accrued expenses, trade obligations
and allowances, other than for uncollectible accounts (i.e., bad
debts), related to the Receivables;
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(e) any liabilities arising from any Post-
Closing Environmental Conditions at the Real Proper-
ty or the Leased Premises; and
(f) liabilities and obligations for product liability matters
to the extent that Purchaser assumes such liabilities and obligations
pursuant to Section 5.4(b) hereof.
The obligations of Purchaser under this Section 2.3 shall be referred to
collectively as the "ASSUMED LIABILITIES" and shall not include the Seller's
Liabilities which are being retained by Seller. Except as specifically set
forth above, neither Purchaser nor any of its Affiliates shall assume or
otherwise be liable in respect of any debt, claim, obligation or other
liability of Seller or any of its Affiliates whatsoever, including any payable,
debt, tort, violation of Law or breach of any Contract.
2.4 Closing. The Closing shall take place at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York
10022 at 10:00 a.m., New York City time, on July 31, 1997 or at such other time
and place as shall be agreed upon in writing by the parties hereto. The
Closing, and all transactions to occur at the Closing, shall be deemed to have
taken place at, and shall be effective as of, the close of business on the
Closing Date.
2.5 Payment of Purchase Price.
(a) Two (2) days prior to the Closing Date, Seller will
deliver to Purchaser a schedule (the "SCHEDULE OF ESTIMATED NET
TANGIBLE EQUITY") setting forth Seller's good faith estimate of the
Net Tangible Equity as of the Closing Date (the "ESTIMATED NET
TANGIBLE EQUITY"). Simultaneous with the Closing, in consideration for
the transfer of the Purchased Assets to Purchaser, Purchaser shall pay
to: (i) BNY Financial Corporation, by wire transfer in immediately
available funds to The Bank of New York, 48 Wall Street, New York, NY
10019, Account Number 8090653114, Routing Number 021000018, Reference
O'Brien International, Inc., an amount equal to the amount of all
outstanding amounts due under the Credit Agreement as of the Closing
Date and (ii) Seller, by wire transfer in immediately available funds
to Parent's Account Number 3750330166, Routing Number 111000012 at
NationsBank of Texas, N.A., an amount equal to the Estimated Net
Tangible Equity as
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set forth on the Schedule of Estimated Net Tangible Equity plus
$400,000 (the "PURCHASE PRICE") less any amounts remitted to BNY
Financial Corporation pursuant to this Section 2.5(a).
(b) As soon as practicable and in no event later than
forty-five (45) days after the Closing Date, Seller shall deliver to
Purchaser (i) a balance sheet as of the Closing Date of Seller (the
"FINAL BALANCE SHEET") and (ii) a schedule, with notes thereto,
derived from such Final Balance Sheet setting forth the Net Tangible
Equity as of the Closing Date (the "CLOSING DATE STATEMENT OF NET
TANGIBLE EQUITY"). Inventories reflected on the Closing Date Statement
of Net Tangible Equity will be stated at direct standard cost plus
capitalized fixed cost. Purchaser and Seller agree that in lieu of any
other Inventory reserve, the Closing Date Statement of Net Tangible
Equity shall reflect a reserve of $325,000 against the Inventory.
Purchaser and Seller agree that the net fixed assets included in the
Closing Date Statement of Net Tangible Equity will include the 1989
write-up calculated on a basis consistent with the Interim Financial
Statements and the memo set forth on Schedule 2.5(b) hereto. The
warranty reserve will be $500,000 in the Closing Date Statement of Net
Tangible Equity. Purchaser and Seller and their respective
representatives will jointly determine the time of, and will observe
and participate in, all physical inventories taken in connection with
the preparation of the Final Balance Sheet and Closing Date Statement
of Net Tangible Equity. The Final Balance Sheet and Closing Date
Statement of Net Tangible Equity delivered pursuant to this Section
2.5 shall be audited and accompanied by a report of Ernst & Young LLP,
Seller's independent accountants ("SELLER'S AUDITORS") which states
that the Purchased Assets and Assumed Liabilities included therein and
the related notes thereto are stated, without exception, in accordance
with GAAP or otherwise in accordance with this Agreement, except that
such notes may be limited in nature, consistent with the Financial
Statements. In rendering the foregoing audit and report, Seller's
Auditors shall permit Arthur Andersen LLP, Purchaser's independent
accountants ("PURCHASER'S AUDITORS"), to review at their request,
following receipt of the report of Seller's Auditors, all workpapers,
schedules and calculations of Seller's Auditors related to such
report.
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(c) If Purchaser does not dispute such audited Closing Date
Statement of Net Tangible Equity within the time period and in the
manner described below, such Closing Date Statement of Net Tangible
Equity will be the "CLOSING SCHEDULE." If Purchaser disputes such
Closing Date Statement of Net Tangible Equity or any item included
therein, such dispute shall be resolved in the following manner:
(i) Purchaser shall notify Seller in writing within
twenty-one (21) days after Purchaser's receipt of the Closing
Date Statement of Net Tangible Equity, which notice shall
specify in reasonable detail the nature of the dispute;
(ii) during the thirty (30) day period following
Seller's receipt of such notice, Seller and Purchaser shall
attempt to resolve such dispute; and
(iii) if at the end of such thirty (30) day period
Seller and Purchaser shall have failed to resolve such
dispute in writing, the matter shall be referred to the
offices of Price Waterhouse LLP (the "REFEREE"). The Referee
shall act as an arbitrator and shall issue its report
resolving all disputes as to the Closing Date Statement of
Net Tangible Equity within thirty (30) days after such
dispute is referred to it. The Closing Date Statement of Net
Tangible Equity, as modified by any adjustments determined to
be appropriate by the Referee, shall then be the Closing
Schedule. Each of the parties hereto shall bear all costs and
expenses incurred by it in connection with such arbitration,
except that the fees and expenses of the Referee hereunder
shall be borne equally by Seller and Purchaser. This
provision for arbitration shall be specifically enforceable
by the parties. The decision of the Referee in accordance
with the provisions hereof shall be final and binding (absent
manifest error) and there shall be no right of appeal
therefrom.
(d) From the Closing Date until the final determination of
the Closing Schedule, each party hereto will grant to the other and
its respective representatives reasonable access during usual business
hours to the agents and employees of such party
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and to the books, records and files of the Business in its possession
to enable such party to review and otherwise satisfy itself as to the
accuracy of the Closing Date Statement of Net Tangible Equity and
the preparation thereof.
(e) In the event that the Net Tangible Equity as reflected on
the Closing Schedule (the "CLOSING NET TANGIBLE EQUITY") is less than
the Estimated Net Tangible Equity used for purposes of determining the
Purchase Price pursuant to Section 2.5(a) hereof, then the amount of
the Purchase Price, as previously determined pursuant to Section
2.5(a) hereof, shall be decreased by the amount by which the Closing
Net Tangible Equity is less than the Estimated Net Tangible Equity. In
the event that the Closing Net Tangible Equity is more than the
Estimated Net Tangible Equity used for purposes of determining the
Purchase Price pursuant to Section 2.5(a) hereof, then the amount of
the Purchase Price, as previously determined pursuant to Section
2.5(a) hereof, shall be increased by the amount by which the Closing
Net Tangible Equity is more than the Estimated Net Tangible Equity. No
later than five (5) days after the date of the final determination of
the Closing Schedule, Seller or Parent shall pay Purchaser or
Purchaser shall pay Seller, as appropriate, by wire transfer of
immediately available funds, the amount of such deficiency or excess,
as the case may be, with interest thereon at a per annum rate equal to
the Prime Rate, accrued from the Closing Date to the date of payment.
The "PRIME RATE" shall mean the rate announced by The Chase Manhattan
Bank, N.A., as its corporate base interest rate at New York, New York
then in effect.
2.6 Consistent Treatment. The parties hereto shall allocate
the Purchase Price among the Purchased Assets and the covenant not to compete
set forth in Section 5.1 hereof in accordance with Schedule 2.6 hereto, treat
and report the transactions contemplated by this Agreement in all respects
consistently with such allocation upon all Tax Returns and for purposes of any
Taxes and not take any action inconsistent with such obligation.
2.7 Procedures for Purchased Assets Not Transferable. If,
either by virtue of the provisions thereof or under applicable Law, any of the
Contracts or any other property or rights included in the Purchased Assets
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are not assignable or transferable without the consent of some other Person,
Seller shall diligently use all commercially reasonable efforts to obtain such
consent prior to the Closing Date and Purchaser shall use all commercially
reasonable efforts to assist in that endeavor. If any such consent cannot be
obtained prior to the Closing Date and the Closing occurs, this Agreement and
the related instruments of transfer shall not constitute an assignment or
transfer thereof, but Seller shall diligently use all commercially reasonable
efforts for a period of nine (9) months following the Closing Date to obtain
such consent as soon as possible after the Closing Date or otherwise obtain for
Purchaser the practical benefit of such property or rights and Purchaser shall
use all commercially reasonable efforts to assist in that endeavor. With
respect to each Contract for which a necessary consent has not been obtained
prior to the Closing, Seller shall obtain for Purchaser, at no additional cost
to Purchaser, the benefits of such Contract (including all payments due to
Seller thereunder) until such consent is obtained. With respect to any right
under such Contract (including any right to payment), at Purchaser's request,
Seller shall institute legal proceedings to enforce such rights; provided that
such litigation shall be at the sole cost of Purchaser and Purchaser shall
control the conduct of such litigation. Except as so requested, Seller shall
have no obligation to take such action. Furthermore, until such consent is
obtained, Purchaser shall not assume Seller's obligations with respect to such
Contract but shall, as Seller's agent and on behalf of Seller, pay, perform and
discharge fully Seller's obligations thereunder to the extent that such
obligations would have otherwise constituted Assumed Liabilities. Without
Purchaser's prior written consent, Seller shall take no action to terminate or
modify any such Contract.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER
Parent and Seller jointly and severally represent and warrant
to Purchaser, as of the date of this Agreement, as follows:
3.1 Due Incorporation; Subsidiaries. Parent and Seller are
duly organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and possess all requisite power and
authority to own, lease and operate their respective
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properties and to carry on their respective businesses as they are now being
owned, leased, operated and conducted. Seller has no subsidiaries and is duly
licensed or qualified to do business and is in good standing as a foreign
corporation in each jurisdiction set forth on Schedule 3.1 hereto, which are
the only jurisdictions where the nature of the properties owned, leased or
operated by it or the Business requires such licensing or qualification and the
failure to be so qualified would cause a Material Adverse Change to the
Purchased Assets or the Business.
3.2 Due Authorization. Parent and Seller have full power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Parent and
Seller of this Agreement have been duly and validly approved by all necessary
corporate action and by any necessary action of its stockholders. Parent and
Seller have duly and validly executed and delivered this Agreement. This
Agreement constitutes the legal, valid and binding obligation of Parent and
Seller, enforceable against each of them in accordance with its terms, except
as such en-forceability may be limited by (a) applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect which affect
the enforcement of creditors' rights generally, or (b) equitable limitations on
the availability of specific remedies.
3.3 Consents and Approvals. No consent, authorization or
approval of, filing or registration with, or cooperation from, any Governmental
Authority or any other Person not a party to this Agreement is necessary in
connection with the execution and delivery of this Agreement and the
consummation by Parent and Seller of the transactions contemplated hereby,
other than (a) the consents set forth on Schedule 3.3 hereto, (b) as required
by applicable requirements of the Securities and Exchange Commission (the
"SEC") or the National Association of Securities Dealers, and (c) filings and
consents that may be required under any Environmental Law necessitated by the
transactions contemplated herein. Except for matters set forth on Schedule 3.3
hereto, the execution, delivery and performance by Seller and Parent of this
Agreement does not and will not (i) violate or conflict with, result in a
breach or termination of, constitute a default under or permit cancellation of
any Seller Assigned Contract, (ii) result in the creation of any Lien upon any
of the Purchased Assets or (iii) violate or conflict with any provision of the
Amended Articles of Incorporation or By-laws of Seller. Schedule
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3.3(a) hereto sets forth the agreements which require consents in order to be
assigned for which such consents have not been received by Seller as of the
Closing Date.
3.4 Financial Statements. Except as set forth on Schedule 3.4
hereto, the Financial Statements have been prepared in accordance with GAAP
consistently applied and present fairly the financial position, assets and
liabilities of Seller as of the dates thereof and the revenues, expenses,
results of operations and cash flows of Seller, for the periods covered
thereby. The Financial Statements are in accordance with the books and records
of Seller and do not reflect any transactions which are not bona fide
transactions. Except as set forth on Schedule 3.4 hereto or in the respective
Financial Statements, Seller does not have any material liabilities, debts,
claims or obligations, whether accrued, absolute, contingent or otherwise,
whether due or to become due, other than trade payables to third parties and
accrued expenses incurred in the ordinary course of business since the date of
the Interim Financial Statements. Schedule 3.4 hereto sets forth true and
correct copies of the Financial Statements.
3.5 No Adverse Effects or Changes. Except as listed on
Schedule 3.5 hereto, since the date of the Interim Financial Statements, Seller
has not (a) suffered any damage or destruction to, or loss of, any of its
assets or properties (whether or not covered by insurance) in excess of
$25,000; (b) permitted the imposition of a Lien (other than Permitted
Exceptions) on, or disposed of, any of its material assets (other than sales
of Inventories in the ordinary course of the Business, consistent with past
practice); (c) terminated or entered into any Material Contract; (d) cancelled,
waived, released or otherwise compromised any trade debt, receivable or
claim exceeding $25,000 individually or $50,000 in the aggregate; (e) made or
committed to make any capital expenditures or capital additions or betterments
in excess of $25,000 in the aggregate, whether individually or as a part of
related transactions; (f) entered into, adopted, amended (except as may be
required by Law and except for immaterial amendments) or terminated any bonus,
profit sharing, compensation, termination, stock option, stock appreciation
right, restricted stock, performance unit, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreements,
trusts, plans, funds or other arrangements for the benefit or welfare of any
director, officer or employee, or increased in any manner the compensation or
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fringe benefits of any director, officer or employee or paid any benefit not
required by any existing plan and arrangement (except for normal salary
increases consistent with past practice) or entered into any contract,
agreement, commitment or arrangement to do any of the foregoing; (g) disposed
of or permitted the lapse in registration of any Intellectual Property; (h)
experienced any Material Adverse Change in the accounts receivable or accounts
payable; (i) changed its accounting methods, systems, policies, principles or
practices; (j) incurred indebtedness (other than for floor plan repurchase
obligations and trade payables in the ordinary course of the Business); (k)
requested or advised any customer to accelerate or reschedule any purchase
order or established pattern of purchases other than in the ordinary course of
the Business, consistent with past practices of Seller; or (l) otherwise
experienced a Material Adverse Change.
3.6 Title to Properties. Seller has good and marketable title
to, or a valid leasehold interest in, the Real Property and Leased Premises
listed or referenced on Schedule 3.7(a) hereto and on the Closing Date, subject
to the terms and conditions of this Agreement, Seller will convey such good and
marketable title, or valid leasehold interest, as the case may be, in and to
the Real Property and Leased Premises (except for any lease set forth on
Schedule 3.3(a) hereto), to Purchaser free and clear of all Liens, claims and
encumbrances, other than Permitted Exceptions. In addition, Seller owns, or has
a valid leasehold interest in, all of the assets listed or referenced on
Schedules 3.6, 3.8(a), and 3.8(b), hereto and owns the Inventories, and on the
Closing Date, subject to the terms and conditions of this Agreement, Seller
will convey all of its ownership or leasehold interest, as the case may be, in
and to the Inventory and the assets listed on Schedules 3.6, 3.8(a), and 3.8(b)
hereto (except for any lease set forth on Schedule 3.3(a) hereto), to Purchaser
free and clear of all Liens, claims and encumbrances, other than Permitted
Exceptions. The Purchased Assets include (other than assets which are the
subject of the leases set forth on Schedule 3.6 hereto and Inventories disposed
of in the ordinary course of the Business since the date of the Interim Balance
Sheet and the Excluded Assets) (a) all of the tangible and intangible assets,
properties and rights used in connection with or material to the Business and
(b) all of the tangible and intangible assets, properties and rights reflected
in the Interim Balance Sheet. Except as set forth on Schedules 3.12, and 3.14
hereto,
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no other Person (including Parent or any of its Affiliates) owns any assets,
properties or rights relating to or used in the Business, performs or furnishes
services for the benefit of the Business, or is a party to or otherwise enjoys
rights under any Contracts or arrangements pertaining to the operation of
Seller or the Business. Subject to the provisions of Section 2.7 hereof and
except for any agreement set forth on Schedule 3.3(a) hereto, the Bill of Sale
and Assignment, deeds, endorsements and other instruments of transfer delivered
at the Closing by Seller to Purchaser will be sufficient to transfer to
Purchaser all of Seller's right, title and interest, legal and beneficial, in
and to the Purchased Assets, free and clear of any Lien (except for Permitted
Exceptions). Except as set forth on Schedule 3.6 hereto, all tangible personal
property of Seller (including all tooling, molds and dies) is located at the
Real Property and the Leased Premises. Except for the Excluded Assets, the
Purchased Assets are all of the assets adequate to operate the Business in
accordance with Seller's past practices, in all respects. Seller enjoys
peaceful and undisturbed possession under all leases set forth on Schedules 3.6
hereto, subject to the terms thereof.
3.7 Real Property.
(a) Seller operates the Business at the Real Property and at
the Leased Premises. Except as set forth on Schedule 3.19 hereto, no
written notice has been received by Seller or Parent from any
Governmental Authority requiring any alteration of the Real Property
or the Leased Premises that has not been fully complied with. Other
than the Real Property and the Leases, Seller has no interest in any
other real property. The Leases and the Real Property cover all of the
real estate leased, used or occupied by Seller in connection with the
Business. Each of the Leases is in full force and effect and Seller
holds a valid and existing leasehold interest under each of the
Leases. Seller is not in material default, and no circumstances exist
which would result in such default (including upon the giving of
notice or the passage of time, or both), and no Person has, to the
knowledge of Seller, asserted the existence of any default under any
of the Leases, and no other party to the Leases has the right to
terminate or accelerate performance under or otherwise modify any of
the Leases. To Seller's knowledge, no lessor under any of the Leases
is in de-
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fault under any of such Leases in its duties to the lessee.
(b) Seller has good and marketable legal and beneficial title
to the Real Property free and clear of all Liens and exceptions to
title, except for the Permitted Exceptions which individually or in
the aggregate will not materially detract in any way from the value
of, or impair in any way the use by Purchaser of, the Real Property.
Upon consummation of the Closing, Purchaser shall have good and
marketable legal and beneficial title to the Real Property, free and
clear of all exceptions to title and all Liens (other than Permitted
Exceptions, which, after consummation of the Closing, shall not
include the Deed of Trust to BNY Financial Corporation,
successor-in-interest to The Bank of New York Commercial Corporation
and financing statements reflecting the interests of BNY Financial
Corporation as noted on the Title Report). Seller, as title holder to
the Real Property, has valid and enforceable rights of ingress and
egress to and from the Real Property, adequate to operate the
Business. Seller has provided Purchaser with true and complete copies
of the most recent title insurance commitments or policies and surveys
in the possession of Seller for the Real Property, but Seller makes no
representations as to the accuracy or completeness thereof. Except as
set forth on Schedule 3.7(b) hereto, all contractors, subcontractors,
suppliers and others who have performed services or labor or have
supplied materials in connection with Seller's acquisition,
development, ownership or management of the Real Property have been
paid in full, will be paid in full prior to the Closing or any such
unpaid liabilities will be included in the calculation of Closing Net
Tangible Equity.
(c) Except as set forth on Schedule 3.7(c) hereto, to the
knowledge of Seller, the buildings, plants, facilities, fixtures,
structures and improvements on the Real Property and the Leased
Premises are in good operating condition and repair (normal wear and
tear excepted). Except as identified in the Title Report and the
Survey, to the knowledge of Seller, none of the buildings, plants,
facilities, fixtures, structures and improvements or appurtenances on
the Real Property or any equipment therein, the operation thereof or
any operation conducted therein, in each case as presently con-
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ducted, violates any restrictive covenant or any provision of any Law
(including Environmental Law (which is addressed in Section 3.19
hereof)). Except as set forth on the Title Report or the Survey, the
Real Property and all improvements thereon do not encroach on any
property owned by others. Except as set forth on the Title Report or
the Survey, no property or improvement of any other Person encroaches
on the Real Property. No condemnation proceeding is pending or, to the
knowledge of Seller or Parent, threatened with respect to the Real
Property or the Leased Premises or any portion thereof.
3.8 Personal Property. Set forth on Schedule 3.8(a) hereto
are the Equipment and Vehicles used or held for use in connection with the
Business. Set forth on Schedule 3.8(b) hereto is a description of the Tooling
used in connection with the Business. Except as disclosed on Schedule 3.7(c)
hereto, all of the tangible assets (whether owned or leased) included in the
Purchased Assets (a) are suitable for the purposes for which such assets are
presently used in the Business, and (b) have been maintained and are in good
operating condition and repair (normal wear and tear excepted).
3.9 Inventories. All of the Inventory, whether spare parts,
finished goods, work in process, raw materials or supplies, was produced or
acquired by Seller for use in connection with the ordinary course of the
Business. All Inventories of Seller are fairly reflected in the inventory
accounts on the Interim Balance Sheet, consistent with past practice, valued at
direct standard cost plus capitalized fixed cost less (i) reserves to adjust
inventories, including slow moving and obsolete inventories, to the lower of
cost or market in accordance with GAAP and (ii) a last-in, first-out valuation
reserve of $205,000 calculated as of December 31, 1996.
3.10 No Third Party Options. There are no agreements,
options, commitments or rights with, of or to any Person (other than Purchaser)
to acquire any of Seller's assets, properties or rights or shares except for
those Contracts entered into for the sale of Inventories in the ordinary course
of the Business, consistent with past practice.
3.11 Intellectual Property. Schedule 3.11 hereto includes
a true and complete list as of the Closing Date of all of the patents, patent
applications, trade names, trademark registrations, trademark applica-
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tions, copyright registrations, copyright applications and licenses therefor
included in the Intellectual Property and used in the conduct of the Business.
(a) Except for consumer off-the-shelf software used in the
Business, Seller owns or has a valid right to use all of the
Intellectual Property set forth on Schedule 3.11 hereto, and on the
Closing Date, subject to the terms and conditions of this Agreement,
Seller will convey all of its ownership interest in, or right to use,
the Intellectual Property set forth on Schedule 3.11 hereto to
Purchaser, free and clear of all Liens (other than Permitted
Exceptions). Except as disclosed on Schedules 3.11 and 3.11(a) hereto,
all of the Intellectual Property is valid and enforceable and is not
subject to any license, royalty or other agreement, and Seller has not
granted any license or agreed to pay or receive any royalty in respect
of any of such Intellectual Property. The patents set forth on
Schedule 3.11 are not encumbered by any co-ownership or shop rights.
Except as otherwise indicated on Schedule 3.11 hereto, all
registration and maintenance fees that have become due and payable to
any Governmental Authority with respect to any Intellectual Property
set forth on Schedule 3.11 hereto have been paid and no act or
omission has occurred to cancel, impair, dedicate to the public or
entitle any Governmental Authority to cancel, modify, forfeit or hold
abandoned any such Intellectual Property except for any of the
foregoing which is not reasonably likely to cause a Material Adverse
Change. To the knowledge of Seller, as of the Closing Date, there are
no interference, opposition, reexamination, reissue or other conflict
proceedings pending or, threatened, involving the Intellectual
Property. Except as set forth on Schedule 3.11(b) hereto, as of the
Closing Date, there is no pending or, to the knowledge of Seller,
threatened, claim or litigation contesting the validity or
enforceability of, or asserting the misuse of, any of the Intellectual
Property. Seller owns or possesses, and Seller will transfer to the
Purchaser at the Closing adequate rights to, all Intellectual Property
necessary to conduct the Business as presently conducted.
(b) Except as set forth on Schedule 3.11(b) hereto, to the
knowledge of Seller, the products manufactured or sold by Seller and
any process, method, part, design, material or other Intellectual
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Property it employs, and the marketing and use by Seller of any such
product, service or other intellectual property, do not infringe any
intellectual property or confidential or proprietary rights of
another. Except as set forth on Schedule 3.11(b) hereto, as of the
Closing Date, there is no pending or, to the knowledge of Seller,
threatened claim or litigation contesting Seller's right to use any
Intellectual Property and Seller has not received any notice
contesting its right to use any of the Intellectual Property. To the
knowledge of Seller and Parent, except as set forth on Schedule
3.11(b) hereto, no products manufactured or activities conducted by
any other Person infringe on the Intellectual Property.
3.12 Contracts.
(a) Schedule 3.12 hereto lists, as of the date hereof, all
the Contracts and arrangements of the following types to which Seller
is a party, by which it is bound, or to which any of its assets or
properties is subject:
(i) any labor agreement;
(ii) any Contract or arrangement of any kind with
any employee, officer, director or stockholder of Seller or
any of the Affiliates of such individuals, or any Contract or
other arrangement of any kind with Parent or any Affiliate of
Parent;
(iii) any Contract or arrangement with a sales
representative, manufacturer's representative, distributor,
dealer, broker, sales agency, advertising agency or other
Person engaged in sales, distribution or promotional
activities, or any Contract to act as one of the foregoing on
behalf of any Person (other than purchase and sales orders
and other Contracts of a type listed in clause (iv) below);
(iv) any Contract or arrangement of any nature
having an aggregate value in excess of $50,000 or not
terminable on notice of thirty (30) days or less;
(v) any indenture, credit agreement, loan
agreements note, mortgage, security agreement,
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letter of credit, loan commitment, guaranty, repurchase
agreement or other Contract or arrangement relating to the
borrowing of funds, an extension of credit or financing,
pledging of assets or guarantying the obligations of any
Person;
(vi) any Contract or arrangement involving Seller
as a participant in a partnership, joint venture or other
cooperative undertaking;
(vii) any Contract or arrangement involving any
restrictions on Seller with respect to the geographical area
of operations or scope or type of business of Seller;
(viii) any power of attorney or agency agreement or
arrangement pursuant to which a Person is granted the
authority to act for or on behalf of Seller, or Seller is
granted the authority to act for or on behalf of any Person;
(ix) any Contract granting to any Person a right at
such Person's option to purchase or acquire any asset (other
than Inventory in the ordinary course of the Business) or
property of Seller (or interest therein);
(x) any Contract for capital improvements or expenditures
in excess of $50,000 individually or $100,000 in the
aggregate;
(xi) any Contract for which the full performance
thereof may extend beyond sixty (60) days from the date of
this Agreement (other than purchase and sales orders in the
ordinary course of the Business);
(xii) any Contract not made in the ordinary course
of the Business which is to be performed in whole or in part
at or after the date of this Agreement other than the
Contracts described on Schedule 3.14 hereto;
(xiii) the Floorplan Repurchase Agreement, dated
February 28, 1995, between Parent and Deutsche Financial
Services, Inc., as successor to ITT Commercial Finance, a
division of ITT Industries of Canada Ltd., pursuant to
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which purchases of Inventory from Seller by Eastern
Marketing, Ltd. are financed by Deutsche Financial Services,
Inc. (the "DEUTSCHE FINANCING AGREEMENT");
(xiv) any Contract or arrangement relating to
management support, facilities support or similar
arrangement; and
(xv) any Contract whereby any Person agrees (A) not
to compete with Seller or (B) to maintain the confidentiality
of any information of Seller.
(b) All of the Material Contracts are in full force and
effect and constitute the legal, valid and binding obligations of
Seller and, to the knowledge of Seller, the other parties thereto. All
of the Material Contracts are enforceable in accordance with their
respective terms, except as such enforce-ability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the rights of creditors generally and by
equitable limitations on the availability of specific remedies. No
termination notice has been delivered by any party to a Material
Contract to any other party to such Material Contract with respect to
such Material Contract. Seller has delivered to Purchaser true and
complete copies of each written Material Contract and a complete and
accurate written description of any Material Contract not reduced to
writing. Notwithstanding anything to the contrary in this Section
3.12, accounts receivable and product warranties shall be deemed not
to be Material Contracts or Contracts for purposes of this Section
3.12. Except as set forth on Schedule 3.12(b) hereto, since the date
of the Interim Balance Sheet, Seller has not entered into any Contract
other than in the ordinary course of the Business, consistent with
past practice.
3.13 Permits. Schedule 3.13 hereto is an accurate and
complete list as of the date hereof of all Permits held by Seller and used in
the Business. Except for such Permits, to Seller's knowledge, there are no
permits, licenses, consents or authorizations, whether federal, state, local or
foreign, which are necessary for the lawful operation of the Business,
consistent with past practice. Seller is in full compliance in all material
respects with all requirements and limitations under
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such Permits. No employee, officer, director or Affiliate of Seller owns or
has any interest in any such Permit.
3.14 Insurance. Schedule 3.14 hereto contains an accurate and
complete list as of the date hereof of all policies, currently in force, of
fire, liability, worker's compensation, public and product liability, title and
other forms of insurance owned, held by or applicable to Seller, its assets or
the Business. Seller has heretofore delivered to Purchaser an accurate summary
description of all such policies, including all current occurrence-based
policies applicable to Seller or the Business. All such policies are in full
force and effect.
3.15 Employee Benefit Plans and Employment Agreements.
The following terms, as used herein, have the following meanings:
"BENEFIT ARRANGEMENT" means an employment, severance or
similar contract, arrangement or policy and each plan or arrangement
providing for severance, insurance coverage (including any
self-insured arrangements), worker's compensation, disability
benefits, supplemental unemployment benefits, vacation benefits,
pension or retirement benefits or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation rights or
other forms of incentive compensation or post-retirement insurance,
compensation or benefits that (i) is not an Employee Plan and (ii) is
maintained or contributed to by Seller or any of its ERISA Affiliates.
"EMPLOYEE PENSION BENEFIT PLAN" means each "employee pension
benefit plan" as that term is defined in Section 3(2) of ERISA, that
is an Employee Plan, as defined below.
"EMPLOYEE PLAN" means each "employee benefit plan", as such
term is defined in Section 3(3) of ERISA, that (i) is subject to any
provision of ERISA and (ii) is maintained or contributed to by Seller
or any of its ERISA Affiliates, as the case may be.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" of any entity means any other entity that,
together with such entity, would be
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treated as a single employer under Section 414 of the Code.
"MULTIEMPLOYER PLAN" means each Employee Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
(a) ERISA Representations. Seller hereby represents and
warrants to Purchaser that Schedule 3.15(a) hereto lists each Employee
Plan and each Benefit Arrangement that covers any employee or former
employee of Seller and copies or descriptions of all of which have
previously been furnished or made available to Purchaser. With respect
to each Employee Plan, Seller has provided an accurate summary
description of such plan. With respect to the Meridian Sports
Incorporated Retirement Incentive Savings Plan (the "PARENT SAVINGS
PLAN"), Seller has also provided to Purchaser the most recently filed
Form 5500 and Internal Revenue Service determination letter.
(b) With respect to the Parent Savings Plan, except as set
forth on Schedule 3.15(b) hereto:
(i) the Parent Savings Plan is intended to be tax
qualified under Section 401(a) and 501(a) of the Code,
complies and has been administered in form and in operation
in all material respects with all applicable requirements of
law, including Sections 401(a) and 501(a) of the Code, and no
event has occurred which is reasonably expected to cause the
Parent Savings Plan to fail to so comply with such
requirements;
(ii) there are no material actions, suits or claims
(other than routine claims for benefits) pending or, to the
knowledge of Seller, threatened involving the Parent Savings
Plan or the assets thereof and Seller has no knowledge of any
facts which are reasonably expected to give rise to any such
actions, suits or claims (other than routine claims for
benefits); and
(iii) no "prohibited transaction" as defined in
Section 406 of ERISA or Section 4975 of the Code has
occurred.
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(c) With respect to each of the Employee Plans or Benefit
Arrangements, as applicable:
(i) no material tax under Section 4980B of the Code
has been incurred in respect of any Employee Plan that is a
group health plan, as defined in Section 5000(b)(1) of the
Code; and
(ii) all contributions and payments accrued under
the Parent Savings Plan, determined in accordance with prior
funding and accrual practices, as adjusted to include
proportional accruals for the period ending on the Closing
Date, will be discharged and paid on or prior to the Closing
Date except to the extent (i) reflected on the Final Balance
Sheet or (ii) retained by Seller.
(d) With respect to each of Seller's Employee Plans which is
either a Multiemployer Plan or a plan subject to Title IV of ERISA:
(i) no accumulated funding deficiency, whether or
not waived, exists with respect to any such Employee Plan;
and
(ii) Seller has not incurred nor reasonably expects
to incur any liability under such Employee Plans which could
become a liability of Purchaser.
3.16 Employees. Schedule 3.16 hereof contains a true,
complete and accurate list of the names, titles, annual compensation and all
bonuses and similar payments made for the current and preceding two (2) years
for each director and officer of Seller and each employee of Seller who has an
annual base salary of $75,000 or more. Except as disclosed on Schedule 3.16
hereof, there is no, and during the past two (2) years there has been no, labor
strike, picketing, dispute, slow-down, work stoppage, union organization
effort, grievance filing or proceeding, or other labor difficulty actually
pending or, to the knowledge of Seller, threatened against or involving Seller.
Seller is not a party to any collective bargaining agreement and no such
agreement determines the terms and conditions of the employment of employees of
Seller. No collective bargaining agent has been certified as a representative
of any employees of Seller and no representation campaign or election is now in
progress with respect to any employees of Seller. As
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of April 30, 1997, Seller had approximately 116 full-time employees and
approximately 34 temporary employees. No employee subject to an employment
contract listed on Schedule 3.15(a) hereto serves, or has served within the
past two (2) years, as an officer, director, employee or agent of any Affiliate
of Seller. Except as set forth on Schedule 3.16 hereto, Seller has not received
notice that any of its executive employees intends to terminate his employment
with Seller or would not be willing to work for Purchaser.
3.17 Taxes. Except for current Taxes not due and payable
through the Closing (such Taxes to be paid when due by Seller), Seller has paid
to, and where necessary collected or withheld and remitted to, the proper
Governmental Authority all material Taxes related to taxable periods or
portions thereof ending on or before the Closing Date (including governmental
charges, assessments and required contributions of Seller with respect to the
Business) that may result in the filing of a Lien on the Purchased Assets or
that may result in the imposition of transferee or other liability on Purchaser
for the payment of such Taxes.
3.18 No Defaults or Violations. Except as disclosed on
Schedule 3.18 hereto:
(a) Seller is not in breach or default under the terms of any
Material Contract to which it is a party or by which it is bound, no
event has occurred or circumstance exists which, with notice or lapse
of time or both, would constitute a breach or default by Seller under
any such Material Contract, and, to the knowledge of Seller, no other
party to any such Material Contract is in breach or default under any
such Material Contract.
(b) Except for environmental matters (which are covered by
Section 3.19 hereof), Seller is in compliance in all material respects
with, and no material violation exists under, any Laws applicable to
Seller or the Business, and Seller is not aware that any event has
occurred or circumstance exists which, with or without notice or lapse
of time or both, would constitute a material violation under any such
Law.
(c) No notice from any Governmental Authority has been
received within the past two years claiming any material violation
of any Law or requiring any
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material work, construction or expenditure, or asserting any Tax,
assessment or penalty, with respect to Seller.
3.19 Environmental Matters. Except as disclosed on
Schedule 3.19 hereto:
(a) Seller has not used or stored any, and there are no,
Hazardous Substances in, on, or at the Real Property or the Leased
Premises, except for substances which are used or are to be used in
the ordinary course of business (which inventories have been stored,
used and disposed of in accordance with all applicable Environmental
Laws and Environmental Permits). There is not now at the Real Property
or the Leased Premises any (i) underground storage tank or surface
impoundments, (ii) asbestos-containing materials or (iii)
polychlorinated biphenyls, except in compliance with applicable
Environmental Laws.
(b) No notice has been received from any Governmental
Authority or any other Person that Seller is responsible (or
potentially responsible) for any Remedial Action at any location or
that the Real Property or the Leased Premises is required or may be
required to be subject to Remedial Action. Included within the Permits
are all Environmental Permits necessary for the operation of the
Business as presently operated. There is no (i) civil, criminal or
administrative claim, suit, proceeding or investigation (including a
request for information) pending or, to the knowledge of Seller,
threatened with respect to the Business, the Real Property or the
Leased Premises relating in any way to any Environmental Laws or
Environmental Permits and Seller does not know of any fact or
circumstance which would give rise to any such claim, suit, proceeding
or investigation, or (ii) outstanding written orders or Contracts with
any Governmental Authority relating in any way to Environmental Laws
or Environmental Permits. Seller has timely filed all reports and
notifications required to be filed with respect to, and obtained and
maintained all Environmental Permits required for, the Real Property
and the Leased Premises, all improvements on the foregoing and all
operations conducted therein, and has generated and maintained all
required records and data under all applicable Environmental Law, and
all operations conducted therein are in compliance in all material
respects with such Environmental Laws.
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(c) During the period that Seller has owned the Real Property
or leased the Leased Premises and, to Seller's knowledge, during any
period prior thereto, no condition has existed or event has occurred
with respect to the Real Property or the Leased Premises that could,
with or without notice, passage of time or both, give rise to any
present or future liability with respect to the Real Property or the
Leased Premises pursuant to any Environmental Law.
3.20 Litigation; Product Liabilities.
(a) Except as disclosed on Schedules 3.20(a) and 3.20(b)
hereto, as of the Closing Date, there are no actions, suits,
arbitrations, regulatory proceedings or other litigation, proceedings
or governmental investigations pending or, to the knowledge of Seller,
threatened against or affecting Seller or any of its officers,
directors, employees, agents or stockholders in their capacity as
such, or any of its properties or businesses. Seller is not aware of
any facts or circumstances which may give rise to any of the
foregoing. Except as set forth on Schedule 3.20(a) hereto, all of the
proceedings pending or threatened against Seller are covered by
insurance policies and are being defended by Seller, subject to such
deductibles, self-insured retention or similar arrangements as are set
forth in such policies. Schedule 3.20(a) hereto is a complete and
accurate list as of the date hereof of all pending actions asserted by
Seller. Except as disclosed on Schedule 3.20(a) hereto, Seller is not
subject to any order, judgment, decree, injunction, stipulation or
consent order of or with any court or other Governmental Authority.
Seller has not entered into any agreement to settle or compromise any
proceeding pending or threatened against it which has involved any
obligation other than the payment of money or for which Seller has any
continuing obligation. As of the date hereof, there are no claims,
actions, suits, proceedings or investigations pending or, to the
knowledge of Seller or Parent, threatened by or against Seller or
Parent relating to this Agreement or the transactions contemplated
hereby or thereby.
(b) Schedule 3.20(b) hereto sets forth a summary of all
product liability claims currently pending or, to the knowledge of
Seller, threatened against Seller. Except as set forth on Schedule
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3.20(b) hereto, Seller is aware of no occurrence, event or condition
relating to the manufacture, sale or distribution of water skis, wake
boards, knee boards and related towable water sports products and
accessories which is reasonably likely to give rise to one or more
product liability claims which could, individually or in the
aggregate, reasonably be expected to result in a Material Adverse
Change.
3.21 Related Parties. Except as disclosed on Schedule 3.21
hereto, neither Parent nor any of its Affiliates have or claim to have any
direct or indirect interest in any other Person which conducts a business
similar to, has any Contract or arrangement with, or does business or is
involved in any way with, Seller. Schedule 3.21 hereto contains a complete and
accurate description as of the date hereof of all such Persons, interests,
arrangements and other matters.
3.22 Intercompany Services and Transactions. Schedule 3.22
hereto contains a complete and accurate list, as of the date hereof, of all
agreements or arrangements (whether written or unwritten) relating to all
intercompany services and transactions existing between Seller and any of its
Affiliates during the past two (2) years.
3.23 Product Warranties. Schedule 3.23 hereto sets forth
copies of all product warranties issued for Seller's products sold during the
past two (2) years.
3.24 Brokers. Neither Purchaser nor any Affiliate of
Purchaser has or shall have any liability or otherwise suffer or incur any Loss
as a result of or in connection with any brokerage or finder's fee or other
commission of any Person retained by Parent, Seller or any of their respective
Affiliates in connection with any of the transactions contemplated by this
Agreement.
3.25 Customers and Suppliers. Schedule 3.25 hereto sets forth
the twenty (20) largest suppliers and all material sole source suppliers and
the twenty (20) largest customers of the Business. The relationship of Seller
with each of such suppliers and each of its customers is a good commercial
working relationship and no supplier or customer has, since June 30, 1996,
cancelled or otherwise terminated or reduced, or threatened in writing to
cancel or otherwise terminate or reduce, its relationship with Seller. Seller
does not have knowledge or reason to believe that any such supplier or customer
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intends to cancel or otherwise substantially modify its relationship with
Seller or the Business or limit its services, supplies or materials to Seller
or the Business, or its usage or purchase of the services and products of the
Business either as a result of the transactions contemplated hereby or
otherwise.
3.26 Disclosure. None of this Agreement, the Financial
Statements, any schedule, exhibit or certificate attached hereto or delivered
in accordance with the terms hereof or thereof contains any untrue statement of
a material fact or omits any statement of a material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading.
3.27 Accounts Payable. Except as set forth on Schedule 3.27
hereto, a true and complete list of all accounts payable of the Business (the
"Accounts Payable") as of July 25, 1997 is set forth on Schedule 3.27 hereto.
Each of the Accounts Payable is valid and represents a bona fide purchase of
goods by, or performance of services for, Seller, arising in the ordinary
course of the Business, consistent with past practice. No material Accounts
Payable is more than fifteen (15) days overdue and there are no material claims
or disputes with regard to any such Accounts Payable. During the one hundred
and eighty (180) days prior to the Closing Date, Seller has paid and discharged
its Accounts Payable and other contractual commitments in the ordinary course
of the Business, consistent with its past practice. Neither Seller nor any of
its Affiliates have requested or received within the one hundred and eighty
(180) day period prior to the Closing Date the extension or temporary
forbearance of any Accounts Payable.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Parent and Seller, as of
the date of this Agreement and as of the Closing Date (such representations and
warranties being remade on the Closing Date), as follows:
4.1 Due Incorporation. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organiza-
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tion with all requisite power and authority to own, lease and operate its
properties and to carry on its business as they are now being owned, leased,
operated and conducted.
4.2 Due Authorization. Purchaser has full power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Purchaser of this Agreement
have been duly and validly approved by all necessary corporate action.
Purchaser has duly and validly executed and delivered this Agreement. This
Agreement constitutes the legal, valid and binding obligation of Purchaser,
enforceable in accordance with its terms, except as such enforceability may be
limited by (a) applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws in effect which affect the enforcement of creditors' rights
generally or (b) equitable limitations on the availability of specific
remedies.
4.3 Consents and Approvals. No consent, authorization or
approval of, filing or registration with, or cooperation from, any Governmental
Authority or any other Person not a party to this Agreement is necessary in
connection with the execution, delivery and performance by Purchaser of this
Agreement and the consummation by Purchaser of the transactions contemplated
hereby or thereby, other than (a) the consents set forth on Schedule 4.3 hereto
(each of which will be obtained prior to Closing), (b) as required by
applicable requirements of the SEC and (c) filings and consents that may be
required under any environmental, health or safety law or regulation
necessitated by the transactions contemplated herein. The execution, delivery
and performance by Purchaser of this Agreement does not and will not (i)
violate or conflict with, result in a breach or termination of, constitute a
default under or permit cancellation of any material contract to which
Purchaser is a party or to which any of its assets is subject, or (ii) violate
or conflict with any provision of Purchaser's Certificate of Incorporation or
By-laws.
4.4 Brokers. Purchaser has used H.C. Wainwright & Co., Inc.
in connection with the transactions contemplated hereby. Payment of the fees
and expenses of H.C. Wainwright & Co., Inc. in connection with the transactions
contemplated hereby is solely the obligation of Purchaser.
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ARTICLE V
COVENANTS
5.1 Noncompetition; Confidentiality.
(a) In order to induce Purchaser to enter into this
Agreement, each of Parent and Seller expressly covenants and agrees
that for a period of three (3) years from and after the Closing Date,
neither Seller, Parent, nor any of Parent's Subsidiaries (for so long
as they remain Subsidiaries) will directly or indirectly, without the
prior express written consent of Purchaser, (i) own, manage, operate,
join, control, consult with or participate in or be connected with any
business, individual, partnership, firm, corporation or other entity
which is engaged in the Business, wholly or partly, in Canada,
Mexi-co, the United States, Europe or Asia, (ii) disturb or attempt to
disturb any business relationship between any third party and
Purchaser or any of its Affiliates in connection with the Business, or
(iii) solicit, hire or encourage any officer or employee employed by
the Business to leave the employ or retention of the Business. Nothing
in Section 5.1(a)(i) or (ii) above shall limit, prohibit or restrict
the operation of the respective businesses of the present Subsidiaries
of Meridian Sports Incorporated set forth on Schedule 5.1 hereto in
substantially the same manner as such businesses are operated on the
date hereof, provided, however, that neither Parent, Seller nor any of
Parent's Subsidiaries will engage in the manufacture or marketing of
water skis, wake boards and knee boards and related towable water
sports products and accessories (except for the manufacture or
marketing of any accessory with the "MasterCraft" logo).
(b) Except to the extent expressly required by Law, Parent
and Seller shall, and shall cause their Affiliates to, keep secret and
confidential indefinitely all non-public information concerning
Purchaser, the Business, the Intellectual Property and the Purchased
Assets and not disclose the same, either directly or indirectly, to
any other Person, or use the same in any way.
(c) Parent and Seller expressly agree that the remedies at
law for any breach of the provisions of this Section 5.1 would be
inadequate and that, in addition to any other remedies that Purchaser
may
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have, Purchaser shall be entitled to temporary and permanent
injunctive relief without the necessity of proving actual damages or
posting bond. To the extent that any part of this Section 5.1 may be
invalid, illegal or unenforceable for any reason, it is intended that
such part shall be enforceable to the extent that a court of competent
jurisdiction shall determine that such part, if more limited in scope,
would have been enforceable. Parent and Seller acknowledge that
Purchaser would not enter into this Agreement unless Parent and Seller
agreed to the provisions of this Section 5.1.
5.2 Existence of Seller. Seller will remain in existence for
not less than twelve (12) months following the Closing Date and will maintain a
net worth of not less than $1 million during that time.
5.3 Use of Name. From and after the Closing Date, Parent,
Seller, their respective Affiliates and any provider of services to Seller,
Parent or their respective Affiliates will not directly or indirectly use in
any manner any name, trade name, trademark, service mark or logo used by the
Business or any word or logo that is similar in sound or appearance. Promptly
after the Closing Date, Seller shall file an amendment to its Amended Articles
of Incorporation changing its name to a name which does not resemble "O'Brien"
in any way.
5.4 Product Liability.
(a) Seller is and shall be solely responsible for any and all
claims for injury (including, without limitation, death) or claims for
damage, direct or consequential, resulting from or connected with
goods manufactured or sold or products-related services provided by
Seller, to the extent that such injury or damage occurs on or before
the Closing Date.
(b) Purchaser is and shall be solely responsible for any and
all claims for injury (including, without limitation, death) or claims
for damage, direct or consequential, resulting from or connected with
goods manufactured or sold or products-related services provided by
Seller, to the extent that such injury or damage occurs after the
Closing Date.
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5.5 Employees and Employee Benefits.
(a) On or prior to the Closing Date, Purchaser shall offer
employment to active employees of the Business; provided that, subject
to this Section 5.5, Purchaser may terminate at any time after the
Closing Date the employment of any employee who accepts such offer.
For purposes of this Section 5.5, the term "ACTIVE EMPLOYEE" shall
mean any Person who, on the Closing Date, is actively employed by
Seller or who is on disability leave, authorized leave of absence,
military service or lay-off with recall rights as of the Closing Date,
but shall exclude any former employee or any other Person who has been
on unauthorized leave of absence or who has terminated his or her
employment, retired or died before the Closing Date. Any such offers
shall be at such employee's current salary or wage levels and on such
other terms and conditions as Purchaser provides to its similarly
situated employees. The employees who accept and commence employment
with Purchaser are hereinafter collectively referred to as the
"TRANSFERRED EMPLOYEES." Seller will not take any action that would
impede, hinder, interfere or otherwise compete with Purchaser's effort
to hire any Transferred Employees. Purchaser shall not assume
responsibility for any Transferred Employee until such employee
commences employment with Purchaser, which assumption shall be
retroactive to the Closing.
(b) Except as expressly set forth herein, Seller shall retain
all obligations and liabilities under the Employee Plans and Benefit
Arrangements in respect of each employee or former employee (including
any beneficiary thereof) who is not a Transferred Employee. Except as
expressly set forth herein, Seller or its designated Affiliate shall
retain all liabilities and obligations in respect of benefits accrued
prior to the Closing Date by Transferred Employees under the Employee
Plans and Benefit Arrangements, and neither Purchaser nor any of its
Affiliates shall have any liability with respect thereto. Except as
expressly set forth herein, no assets of any Employee Plan or Benefit
Arrangement shall be transferred to Purchaser or any of its Affiliates
or to any plan of Purchaser or any of its Affiliates.
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(c) With respect to the Transferred Employees (including any
beneficiary or dependent thereof), except as otherwise assumed
pursuant to Section 2.3 hereof or this Section 5.5, Seller shall
retain (i) all liabilities and obligations arising under any group
life, accident, medical, dental or disability plan or similar
arrangement (whether or not insured) to the extent that such liability
or obligation relates to contributions or premiums accrued (whether or
not payable), or to claims incurred (whether or not reported), prior
to the Closing Date, (ii) all liabilities and obligations arising
under any worker's compensation arrangement to the extent such
liability or obligation relates to the period prior to the Closing
Date, including liability for any retroactive workman's compensation
premiums attributable to such period and (iii) all other liabilities
and obligations arising under the Employee Plans and the Benefit
Arrangements to the extent any such liability or obligation relates to
the period prior to the Closing Date.
(d) The Parent Savings Plan covers current and former
employees of Parent and certain of its Affiliates, including the
Seller. Effective as of the Closing Date, Parent shall amend the
Parent Savings Plan to cease all accruals of benefits in respect of
the Transferred Employees. As soon as practicable after the Closing
Date, the account balances including earnings thereon through the date
of transfer, of the Transferred Employees under the Parent Savings
Plan, shall be transferred to a defined contribution plan of Purchaser
(the "Purchaser Savings Plan"). Such transfer shall be effected in
accordance with applicable law and regulations and Purchaser shall
make or cause to be made, and Seller shall make or cause to be made,
any required filings in connection therewith. Purchaser or one of its
Affiliates may require, as a condition to the acceptance of any such
transfer, evidence satisfactory to Purchaser of the qualified status
of the Parent Savings Plan, including, without limitation, a copy of a
favorable determination letter from the Internal Revenue Service (the
"IRS") and an opinion of counsel that the Parent Savings Plan has in
operation remained qualified at all relevant times. In consideration
of such transfer, Purchaser or one of its Affiliates shall assume
liability for the payment of the Transferred Employees account
balances to Transferred Employee under the Parent Savings
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Plan. Each of the parties hereto shall pay its own expenses in
connection with such transfer. Neither Purchaser nor any of its
Affiliates shall assume any other obligations or liabilities arising
under or attributable to the 401(k) Plan, the same to be retained or
assumed by Seller.
Purchaser and Parent agree that for the period from the
Closing Date to the date of the actual transfer of assets provided for
under this Section 5.5(d) (the "SAVINGS TRANSFER DATE"), the Parent
Savings Plan shall be liable for any benefit payment that becomes due
to a Transferred Employee under such plan, and that after the transfer
of assets provided for under this Section 5.5(d), the Purchaser
Savings Plan shall be liable for any benefit payment that becomes due
to any Transferred Employee. In the event that benefit payments are
made when they become due from the Parent Savings Plan to a
Transferred Employee under this Section 5.5(d), the amount of assets
to be transferred from such plan shall be reduced by an amount equal
to such benefit payment. For the period from the Closing Date to the
Savings Transfer Date, the amount of such transfer shall be equitably
adjusted to reflect gains or losses allocable to such amount (as
determined by the actuary for the Parent Savings Plan in its sole
discretion).
Upon the transfer of cash or such other assets provided
hereunder, Parent shall have no further liability to the Transferred
Employees or to the Purchaser in connection with the accrued benefits
transferred.
(e) To the extent applicable, Transferred Employees (and
their eligible dependents) shall be given credit under employee
benefit plans, programs, policies and arrangements, including vacation
pay plans, that are established or maintained by Purchaser for the
benefit of Transferred Employees (the "PURCHASER'S PLANS") for their
service with Seller (i) for purposes of eligibility to participate and
vesting (but not benefit accrual (except for vacation pay, severance,
other fringe benefits and the Purchaser Savings Plan)) to the extent
such service was taken into account under a corresponding Seller's
Plan, and (ii) for purposes of satisfying any waiting periods,
evidence of insurability requirements or the application of any
pre-existing
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conditions limitations and shall be given credit for amounts paid
under a corresponding Seller's Plan during the same period for
purposes of applying deductibles, co-payments and out-of-pocket
maximums as though such amounts had been paid in accordance with the
terms and conditions of the plans, programs, policies and arrangements
maintained by Purchaser.
(f) The parties hereto expressly acknowledge that Purchaser
shall be obligated to (i) provide COBRA coverage to all active
employees (or their eligible dependents) that do not become
Transferred Employees or former employees (or their eligible
dependents) who are eligible for or are currently receiving such COBRA
coverage, and (ii) pay all liabilities in respect of any Transferred
Employee terminated for any reason on or after the Closing Date,
including without limitation, any severance benefits triggered as a
result of the transactions contemplated under this Agreement, COBRA,
any liability triggered under any unemployment compensation or other
government-mandated benefits relating to the termination of any
Transferred Employee's employment on or after the Closing Date,
including, without limitation, the Worker Adjustment and Retraining
Notification Act of 1988.
(g) To the extent requested by Purchaser in writing prior to
the Closing Date and to the extent that Seller is unable to assign
such Employee Plans and Benefit Arrangements to Purchaser, Seller
agrees to use its best efforts to continue coverage to Transferred
Employees under the Employee Plans and Benefit Arrangements that
currently provide for fully insured welfare plan coverage for the
period commencing on the Closing Date and ending on Decem-ber 31, 1997
or until such earlier time as Purchaser or its designated Affiliate
can assume responsibility for such insurance in an orderly manner.
Purchaser shall pay all premium costs directly to the insurer and
shall, upon 10 days notice, reimburse Seller for Seller's costs
reasonably incurred in continuing to provide such insurance. Such
continuation of insurance shall not affect the allocation of
liabilities and obligations as set forth in this Section 5.5.
Purchaser shall use all reasonable efforts to arrange for such
insurance coverage as promptly as possible in order to avoid using
Seller's services under this section.
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(h) (i) Seller and Purchaser agree to take all actions
reasonably necessary to accomplish the transactions contemplated by
this Section 5.5(h) and (ii) Purchaser shall assume all liabilities
and obligations under the retention agreements, each dated February
19, 1997 between Seller, Parent and each of Jeff Bannister, Ken
Foster, Paul Kennedy, Barry Tait, Annaly McPherson, Mike Miller and
Pete Goeman.
(i) Except as provided in this Section 5.5, nothing in this
Agreement shall limit or restrict in any way the rights of Purchaser
to modify, amend, terminate or establish employee benefit plans,
programs, policies or arrangements, in whole or in part, at any time
after the Closing Date.
(j) All provisions contained in this Agreement with respect
to employee benefit plans or employee compensation are included for
the sole benefit of the respective parties hereto and do not and shall
not create any right in any other person, including, but not limited
to, any Transferred Employee, any participant in any benefit or
compensation plan or any beneficiary thereof.
(k) Seller shall not discourage any employee from accepting
employment with Purchaser.
(l) Each of Seller and Purchaser agree that it will apply the
alternative procedures contained in Section 5 of the Revenue Procedure
84-77, 1984-2 C.B. 753. Purchaser shall furnish to each Continuing
Employee a Form W-2 disclosing all wages and other compensation paid
(and taxes withheld thereon) for the periods (i) beginning January 1,
1997 and ending the Closing Date, and (ii) beginning the day after the
Closing Date and ending on December 31, 1997, provided that Seller
shall indemnify Purchaser for all liability with respect to
information provided by Seller.
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5.6 Access.
(a) From and after the Closing Date, Purchaser will permit
Seller and Seller's representatives and agents to have reasonable
access, at all reasonable times, to the books, accounts, records,
properties, operations, facilities and personnel pertaining to the
Business and will furnish Seller with such financial and operating
data concerning the Business as Seller shall from time to time
reasonably request in connection with, but not limited to (i) the
preparation of any tax return, (ii) any audit or other investigation
by any taxing authority or any required reports or submissions to
governmental bodies with respect to Seller or the Business relating to
periods prior to the Closing Date, (iii) any third party claims and
investigations and insurance relating thereto, (iv) the preparation of
the Final Balance Sheet and Closing Date Statement of Net Tangible
Equity, and (v) the collection by Purchaser of the Receivables,
including Seller's verification of the AR Reconciliation, preparation
of any AR Notice and resolution of any dispute relating to Purchaser's
collection of the Receivables.
(b) From and after the Closing Date, Seller will make
available to Purchaser and Purchaser's representatives and agents all
books and records of Seller to the extent related to the Excluded
Assets or the Seller's Liabilities as may be reasonably requested by
Purchaser in connection with the preparation of financial statements
relating to the Business. In addition, at Purchaser's request and at
its sole cost and expense, Seller will use its best efforts to cause
Seller's Auditors to provide Purchaser with information or material
regarding the Business, including, but not limited to, financial
statements, trial balances or other accounting records relating to the
Business, reasonably requested from Seller's Auditors by Purchaser.
5.7 Collection of Accounts Receivable.
(a) No later than ten (10) days after the Closing Date,
Purchaser will furnish to Seller an aging report for all Receivables,
reflecting for each account the name of the customer, the age and
outstanding balance as of the Closing Date and the underlying detail
comprising the outstanding balance as of the Closing Date. Purchaser
shall, from and
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after the Closing through and including November 30, 1997, use its
best efforts to collect the Receivables on behalf of Seller.
(b) (i) Payments received by Purchaser in connection with the
Receivables shall be credited to the related Receivable as
follows. If such payment or any accompanying documents
specify the invoice or other item for which such payment is
being made, such payment shall be applied in the accounting
detail records to such invoice or other item. If such payment
or any accompanying documents do not specify the invoice or
other item for which such payment is being made, Purchaser
shall make prompt inquiry of the customer, requesting such
information. If Purchaser has not received the necessary
information from the customer, within sixty (60) days of
receipt of payment, then the applicable payment shall be
credited in the accounting detail records to the oldest
outstanding Receivable relating to that customer.
(ii) Notwithstanding the application of payments to
specified invoices or other items in the accounting detail
records, payments from customers included in Receivables
received by Purchaser shall be remitted to Seller until each
such Receivable is fully collected. If, due to the receipt of
cash from customers included in the Receivables by Seller, no
additional amount is due to Seller from the customer making
payment, then Seller shall immediately forward such payment
to Purchaser. If either Purchaser or Seller receives payments
of Receivables related to an insolvent account debtor, the
payments will be deposited or remitted to the account of
Seller to the extent that such amount was included in
Receivables on the Closing Date and was not subsequently
collected by or remitted to Seller provided that, in no event
will Seller receive a higher percentage of the Receivables
than the percentage of debt recoverable by such account
debtor's creditors in general.
(iii) On a monthly basis, not later than the tenth
Business Day of each month, Purchaser will provide to Seller
an aging of Receivables as of the end of the prior month with
a recon-
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ciliation of cash applied and credits issued against the
Receivables to cash remitted to Seller by Purchaser in
respect of such Receivables, in the form of Schedule 5.7(b)
hereto (the "AR RECONCILIATION").
(c) If Purchaser or Seller has received notice of a billing
dispute with respect to a particular invoice, Purchaser will notify
Seller or Seller will notify Purchaser, as the case may be, and
payments shall be applied by Purchaser to such invoice in the manner
set forth above only if the dispute is resolved on or before November
30, 1997. If the customer does not pay a particular invoice in full
and if the customer has indicated to Purchaser or Seller that the
shortfall is in respect of a warranty claim or other liability assumed
by Purchaser hereunder (including, but not limited to, freight,
cooperative advertising credits or discounts), then Purchaser shall
make payment to Seller within five (5) Business Days in an amount
equal to such shortfall, provided that, if the cumulative unremitted
shortfall is less than $10,000, Purchaser may remit such amount on a
monthly basis, not later than the fifth Business Day of the following
month.
(d) Purchaser shall remit by wire transfer daily the
aggregate amount of all cash, checks, drafts or other similar items of
payment received by Purchaser as funds become available that are to be
applied against the Receivables for the account of Seller to an
account, whose account number has been provided to Purchaser by
Seller. If the aggregate amount to be remitted to Seller on any day is
less than $10,000, Purchaser may remit such amount on the next
Business Day on which funds are required to be remitted to Seller.
Purchaser shall not, without the prior consent of Seller, take any
action that would adversely affect the ability of Seller, or Purchaser
on behalf of Seller, to collect the Receivables, including, but not
limited to, the granting of returns, markdowns, allowances or similar
customer concessions which could result in a credit being asserted
with respect to any of the Receivables. Purchaser's best efforts in
the collection of the Receivables shall be the collection methods
consistently applied in the Business for the collection of accounts
receivable of the Business, consistent with past practice, but
Purchaser shall not be required to institute suit or incur any
extraordi-
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nary expenses in connection therewith. On or about December 1, 1997,
Purchaser shall transfer to Parent any documentation relating to any
Receivable uncollected, in whole or in part, as of that date.
(e) If any payment is received by Seller in respect of a
Receivable, Seller shall immediately notify Purchaser thereof, and if
(i) such payment is related to an account receivable of Purchaser
rather than to a Receivable of Seller and (ii) all Receivables from
such customer as of the Closing Date have been collected and remitted
to Seller or if Seller has received notice of a dispute relating to
the unpaid Receivables, then Seller shall immediately forward such
payment to Purchaser in accordance with Purchaser's instructions.
After November 30, 1997, Purchaser shall remit to Seller only such
payments received that (i) are specifically identified by the customer
as being a payment of a Receivable transferred to Seller pursuant to
this Section 5.7(d) and (ii) had not previously been remitted to
Seller.
(f) Within forty five (45) days after Purchaser transfers to
Parent any documentation relating to any Receivable, Seller shall, at
its option, review the application of payments and credits against
such Receivable and provide a written notice to Purchaser setting
forth for such Receivable the nature and amount of any difference (the
"AR NOTICE"). Purchaser and Seller will have thirty (30) days to
resolve the differences set forth in the AR Notice. If the differences
are not resolved by the Purchaser and Seller within the thirty (30)
day period, the AR Notice will be referred to the Referee for
resolution. The Referee shall act as an arbitrator and shall issue its
report resolving all differences set forth in the AR Notice within
thirty (30) days after such dispute is referred to it. Each of the
parties hereto shall bear all costs and expenses incurred by it in
connection with such arbitration, except that the fees and expenses of
the Referee hereunder shall be borne equally by Seller and Purchaser.
This provision for arbitration shall be specifically enforceable by
the parties. The decision of the Referee in accordance with the
provisions hereof shall be final and binding (absent manifest error)
and there shall be no right of appeal therefrom.
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5.8 Production of Witnesses and Individuals.
(a) From and after the Closing Date, Purchaser shall use
reasonable efforts to make available to Seller, upon written request
and upon reasonable notice, the employees of the Business for fact
finding, consultation and interviews and, if required, as witnesses,
in each case to the extent that any such person may reasonably be
required in connection with any action, claim, suit, arbitration,
subpoena, discovery request, proceeding or investigation in which
Seller may from time to time be involved relating to the Business,
Seller's Liabilities or the Excluded Assets. Unless required by
Governmental Authority, no provided employee shall be required to
travel or to spend more than two (2) Business Days on any one occasion
in fulfilling Purchaser's obligations hereunder. Seller agrees to
reimburse Purchaser for all reasonable out-of-pocket expenses (but not
labor charges or salary payments) incurred by Purchaser in connection
with providing employees pursuant to this Section 5.8.
(b) From and after the Closing Date, Parent and Seller shall
use reasonable efforts to make available to Purchaser, upon written
request and upon reasonable notice, the employees of Parent or Seller
for fact finding, consultation and interviews and, if required, as
witnesses to the extent that any such person may reasonably be
required in connection with any action, claim, suit, arbitration,
subpoena, discovery request, proceeding or investigation in which
Purchaser may from time to time be involved relating to the Business,
the Assumed Liabilities or the Purchased Assets. Unless required by a
Governmental Authority, no provided employee shall be required to
travel or spend more than two (2) Business Days on any one occasion in
fulfilling Parent's and Seller's obligations hereunder. Purchaser
agrees to reimburse Parent for all reasonable out-of-pocket expenses
(but not labor charges or salary payments) incurred by Parent or
Seller in connection with provided employees pursuant to this Section
5.8.
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5.9 Environmental Matters. Purchaser shall provide Seller
with notice of any Pre-Closing Environmental Condition which is a Seller's
Liability pursuant to clause (b) of the definition of the term "Seller's
Liability" in Section 1.1 of this Agreement within thirty (30) days of
Purchaser's receipt of written notice of the facts giving rise to such
environmental liability, or, in the case of third-party claims, Purchaser's
receipt of written notice from a third party of a claim with respect to a
Pre-Closing Environmental Condition. The failure of Purchaser to give notice
shall not relieve Seller of its obligations with respect to such Pre-Closing
Environmental Condition except to the extent Seller has been prejudiced by such
failure.
ARTICLE VI
INDEMNIFICATION
6.1 Survival. The representations and warran-ties of the
parties in this Agreement or in any document delivered pursuant hereto shall
survive the Closing until twelve (12) months after the Closing Date, provided,
however, that such time limitation shall not apply to the representations and
warranties set forth in (a) Section 3.6 hereof (such representations and
warranties to survive forever),(b) Section 3.19 hereof (such representations
and warranties to survive until the second anniversary of the Closing Date) or
(c) Section 3.17 hereof (such representations and warranties to survive for the
period of the statute of limitations applicable thereto). After the end of the
relevant survival period specified above, Seller's and Parent's obligations to
Purchaser and its Affiliates under this Article VI with respect to such
representations and warranties shall expire and terminate. Notwithstanding
anything in this Agreement to the contrary, Purchaser's obligation to indemnify
Seller against the Assumed Liabilities shall survive forever and the obligation
of Seller and Parent to indemnify Purchaser against the Seller's Liabilities
shall survive forever.
6.2 Indemnification by Parent and Seller. Parent and Seller
jointly and severally agree to indemnify, defend and hold harmless each of the
Purchaser and its Affiliates against any Losses relating to or arising out of:
(a) any breach of any representation or warranty made by
Parent or Seller in this Agreement or
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any document delivered to Purchaser at the Closing pursuant to this
Agreement, provided, however, that neither Parent nor Seller shall
have any liability under this Section 6.2(a) with respect to breaches
of such representations and warranties until the Losses arising out of
such breaches equal or exceed $175,000 in the aggregate, at which
point Purchaser shall be entitled to recover all Losses in excess of
such $175,000, provided, further, that (i) the foregoing limitation
shall not apply to Losses arising out of any breaches of the
representations and war-ranties set forth at Sections 3.6, 3.17, and
3.19 hereof, and (ii) Seller shall have no indemnification obligation
pursuant to this Section 6.2(a) for aggregate Losses in excess of the
Purchase Price, provided that the foregoing limitation shall not apply
to Losses arising out of any breaches of the representations and
warranties set forth at Sections 3.6, 3.17 and 3.19 hereof;
(b) any breach of any covenant made by Parent or Seller in
this Agreement or any document delivered to Purchaser at the
Closing pursuant to this Agreement;
(c) the bulk sales Laws of any jurisdiction applicable to the
transactions contemplated herein, and any Laws of any jurisdiction
imposing liability on Purchaser for Seller's Taxes, including the
failure to comply with any such Laws;
(d) Seller's Liabilities, including any Remedial Action
taken by Purchaser with respect to Pre-Closing Environmental
Conditions; and
(e) any damage to any Purchased Assets relating to the
removal of any Excluded Assets from the Real Property.
6.3 Indemnification by Purchaser. Purchaser agrees to
indemnify, defend and hold harmless Parent and Seller and each of their
respective Affiliates against any Losses relating to or arising out of:
(a) any breach of any representation or warranty made by
Purchaser in this Agreement or any document delivered to Seller at the
Closing pursuant to this Agreement, provided, however, that Purchaser
shall have no liability under this Section 6.3(a) with respect to
breaches of such representations and
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warranties until the Losses arising out of such breaches equal or
exceed $175,000 in the aggregate, at which point Parent and Seller
shall be entitled to recover all Losses in excess of such $175,000,
provided, further, that Purchaser shall have no indemnification
obligation pursuant to this Section 6.3(a) for aggregate Losses in
excess of the Purchase Price;
(b) any breach of any covenant made by Purchaser in this
Agreement or any document delivered to Seller at the Closing pursuant
to this Agreement; and
(c) any Assumed Liability.
6.4 Claims. The provisions of this Section shall be subject
to Section 6.5 below. As soon as is reasonably practicable after becoming aware
of a claim for indemnification under this Agreement (including a claim or suit
by a third party) the indemnified Person shall promptly give notice to the
indemnifying Person of such claim. The failure of the indemnified Person to
give notice shall not relieve the indemnifying Person of its obligations under
this Article VI except to the extent that the indemnifying Person shall have
been prejudiced thereby. If the indemnifying Person does not object in writing
to such indemnification claim within 60 calendar days of receiving notice
thereof, the indemnified Person shall be entitled to recover from the
indemnifying Person the amount of such claim, and no later objection by the
indemnifying Person shall be permitted. If the indemnifying Person agrees that
it has an indemnification obligation but objects that it is obligated to pay
only a lesser amount, the indemnifying Person shall promptly pay to the
indemnified Person the lesser amount, without prejudice to the indemnified
Person's claim for the difference. Upon receipt of an indemnification notice
pursuant to this Section 6.4 of a claim requiring Remedial Action, the
indemnifying party shall have the right to assume the management and control of
such Remedial Action. All such management and control actions taken shall be
subject to the reasonable approval of Purchaser. In addition, following the
Closing, Purchaser agrees to give prompt notice to Seller of the assertion of
any claim, or the commencement of any suit, action, proceeding, investigation
or audit with respect to any Tax Return for any period or portion thereof
ending on or before the Closing Date, and shall cooperate fully in any such
action by furnishing or making available records,
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books of account or other materials or taking such other actions as may be
necessary or helpful for the defense against the assertions of any taxing
authority as to any consolidated, combined or separate Tax Return for such
periods.
6.5 Third Party Claims; Assumption of Defense. The
indemnifying Person may, at its own expense, (a) defend, contest or otherwise
protect the indemnified party against any claim, suit, action or proceeding and
(b) upon notice to the indemnified Person, and the indemnifying Person's
delivering to the indemnified Person a written agreement that the indemnified
Person is entitled to indemnification pursuant to Section 6.2 or 6.3 above for
all Losses arising out of such claim, suit, action or proceeding and that the
indemnifying Person shall be liable for the entire amount of any Loss, may at
any time during the course of any such claim, suit, action or proceeding,
assume the defense thereof and, in the event of a claim requiring Remedial
Action, assume the management and control of such Remedial Action (any actions
taken in the course of such management and control shall be subject to the
reasonable approval of Purchaser); provided, however, that (i) the indemnifying
Person's counsel is reasonably satisfactory to the indemnified Person, and (ii)
the indemnifying Person shall thereafter consult with the indemnified Person
upon the indemnified Person's reasonable request for such consultation from
time to time with respect to such claim, suit, action or proceeding. If the
indemnifying Person assumes such defense, the indemnified Person shall have the
right (but not the duty) to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
indemnifying Person. If representation by the indemnifying Person's counsel of
both the indemnifying Person and the indemnified Person would present such
counsel with a conflict of interest, then such indemnified Person may employ
separate counsel to represent or defend it in any such claim, action, suit or
proceeding and the indemnifying Person shall pay the fees and disbursements of
such separate counsel. Whether or not the indemnifying Person chooses to assume
the defense of any such claim, suit, action or proceeding, all of the parties
hereto shall cooperate in the defense or prosecution thereof. Any settlement or
compromise made or caused to be made by the indemnified Person or the
indemnifying Person, as the case may be, of any such claim, suit, action or
proceeding of the kind referred to in this Section 6.5 shall also be binding
upon the indemnifying Person or the indemnified Person, as the case may
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be, in the same manner as if a final judgment or decree had been entered by a
court of competent jurisdiction in the amount of such settlement or compromise.
The indemnifying Person shall not be permitted to settle or compromise any
claim, suit, action or proceeding without obtaining the prior written consent
of the indemnified Person, which shall not be unreasonably withheld or delayed;
provided, however, in the event that the settlement offer will result in the
indemnified Person having no losses (monetary or otherwise) or continuing
obligations with respect to the claim, suit, action or proceeding, the
indemnifying Person shall be permitted to settle or compromise such claim,
suit, action or proceeding without the prior written consent of the indemnified
Person.
ARTICLE VII
MISCELLANEOUS
7.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party hereto shall bear its own expenses with respect to the
transactions contemplated hereby. Purchaser shall pay all sales, use, stamp,
transfer, service, recording, real estate and like taxes or fees, if any,
imposed in connection with the transfer of the Purchased Assets, provided, that
Seller shall promptly reimburse Purchaser for one-half of all such taxes and
fees upon request therefor.
7.2 Amendment. This Agreement may be amended,
modified or supplemented only by written agreement of the
parties.
7.3 Notices. Any notice, request, instruction or other
document to be given hereunder by a party hereto shall be in writing and shall
be deemed to have been given, (a) when received if given in person or by
courier or a courier service, (b) on the date of transmission if sent by telex,
facsimile or other wire transmission or (c) three (3) Business Days after being
deposited in the U.S. mail, certified or registered mail, postage prepaid:
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(a) If to Parent or Seller,
addressed as follows:
Meridian Sports Incorporated
625 Madison Avenue, 12th Floor
New York, New York 10022
Attention: General Counsel
Facsimile No.: (212) 572-5056
with a copy to:
Skadden Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Alan C. Myers, Esq.
Facsimile No.: (212) 735-2000
(b) If to Purchaser, addressed as follows:
Earth and Ocean Sports, Inc.
70 Airport Road
Hyannis, Massachusetts 02601
Attention: General Counsel
Facsimile No.: (508) 778-5622
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attention: Edwin Miller, Jr.
Facsimile No.: (617) 248-7100
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
7.4 Effect of Investigation. Any due diligence review, audit
or other investigation or inquiry undertaken or performed by or on behalf of
Purchaser shall not limit, qualify, modify or amend the representations,
warranties or covenants of, or indemnities by, Parent or Seller made pursuant
to this Agreement, irrespective of the knowledge and information received (or
which should have been received) therefrom by Purchaser.
7.5 Waivers. The failure of a party to require performance
of any provision shall not affect its right at a later time to enforce the
same. No waiver by
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a party of any condition or of any breach of any term, covenant, representation
or warranty contained in this Agreement shall be effective unless in writing.
No waiver in any one or more instances shall be deemed to be a further or
continuing waiver of any such condition or breach in other instances or a
waiver of any other condition or breach of any other term, covenant,
representation or warranty. Consummation of the transactions contemplated
herein shall not be deemed a waiver of a breach of or inaccuracy in any
representation, warranty or covenant or of any party's rights and remedies with
regard thereto, unless such breach or inaccuracy was waived in accordance with
the second sentence of this Section 7.5.
7.6 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.7 Interpretation. The headings preceding the text of
Articles and Sections included in this Agreement and the headings to Schedules
attached to this Agreement are for convenience only and shall not be deemed
part of this Agreement or be given any effect in interpreting this Agreement.
The use of the masculine, feminine or neuter gender shall not limit any
provision of this Agreement. The use of the terms "including" or "include"
shall in all cases herein mean "including, without limitation" or "include,
without limitations" respectively. If any representation or warranty is
qualified by knowledge, the party making such representation or warranty hereby
confirms that it has made a diligent inquiry into the matter addressed by the
representation or warranty. No specific representation, warranty or covenant
contained herein shall limit the generality or applicability of a more general
representation, warranty or covenant contained herein. A breach of or
inaccuracy in any representation, warranty or covenant shall not be affected by
the fact that any more general or less general representation, warranty or
covenant was not also breached or inaccurate. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning. The
parties acknowledge that each party and its counsel have reviewed and revised
this Agreement and that any rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement.
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<PAGE>
7.8 Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without giving effect to the principles of conflicts of law thereof.
7.9 Binding Agreement. This Agreement shall
be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.
7.10 No Third Party Beneficiaries. This Agreement is solely
for the benefit of the parties hereto and their respective successors and
assigns and no provision of this Agreement shall be deemed to confer rights
upon any other Person.
7.11 Publicity. The parties shall cooperate on the form,
content, timing and manner of any press release or releases issued in respect
of this Agreement. Nothing in this Section shall prevent such parties from
discussing such transactions with those Persons whose approval, agreement or
opinion, as the case may be, is required for consummation of such transactions.
7.12 Further Assurances. Upon the request of Purchaser,
Parent and Seller will, on and after the Closing Date, execute and deliver to
Purchaser such other documents, further releases, assignments and other
instruments as may be required or deemed appropriate by Purchaser and Seller to
effect or evidence transfer and assignment to Purchaser of all or any of the
Purchased Assets and to otherwise carry out the purposes of this Agreement. At
the request of Seller or Parent, the Purchaser will, on or after the Closing
Date, execute and deliver such other documents, further releases, assignments
and other instruments as may be required or deemed appropriate by Seller in
order effectively to assume from Seller all of the Assumed Liabilities, to
confirm Seller's right, title and interest in and to the Excluded Assets and to
otherwise carry out the purposes of this Agreement. Seller hereby constitutes
and appoints, effective as of the Closing Date, Purchaser and its successors
and assigns (including Jackson National Life Insurance Company) as the true and
lawful attorney of Seller with full power of substitution in the name of
Purchaser or in the name of Seller, but for the benefit of Purchaser (i) to
collect for the account of Purchaser any items of Purchased Assets, (ii) to
execute and deliver, from time to time after the Closing Date, such documents
and instruments as may be necessary to more effectively convey the Purchased
Assets, or any of them, to
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Purchaser or its assigns, and (iii) to institute and prosecute all proceedings
which Purchaser may in its sole discretion deem proper in order to assert or
enforce any right, title or interest in, to or under the Purchased Assets, and
to defend or compromise any and all actions, suits or proceedings in respect of
the Purchased Assets. Purchaser shall be entitled to retain for its account any
amounts collected pursuant to the foregoing powers, including any amounts
payable as interest in respect thereof. To the extent requested in writing,
Purchaser shall, at Seller's cost and expense, provide Seller with copies of
records relating to the Purchased Assets related to the period prior to
Closing.
7.13 Severability. If any provision of this Agreement shall
be held invalid, illegal or unenforce-able, the validity, legality or
enforceability of the other provisions hereof shall not be affected thereby,
and there shall be deemed substituted for the provision at issue a valid, legal
and enforceable provision as similar as possible to the provision at issue.
7.14 Remedies Cumulative. The remedies provided in this
Agreement shall be cumulative and shall not preclude the assertion or exercise
of any other rights or remedies available by law, in equity or otherwise.
7.15 Liability of Parent and Seller. Whenever this Agreement
requires Seller or Parent to take any action, such requirement will be deemed
to include an undertaking on the part of each of Parent and Seller. Parent and
Seller shall be jointly and severally liable for all of the obligations to be
performed by any of them under this Agreement and any representation or
warranty made by any of them.
7.16 Allocation of Taxes. Real, personal and intangible
property Taxes for any portion of a taxable year or period that begins before
and ends after the Closing Date shall be apportioned between Seller and
Purchaser in accordance with the principles set forth in Section 164(d) of the
Code.
7.17 Forum. Purchaser, Seller and Parent agree that any suit,
action or proceeding (a) brought by Seller or Parent in connection with or
arising out of this Agreement shall be brought solely in the Federal Courts of
the District of Delaware (or in the State Courts of New Castle County,
Delaware, solely in the event that the Federal Courts lack subject matter
juris-
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diction over such action, suit or proceeding), and (b) brought by Purchaser in
connection with or arising out of this Agreement shall be brought solely in the
Federal Courts of the District of Delaware (or in the State Courts of New
Castle County, solely in the event that the Federal Courts lack subject matter
jurisdiction over such action, suit or proceeding). Each of Purchaser, Seller
and Parent consent to the jurisdiction of such Courts for any such suit, action
or proceeding. Each of Purchaser, Seller and Parent irrevocably waives any
defenses of lack of personal jurisdiction, improper venue or forum non
conveniens as to any such action, suit or proceeding brought in the Courts
specified in the preceding sentence. Each of Purchaser, Seller and Parent also
irrevocably agrees that service of process in any such action, suit or
proceeding shall be deemed good and effective if made in any manner (other than
by mail) specified for delivery of written notice pursuant to Section 7.3
hereof.
7.18 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Purchaser may assign this Agreement or any of its rights hereunder to
any of its direct or indirect wholly owned subsidiaries. In the event of such
assignment, Purchaser shall be responsible for all obligations of such
subsidiary and shall continue to be bound in all respects by the provisions
hereof. Neither Seller nor Parent may assign this Agreement without the written
consent of Purchaser. Purchaser may assign its rights and privileges under this
Agreement to Jackson National Life Insurance Company or to any other Person
providing financing to Purchaser in connection with the transactions
contemplated in this Agreement. In the event of such assignment, Purchaser
shall continue to be bound in all respects by the provisions hereof.
7.19 Entire Understanding. This Agreement
sets forth the entire agreement and understanding of the
parties hereto and supersedes any and all prior agree-
ments, arrangements and understandings among the parties.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
EARTH AND OCEAN SPORTS, INC.
By: /s/ Steven J. Roth
-----------------------------
Name: Steven J. Roth
Title: Chairman
O'BRIEN INTERNATIONAL, INC.
By: /s/ Thomas E. Kohut
-----------------------------
Name: Thomas E. Kohut
Title: Vice President
MERIDIAN SPORTS INCORPORATED
By: /s/ Thomas E. Kohut
-----------------------------
Name: /s/ Thomas E. Kohut
Title: Vice President and
Controller
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<PAGE>
ASSET PURCHASE AGREEMENT
among
JOHNSON WORLDWIDE ASSOCIATES, INC.
a Wisconsin corporation
("PURCHASER"),
SONIFORM, INC.,
a California corporation
("SELLER"),
and
MERIDIAN SPORTS INCORPORATED,
a Delaware corporation
("PARENT")
Date: October 8, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Definitions..................................................... 1
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 Purchase of Assets.............................................. 10
2.2 Excluded Assets................................................. 12
2.3 Assumed Liabilities............................................. 13
2.4 Closing/Closing Conditions...................................... 14
2.5 Payment of Purchase Price....................................... 17
2.6 Consistent Treatment............................................ 20
2.7 Procedures for Purchased Assets Not
Transferable.................................................... 20
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER
3.1 Due Incorporation; Subsidiaries................................. 21
3.2 Due Authorization............................................... 21
3.3 Consents and Approvals.......................................... 21
3.4 Financial Statements............................................ 22
3.5 No Adverse Effects or Changes................................... 22
3.6 Title to Properties............................................. 23
3.7 ................................................................ 24
3.8 Personal Property............................................... 25
3.9 Inventories..................................................... 25
3.10 No Third Party Options.......................................... 25
3.11 Intellectual Property........................................... 25
3.12 Contracts....................................................... 26
3.13 Permits......................................................... 29
3.14 Insurance....................................................... 29
3.15 Employee Benefit Plans and Employment
Agreements...................................................... 29
3.16 Employees....................................................... 32
3.17 Taxes .......................................................... 32
3.18 No Defaults or Violations....................................... 33
3.19 Environmental Matters........................................... 34
3.20 Litigation; Product Liabilities................................. 35
3.21 Intentionally omitted........................................... 36
3.22 Related Parties................................................. 36
3.23 Intercompany Services and Transactions.......................... 36
3.24 Product Warranties.............................................. 36
3.25 Brokers......................................................... 36
i
<PAGE>
Page
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1 Due Incorporation............................................... 37
4.2 Due Authorization............................................... 37
4.3 Consents and Approvals.......................................... 37
ARTICLE V
COVENANTS
5.1 Noncompetition; Confidentiality................................. 38
5.2 Exclusivity..................................................... 39
5.3 Use of Name..................................................... 39
5.4 Product Liability............................................... 40
5.5 Employees and Employee Benefits................................. 40
5.6 Access ......................................................... 45
5.7 Production of Witnesses and Individuals......................... 46
5.8 Environmental Matters........................................... 46
5.9 Accounts Receivable............................................. 46
6.1 Survival........................................................ 47
6.2 Indemnification by Parent and Seller............................ 48
6.3 Indemnification by Purchaser.................................... 49
6.4 Claims ......................................................... 49
6.5 Third Party Claims; Assumption of Defense....................... 50
6.6 Payment......................................................... 51
6.7 Effect of Investigation......................................... 52
6.8 Indemnification for Environmental Matters....................... 52
7.2 Amendment....................................................... 52
7.3 Notices......................................................... 52
7.4 Waivers......................................................... 53
7.5 Counterparts.................................................... 54
7.6 Interpretation.................................................. 54
7.7 Applicable Law.................................................. 54
7.8 Binding Agreement............................................... 54
7.9 No Third Party Beneficiaries.................................... 55
7.10 Publicity....................................................... 55
7.11 Further Assurances.............................................. 55
7.12 Severability.................................................... 55
7.13 Remedies Cumulative............................................. 55
7.14 Liability of Parent and Seller.................................. 55
7.15 Allocation of Taxes............................................. 56
7.16 Assignment...................................................... 56
7.17 Entire Understanding............................................ 56
EXHIBITS
A - Intentionally omitted
B - Intentionally omitted
C - Form of Lease
ii
<PAGE>
SCHEDULES
1.1(e) - Permitted Exceptions
2.2(a) - Excluded Assets -- Contracts and
Agreements
2.6 - Purchase Price Allocation
3.1 - Jurisdictions
3.3 - Consents and Approvals
3.4 - Financial Statements
3.5 - Adverse Effects or Changes
3.6 - Title to Properties -- Personal and Real
Property Leases
3.7(a) - Real Property Leases
3.7(b) - Maintenance of Leased Premises and Mexican
Premises
3.8(a) - Personal Property -- Equipment and
Vehicles
3.8(b) - Personal Property -- Tooling
3.9 - Inventory Exceptions
3.11 - Intellectual Property
3.11(a) - Intellectual Property - Licenses
3.11(b) - Intellectual Property - Patent and Trade-
mark Disputes
3.12 - Contracts
3.12(b) - Contracts -- Not in the Ordinary Course of
the Business
3.13 - Permits
3.14 - Insurance
3.15(a) - Employee Benefit Plans and Employment
Agreements
3.15(b) - Employee Benefit Plans and Employment
Agreements -- Exception to "Employee
Pension Benefit Plan" Qualifications
3.16 - Employees
3.17(b) - Tax Audits
3.17(c) - Tax Elections
3.18 - No Defaults of Violations
3.19 - Environmental Matters
3.20(a) - Litigation and Product Matters
3.22 - Related Parties
3.23 - Intercompany Services and Transactions
3.24 - Product Warranties
5.5(a) - Employees not Offered Employment
5.5(f) - Employees who are not Transferred Employees
iii
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 8th day of October, 1997, by and
among Johnson Worldwide Associates, Inc., a Wisconsin corporation
("PURCHASER"), Soniform, Inc., a California corporation ("SELLER"), and
Meridian Sports Incorporated, a Delaware corporation ("PARENT"). Certain
capitalized terms used herein are defined in Article I below.
W I T N E S S E T H:
WHEREAS, Purchaser wishes to purchase from Seller, and Seller desires
to sell to Purchaser, and Parent desires to cause Seller to sell to Purchaser
all of the Purchased Assets (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, agreements and warranties herein contained, the parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms shall have the following meanings
for the purposes of this Agreement:
"ACTIVE EMPLOYEE" shall have the meaning set forth in Section 5.5
hereof.
"AFFILIATE" shall mean, with respect to any specified Person, (a) any
other Person which, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified Person,
(b) any other Person which is a director, officer or partner or is, directly or
indirectly, the beneficial owner of fifty (50) percent or more of any class or
series of equity securities of the specified Person or a Person described in
clause (a) of this paragraph, or (c) any other Person of which the specified
Person is a director, officer or partner or is, directly or indirectly, the
beneficial owner of fifty (50) percent or more of any class or series of equity
securities.
"AGREEMENT" shall mean this Asset Purchase Agreement, including all
exhibits and schedules hereto, as it may be amended in writing and signed by
the parties hereto from time to time.
<PAGE>
"AMENDED ARTICLES OF INCORPORATION" shall mean the Articles of
Incorporation, as amended, of Seller, as in effect on the date hereof.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" means that certain assignment
and assumption agreement and bill of sale, to be dated the Closing Date.
"ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.3
hereof.
"BENEFIT ARRANGEMENT" shall have the meaning set forth in Section 3.15
hereof.
"BUSINESS" shall mean the business conducted by Seller as of the date
of this Agreement and during the one (1) year period prior to the date hereof,
including, without limitation, the manufacture and marketing of buoyancy
compensators and related scuba diving products and accessories.
"BUSINESS DAY" shall mean any day other than (a) any Saturday or
Sunday or (b) any other day on which banks located in New York City generally
are closed for business.
"BY-LAWS" shall mean the By-laws of the Seller, as in effect on the
date hereof.
"CLOSING" shall mean the consummation of the transactions contemplated
herein.
"CLOSING DATE" shall mean the date on which the Closing occurs or is
to occur.
"CLOSING NET TANGIBLE EQUITY" shall have the meaning set forth in
Section 2.5 hereof.
"CLOSING SCHEDULE" shall have the meaning set forth in Section 2.5
hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"CONTRACT" shall mean any contract, lease, commitment, understanding,
sales order, purchase order, agreement, indenture, mortgage, note, bond, right,
warrant, instrument, plan, permit or license, whether written or oral, which is
intended or purports to be binding and enforceable.
2
<PAGE>
"EMPLOYEE PENSION BENEFIT PLAN" shall have the meaning set forth in
Section 3.15 hereof.
"EMPLOYEE PLAN" shall have the meaning set forth in Section 3.15
hereof.
"ENVIRONMENTAL LAW" shall mean any applicable Laws pertaining to (a)
the protection of human health, the environment (including air, surface water,
ground water, land surface or subsurface strata), or the protection of natural
resources; (b) the treatment, storage, disposal, generation, transportation or
Release of Hazardous Substances; (c) the protection of wetlands; (d)
underground or other storage tanks or vessels, abandoned or discarded barrels,
containers and other closed receptacles; and including without limitation (e)
the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") (42 U.S.C. ss. 9601 et seq.), the Resource Conservation and Recovery
Act ("RCRA") (42 U.S.C. ss. 6901 et seq.), the Clean Water Act (33 U.S.C. ss.
1251 et seq.), the Clean Air Act (33 U.S.C. ss. 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. ss. 7401 et seq.) and the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss. 136 et seq.), and the
regulations promulgated pursuant to any of the foregoing, and any such
applicable foreign, state or local statutes, and the regulations promulgated
pursuant thereto, as such laws have been and may be amended or supplemented
through the Closing Date.
"ENVIRONMENTAL PERMIT" shall mean any permit, license, approval,
consent or other authorization required by or pursuant to any applicable
Environmental Law.
"EQUIPMENT" shall have the meaning set forth in Section 2.1 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall have the meaning set forth in Section 3.15
hereof.
"EXCLUDED ASSETS" shall have the meaning set forth in Section 2.2
hereof.
"FINANCIAL STATEMENTS" shall mean, collectively, Seller's unaudited
statement of net assets at December 31, 1996, unaudited statement of
operations, unaudit-
3
<PAGE>
ed statement of changes in net investment, and unaudited statement of cash
flows, for the twelve (12) month period ended December 31, 1996, the respective
notes thereto, and the Interim Financial Statements.
"GAAP" shall mean U.S. generally accepted accounting principles in
effect on the date hereof.
"GOVERNMENTAL AUTHORITY" shall mean the government of the United
States or any foreign country, any state or political subdivision thereof, or
any entity, body or authority exercising executive, legislative, judicial,
regulatory, administrative or other governmental functions or any court,
department, commission, board, agency, instrumentality or administrative body
of any of the foregoing.
"HAZARDOUS SUBSTANCE" shall mean any substance, material or waste
which is regulated or identified as hazardous or toxic under any provision of
any Environmental Law.
"INTELLECTUAL PROPERTY" shall have the meaning set forth in Section
2.1 hereof.
"INTELLECTUAL PROPERTY ASSIGNMENT" shall mean the assignment of the
Intellectual Property, to be dated the Closing Date.
"INTERIM FINANCIAL STATEMENTS" shall mean, collectively, Seller's
unaudited statement of operations and unaudited statement of cash flows, each
for the eight (8) month period ended August 31, 1997, the unaudited statement
of net assets at August 31, 1997 (the "INTERIM BALANCE SHEET"), and the
respective notes thereto.
"INVENTORIES" shall have the meaning set forth in Section 2.1 hereof.
"IRS" shall have the meaning set forth in Section 5.5 hereof.
"LAW" shall mean any law, statute, regulation, ordinance, rule, order,
decree, judgment, consent decree, settlement agreement or governmental
requirement enacted, promulgated or entered into, agreed to or imposed by any
Governmental Authority.
"LEASED PREMISES" shall mean the property subject to the Leases.
4
<PAGE>
"LEASES" shall mean the leases described on Schedule 3.7(a) hereto.
"LIEN" shall mean any mortgage, lien, charge, restriction, pledge,
security interest, option, claim, easement, encroachment or encumbrance.
"LOSS" or "LOSSES" shall mean all liabilities, losses (excluding
consequential damages), costs, claims, damages, penalties and expenses
(including reasonable attorneys' fees and expenses and reasonable investigation
and litigation costs incurred in relation to the indemnified matter or in
enforcing such indemnity).
"MATERIAL ADVERSE CHANGE" shall mean a change in the business,
operations, assets, liabilities, results of operations, cash flows or financial
condition of Seller or the Business, which could reasonably be expected to be
materially adverse, other than the adverse reaction of any customer or supplier
of Seller to the fact that Purchaser is acquiring the Purchased Assets.
"MATERIAL CONTRACTS" shall mean all of the Contracts to which Seller
is a party or to which its assets are subject which are listed, described or
required to be listed or described in Section 3.12 (a) of this Agreement or any
schedule thereto except Contracts calling for aggregate payments of less than
$25,000.
"MEXICAN AGREEMENT" shall mean collectively the Subcontracting
Services Agreement effective January 2, 1996 by and between North American
Product Sharing, Inc. ("NAPS") and Seller, the letter dated April 7, 1994 from
NAPS to Seller, the letter dated April 17, 1996 from North American Product
Sharing de Mexico, S.A. de C.V. ("NAPS DE MEXICO"), and the Comadatum Agreement
dated as of November 5, 1993 between Seller and NAPS de Mexico.
"MEXICAN PREMISES" shall mean the facility located at Calle E No. 4
Fracc. Rubio, Edificio E-1, Desarollo Industrial de Tijuana La Mesa, Tijuana,
Baja California, Mexico, where the Seller conducts manufacturing operations.
"MOST RECENT NET TANGIBLE EQUITY" shall have the meaning set forth in
Section 2.5 hereof.
"MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 3.15
hereof.
5
<PAGE>
"NET TANGIBLE EQUITY" shall mean the tangible assets included in the
Purchased Assets reduced by the amount of the Assumed Liabilities, as at the
date of determination, determined in accordance with Section 2.5 hereof.
"OTHER TRANSACTION DOCUMENTS" shall mean the lease attached as Exhibit
C hereto in the form executed by the parties.
"PARENT SAVINGS PLAN" shall have the meaning set forth in Section 3.15
hereof.
"PERMITS" shall have the meaning set forth in Section 2.1 hereof.
"PERMITTED EXCEPTIONS" shall mean (a) taxes and general and special
assessments not yet due and payable and not in default on the date of
determination and payable without penalty and interest and (b) Liens set forth
on Schedule 1.1(e), hereto, if any, provided that such Liens shall be released
on or prior to the Closing Date and shall not constitute Permitted Exceptions
following the Closing Date.
"PERSON" shall mean any individual, corporation, proprietorship, firm,
partnership, limited partnership, limited liability company, trust,
association, Governmental Authority or other entity.
"PRIME RATE" shall have the meaning set forth in Section 2.5 hereof.
"PRODUCT" shall have the meaning set forth in Section 3.20(b) hereof.
"PURCHASE PRICE" shall mean the Net Tangible Equity minus $500,000, as
subject to adjustment in accordance with Section 2.5 hereof.
"PURCHASED ASSETS" shall have the meaning set forth in Section 2.1
hereof.
"PURCHASER SAVINGS PLAN" shall have the meaning set forth in Section
5.5 hereof.
"PURCHASER'S AUDITORS" shall have the meaning set forth in Section 2.5
hereof.
6
<PAGE>
"PURCHASER'S ENVIRONMENTAL OBLIGATIONS" shall mean any liability under
any Environmental Law to the extent resulting from Purchaser's operations on
the Leased Premises after the Closing Date.
"PURCHASER'S PLANS" shall have the meaning set forth in Section 5.5
hereof.
"RECEIVABLES" shall have the meaning set forth in Section 2.2 hereof.
"REFEREE" shall have the meaning set forth in Section 2.5 hereof.
"RELEASE" shall mean any release, spill, effluent, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the environment or movement through or in the air, soil,
surface water or ground water or other property.
"REMEDIAL ACTION" shall mean all actions, including any studies,
investigations, capital expenditures and/or operational expenditures, required
by a Governmental Authority or required under any Environmental Law, to (a)
clean up, remove, treat, or in any other way ameliorate or address any
Hazardous Substances or other substance in the environment; (b) prevent the
Release or threat of Release, or minimize the further Release of any Hazardous
Substances so it does not endanger or threaten to endanger the public health or
environment; or (c) bring a Person into compliance with any Environmental Law.
"SAVINGS TRANSFER DATE" shall have the meaning set forth in Section
5.5 hereof.
"SEC" shall have the meaning set forth in Section 3.3 hereof.
"SELLER ASSIGNED CONTRACTS" shall have the meaning set forth in
Section 2.1 hereof.
"SELLER'S AUDITORS" shall have the meaning set forth in Section 2.5
hereof.
"SELLER'S ENVIRONMENTAL OBLIGATIONS" shall mean any liability under
any Environmental Law other than a Purchaser's Environmental Obligation which
relates in any way to the operation of the business prior to the Closing
7
<PAGE>
Date or ownership of any real property on or prior to the Closing Date.
"SELLER'S LIABILITIES" shall mean all debts, claims, obligations or
other liabilities of Seller or any of its Affiliates, absolute or contingent,
known or unknown, including, without limitation:
(a) all liabilities with respect to any Taxes, including
state, local or federal Taxes (including interest, penalties and
additions to such Taxes) for, or properly attributable to, any periods
ending on or prior to the Closing Date (including, with respect to any
taxable period that includes but does not end on the Closing Date,
Taxes with respect to the portion of such period that includes and
ends on the Closing Date calculated as if such taxable period ended at
the consummation of the Closing on the Closing Date), including any
Taxes payable by Seller as a result of the consummation of the
transactions contemplated by this Agreement (except to the extent that
Purchaser expressly assumes responsibility for taxes pursuant to
Section 7.1 hereof);
(b) subject to the provisions of Section 5.8 hereof, all
liabilities arising from Seller's Environmental Obligations;
(c) all accounts payable not constituting Assumed
Liabilities and all liabilities for borrowed funds;
(d) all liabilities (i) not specifically assumed by Purchaser
pursuant to this Agreement or (ii) related to any Excluded Asset;
(e) all liabilities and obligations for product liability
matters to the extent that Seller retains such liabilities and
obligations pursuant to Section 5.4(a) hereof;
(f) all liabilities relating to any litigation arising out of
or in any way relating to or resulting from the Seller's conduct of
the Business on or prior to the Closing Date including, without
limitation, the matters set forth on Schedule 3.20(a) hereto, except
for litigation (i) to the extent arising out of warranty claims and
(ii) as otherwise provided for in this Agreement;
8
<PAGE>
(g) all liabilities to a third party for infringement by a
product manufactured or sold prior to the Closing Date of such party's
Intellectual Property rights;
(h) all liabilities of Seller arising from or
relating to this Agreement;
(i) all liabilities of Seller for any violation of or failure
to comply prior to the Closing Date with any law, order, writ,
injunction of any Governmental Authority;
(j) all royalty liability, if any, with respect to any
alleged infringement, during the period commencing with the Closing
Date and ending two months after the Closing Date, of U.S. Patent No.
5,641,247 by reason of sales by Purchaser of allegedly infringing
product designed and/or manufactured by Seller.
"TAX RETURN" shall mean any report, return or other information
required to be supplied to a Governmental Authority in connection with any
Taxes.
"TAXES" shall mean all taxes, charges, fees, duties (including customs
duties), levies or other assessments, including without limitation, income,
gross receipts, net proceeds, ad valorem, turnover, real and personal property
(tangible and intangible), sales, use, franchise, excise, value added, stamp,
leasing, lease, user, transfer, fuel, excess profits, occupational, interest
equalization, windfall profits, severance, license, payroll, environmental,
capital stock, disability, employee's income withholding, other withholding,
unemployment and Social Security taxes, which are imposed by any Governmental
Authority, and such term shall include any interest, penalties or additions to
tax attributable thereto.
"THRESHOLD" shall have the meaning set forth in Section 6.2(a) hereof.
"TOOLING" shall have the meaning set forth in Section 2.1 hereof.
"TRANSFERRED EMPLOYEES" shall have the meaning set forth in Section
5.5 hereof.
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"VEHICLES" shall have the meaning set forth in Section 2.1 hereto.
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 Purchase of Assets. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall sell, assign, convey, transfer and
deliver to Purchaser, and Purchaser shall purchase, acquire and take assignment
and delivery of, the Purchased Assets. The "PURCHASED ASSETS" shall mean all
assets of Seller at the Closing Date other than the Excluded Assets, wherever
located and in whatever form, real, personal, tangible or intangible,
including, without limitation, all of Seller's right, title and interest in and
to the following:
(a) Equipment. All machinery, equipment, furniture,
telephones, spare and replacement parts, supplies, maintenance
equipment, computer equipment, materials and other personal property
located or usually located at the Leased Premises or the Mexican
Premises or otherwise used in connection with or necessary to the
Business (collectively, the "EQUIPMENT"), including the Equipment
described on Schedule 3.8(a) hereto;
(b) Vehicles. All trucks, trailers, automobiles and other
vehicles of Seller used in connection with the Business (collectively,
the "VEHICLES"), including the Vehicles described on Schedule 3.8(a)
hereto;
(c) Inventories. All inventories, wherever
located, including all raw materials, work in process, finished
goods and supplies inventories (the "INVENTORIES");
(d) Information and Records. All records, files, notebooks,
confidential and nonconfidential information (including electronic
information), price lists, marketing information, sales records,
customer lists and files (including customer credit and collection
information), legal and accounting records, personnel and labor
relations records, employee benefits and compensation plans and
records, environmental control, monitoring and test records,
equipment, tax records, historical and financial
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records and files, and all other proprietary information related to,
or used in connection with, the Business;
(e) Intellectual Property. All trade names, trade dress,
corporate names and logos, trademarks, service marks, patents,
copyrights (and any registrations with any Governmental Authority of,
and applications for registration pending with respect to, any of the
foregoing), trade secrets, mask works, technology, inventions,
processes, designs, know-how, computer software and data, formulas,
prototypes, enhancements, improvements, or other tangible work product
or technology or process developed, created or otherwise acquired in
connection with the design, research and development, market research
or marketing of products of the Business, goodwill, any licenses
related to any of the foregoing, to the extent assignable, and all
other intangible intellectual property assets related to the Business,
including (without limitation) those items described on Schedule 3.11
hereto, including such rights to sue and recover for past infringement
or misappropriation thereof, whether presently pending or not, and to
receive all income, royalties, damages and payments for past and
future infringements thereof (collectively, the "INTELLECTUAL
PROPERTY");
(f) Permits. To the extent assignable, all licenses, permits,
variances, interim permits, permit applications, approvals or other
authorizations under any Law applicable to the Business or otherwise
required in connection with the Business or the ownership or operation
of the Purchased Assets, including those listed on Schedule 3.13
hereto (the "PERMITS");
(g) Contracts. All contracts of the Seller related to the
Business ("SELLER ASSIGNED CONTRACTS"), (i) set forth on Schedule 3.12
hereto other than items 5, 6 and 7 of Schedule 3.12 which are Excluded
Assets, (ii) the leases set forth on Schedule 3.7(a) hereto, (iii) the
Mexican Agreement, (iv) the leases set forth on Schedule 3.6 hereto
and (v) all marketing or promotional contracts, all contracts for the
purchase of goods, services and materials entered into in the ordinary
course of the Business, contracts for the sale of goods or services
entered into in the ordinary course of the Business and all customer
deposits relating thereto, so
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long as any contract under this Section 2.1(g)(v) does not
individually involve consideration or other expenditure by Seller
payable on or after the Closing Date in excess of $75,000 or
performance by Seller over a period of more than one year after the
Closing Date;
(h) Intentionally omitted.
(i) Tooling. All tools, dies, molds, plugs and castings
(collectively, the "TOOLING") used in connection with the Business,
including, without limitation, the Tooling described on Schedule
3.8(b) hereto;
(j) Phone Numbers. All phone numbers and
facsimile numbers used in the Business;
(k) Other Assets. To the extent not included
in the foregoing, any assets which were included in the Interim
Balance Sheet.
2.2 Excluded Assets. Notwithstanding the foregoing Section 2.1, Seller
shall not assign and transfer, and Purchaser shall not take assignment of (a)
any Contract or agreement listed on Schedule 2.2(a) hereto, (b) all books and
records of Seller to the extent related to the other Excluded Assets or the
Seller's Liabilities and not to the Purchased Assets or Assumed Liabilities,
(c) all claims of Seller for refunds, credits, carrybacks or carryforwards in
connection with any Taxes for tax periods ending on or prior to the Closing
Date and the proceeds thereof, (d) all insurance policies, binders and related
prepaid expenses and any amounts receivable in respect of such insurance
policies other than insurance policies providing benefits to employees of the
Business to the extent such policies are assigned, (e) all rights, claims,
demands and causes of action which Seller or any of its Affiliates may have
against any Person to the extent related to any of the Seller's Liabilities or
any Excluded Assets, including all proceeds remitted to Seller or any of its
Affiliates from claims, rights, demands and causes of action with respect
thereto, or to any Assumed Liability to the extent Purchaser has been fully
indemnified by Seller with respect to such Assumed Liability, (f) all of
Seller's cash and cash equivalents on hand and all petty cash located at
operating facilities of the Business (g) any and all claims, rights, demands
and causes of action in respect of the account receivable of the Business due
from Diverite, (h) the
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Lease between Soniform and San Diego County dated October 17, 1978, as
amended on January 3, 1984 and April 6, 1994 and any leasehold improvements to
the property which is subject of such lease and (i) all accounts receivables,
notes receivables and other receivables as of the Closing Date (the
"RECEIVABLES") arising from the operation of the Business (collectively, the
"EXCLUDED ASSETS"). The Excluded Assets shall be retained by Seller and are not
being sold or assigned to Purchaser hereunder.
2.3 Assumed Liabilities. At the Closing, Purchaser shall assume, and
agree to pay, perform, fulfill and discharge, the following obligations of
Seller:
(a) all liabilities and obligations of Seller under the
Seller Assigned Contracts and Permits (other than to the extent such
obligations would be a violation of Law);
(b) all liabilities and obligations of Seller for warranty
claims for goods sourced, manufactured or sold by Seller on or before
the Closing Date;
(c) all employment-related liabilities and obligations of a
nature disclosed on the Closing Date Balance Sheet other than any FAS
106 liabilities as of the Closing Date for post-retirement welfare
benefits with respect to current or former employees of Seller and
those assumed pursuant to Section 5.5 hereof;
(d) (i) all accounts payable and liabilities of Seller that
are reflected on the Interim Balance Sheet unless such liabilities and
obligations have been paid or discharged prior to the Closing Date but
only to the extent reflected or reserved against on the Closing Date
Balance Sheet, and (ii) such categories of liabilities and obligations
incurred in the ordinary course of the Business consistent with past
practice since the date of the Interim Balance Sheet, including,
without limitation, all accounts payable, accrued expenses and trade
obligations;
(e) any liabilities arising from any Purchaser's
Environmental Obligations at the Leased Premises;
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(f) liabilities and obligations for product liability matters
to the extent that Purchaser assumes such liabilities and obligations
pursuant to Section 5.4(b) hereof.
The obligations of Purchaser under this Section 2.3 shall be referred to
collectively as the "ASSUMED LIABILITIES" and shall not include the Seller's
Liabilities which are being retained by Seller. Except as specifically set
forth above, neither Purchaser nor any of its Affiliates shall assume or
otherwise be liable in respect of any debt, claim, obligation or other
liability of Seller or any of its Affiliates whatsoever, including any payable,
debt, tort, violation of Law or breach of any Contract.
2.4 Closing/Closing Conditions.
(a) The Closing shall take place at the offices of Foley &
Lardner, San Diego, California at 10:00 a.m., local time, on October 8, 1997 or
at such other time and place as shall be agreed upon in writing by the parties
hereto. The Closing, and all transactions to occur at the Closing, shall be
deemed to have taken place at, and shall be effective as of, the close of
business on the Closing Date.
(b) The obligations of Purchaser under this Article II are
subject to the satisfaction or waiver of the following conditions precedent on
or prior to the Closing Date:
(i) Representations and Warranties True on the
Closing Date. Each of the representations and warranties made
by Seller and Parent in this Agreement, and the statements
contained in the Disclosure Schedule or in any instrument,
list, certificate or writing delivered by Seller pursuant to
this Agreement, shall be true and correct in all material
respects when made and shall be true and correct in all
material respects at and as of the Closing Date as though
such representations and warranties were made or given on and
as of the Closing Date, except for any changes permitted by
the terms of this Agreement or consented to in writing by
Purchaser. For purposes of determining whether the condition
set forth in this paragraph has been complied with, the
Disclosure Schedule attached to this Agreement as executed by
the parties shall be true and correct in all mate-
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rial respects at and as of the Closing Date. To the extent
that the Disclosure Schedule is amended or supplemented after
execution of this Agreement and prior to the Closing, such
amended and supplemented Disclosure Schedule shall govern
whether there has been a breach of any representation or
warranty by Parent or Seller.
(ii) Compliance with Agreement. Seller and Parent
shall have in all material respects performed and complied
with all of their agreements and obligations under this
Agreement which are to be performed or complied with by them
prior to or on the Closing Date, including the delivery of a
lease for the Leased Premises in the form of Exhibit C
hereto.
(iii) Absence of Litigation. No litigation shall
have been commenced, and no investigation by any Government
Entity shall have been commenced, against Purchaser, Seller
or any of the affiliates, officers or directors of any of
them, with respect to the transactions contemplated hereby.
(iv) Consents and Approvals. All material approvals,
consents and waivers that are required to effect the
transactions contemplated hereby shall have been received,
and executed counterparts thereof shall have been delivered
to Purchaser not less than one business day prior to the
Closing.
(v) Environmental Audit. The results of the
environmental audit conducted by Purchaser shall not have
disclosed any past or present condition, process or practice
with respect to Seller or any property owned, occupied or
operated by Seller which is not in material compliance with
all applicable Environmental Laws or which otherwise requires
remediation under any Environmental Law, if a reasonable
estimate by Purchaser of the cost of remediation, or the
potential liability to third persons (including statutory
liability) arising from such condition, process or practice,
or the cost of bringing Seller or such property into full
compliance with all applicable Environmental Laws, would
exceed $500,000 in the aggregate
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with respect to all matters described in this paragraph.
(vi) No Material Adverse Change. No Material Adverse
Change shall have occurred since the date of this Agreement.
(c) The obligations of Seller and Parent under this Article
II are subject to the satisfaction or waiver of the following conditions on or
prior to the Closing Date:
(i) Representations and Warranties True on the
Closing Date. Each of the representations and warranties made
by Purchaser in this Agreement, and the statements contained
in any instrument, list, certificate or writing delivered by
Purchaser pursuant to this Agreement, shall be true and
correct in all material respects when made and shall be true
and correct in all material respects at and as of the Closing
Date as though such representations and warranties were made
or given on and as of the Closing Date, except for any
changes permitted by the terms of this Agreement or consented
to in writing by Seller.
(ii) Compliance with Agreement. Purchaser shall have
in all material respects performed and complied with all of
its agreements and obligations under this Agreement which are
to be performed or complied with by them prior to or on the
Closing Date.
(iii) Absence of Litigation. No litigation shall
have been commenced or threatened, and no investigation by
any Government Entity shall have been commenced, against
Seller, Purchaser or any of the affiliates, officers or
directors of any of them, with respect to the transactions
contemplated hereby.
(iv) Consents and Approvals. All approvals, consents
and waivers that are required to effect the transactions
contemplated hereby shall have been received, and executed
counterparts thereof shall have been delivered to Seller not
less than two business days prior to the Closing.
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2.5 Payment of Purchase Price.
(a) In consideration for the transfer of the Purchased Assets
to Purchaser, Purchaser shall pay Seller, by electronic bank transfer directly
to Parent an amount equal to 90% the Purchase Price calculated as of the end of
the calendar month most recently closed preceding the month in which the
Closing Date occurs, and prepared on a basis consistent with the Interim
Balance Sheet (the "MOST RECENT NET TANGIBLE EQUITY").
(b) As soon as practicable and in no event later than
forty-five (45) days after the Closing Date, Seller shall deliver to Purchaser
a balance sheet of the Company as of the close of business on the Closing Date
(the "CLOSING BALANCE SHEET DATE"), prepared in accordance with GAAP
consistently applied and a schedule setting forth the Net Tangible Equity,
determined in accordance with GAAP as of such date, provided that, in
determining the Net Tangible Equity (i) Inventories will be stated on a
first-in, first-out basis based upon the physical inventory count of August 29,
1997 rolled forward to the Closing Balance Sheet Date in accordance with past
practice and (ii) all reserves and accruals relating to the Assumed Liabilities
as stated on Seller's balance sheet as of the Closing Balance Sheet Date shall
be in accordance with GAAP consistently applied. Notwithstanding anything
herein to the contrary, the parties agree that the inventory reserve on the
Closing Schedule shall be $100,000. In addition, in the event that any cash is
included in the Purchased Assets, Purchaser shall remit such cash to Seller as
promptly as possible. In the event such cash is not remitted to Seller, the
parties agree that such cash shall be included as a Purchased Asset for
purposes of the calculation of Net Tangible Equity on the Closing Schedule.
Purchaser and Seller and their respective representatives have jointly observed
and participated in, all physical inventories taken in connection with
preparation of such schedule. The schedule delivered pursuant to this section
shall be audited and accompanied by a report of Ernst & Young LLP, Seller's
independent accountants ("SELLER'S AUDITORS"), to the effect that such schedule
and any related notes thereto were prepared in accordance with GAAP
consistently applied and this Agreement. In rendering the foregoing audit and
report, Seller's Auditors shall permit KPMG Peat Marwick, LLP, Purchaser's
independent accountants ("PURCHASER'S AUDITORS"), to review, at their request,
following receipt of the report of Seller's Auditors, all
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work papers, schedules and calculations of Seller's Auditors related thereto.
(c) If Purchaser does not dispute such audited schedule and
report, such audited schedule shall be the "CLOSING SCHEDULE." If Purchaser
disputes such audited schedule or report or any item included therein, such
dispute shall be resolved in the following manner:
(i) Purchaser shall notify Seller in writing within
twenty-one (21) days after Purchaser's receipt of the audited
schedule, which notice shall specify in reasonable detail the
nature of the dispute;
(ii) during the thirty (30) day period following
Seller's receipt of such notice, Seller and Purchaser shall
attempt to resolve such dispute; and
(iii) if at the end of such thirty (30) day period
Seller and Purchaser shall have failed to resolve such
dispute in writing, the matter shall be referred to the
offices of Arthur Andersen & Co. (the "REFEREE"). The Referee
shall act as an arbitrator and shall issue its report
resolving all disputes as to the audited schedule within
thirty (30) days after such dispute is referred to it. The
audited schedule, as modified by any adjustments determined
to be appropriate by the Referee, shall then be the Closing
Schedule. Each of the parties hereto shall bear all costs and
expenses incurred by it in connection with such arbitration,
except that the fees and expenses of the Referee hereunder
shall be borne equally by Seller and Purchaser. This
provision for arbitration shall be specifically enforceable
by the parties. The decision of the Referee in accordance
with the provisions hereof shall be final and binding (absent
manifest error) and there shall be no right of appeal
therefrom.
(d) From the Closing Date until the final determination of
the Closing Schedule, each party hereto will grant to the other and its
respective representatives reasonable access during usual business hours to the
agents and employees of such party and to the books, records and files of the
business in its possession to enable such party to review and otherwise satisfy
itself
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as to the accuracy of the Closing Schedule and the preparation thereof.
(e) In the event that the Net Tangible Equity as reflected on
the Closing Schedule (the "CLOSING NET TANGIBLE EQUITY") is less than the Most
Recent Net Tangible Equity used for purposes of calculating the Purchase Price
pursuant to Section 2.5(a) hereof, then the amount of the Purchase Price, as
previously calculated pursuant to Section 2.5(a) hereof, shall be decreased by
the amount by which the Closing Net Tangible Equity is less than the Most
Recent Net Tangible Equity. In the event that the Closing Net Tangible Equity
is more than the Most Recent Net Tangible Equity used for purposes of
calculating the Purchase Price pursuant to Section 2.5(a) hereof, then the
amount of the Purchase Price, as previously calculated pursuant to Section
2.5(a) hereof, shall be increased by the amount by which the Closing Net
Tangible Equity is more than the Most Recent Net Tangible Equity. No later than
five (5) days after the date of the final determination of the Closing
Schedule, Seller shall pay Purchaser or Purchaser shall pay Seller, as
appropriate, by wire transfer of immediately available funds, the amount of
such deficiency or excess, as the case may be, with interest thereon at a per
annum rate equal to the Prime Rate, accrued from the Closing Date to the date
of payment. The amount so paid shall take into account the 10% of the Purchase
Price not paid by the Purchaser on the Closing Date, which amount also shall be
paid and bear interest at the Prime Rate from the Closing Date to the date
paid. The "PRIME RATE" shall mean the rate announced by The Chase Manhattan
Bank, N.A., as its corporate base interest rate at New York, New York on the
Closing Date.
(f) If upon final determination of the Closing Schedule in
accordance with Section 2.5, Purchaser has submitted a claim for
indemnification under Section 6.4 which remains unresolved, Purchaser shall
have the right in lieu of paying such amount as required under Section 2.5(e)
to pay a portion of the amount payable pursuant to Section 2.5(e) to an escrow
agent to be mutually agreed upon. The amount payable to the escrow agent shall
be the amount of the claim but not to exceed 10% of the Purchase Price. In the
event that an amount is paid to an escrow agent pursuant to this paragraph,
such funds shall be held in escrow pursuant to an escrow agreement which shall
provide terms and conditions typical for a transaction of this type, shall
provide that interest on the funds held in escrow shall follow principal when
ulti-
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mately released from the escrow and contain such other terms and conditions as
may be agreed upon by the parties. The parties each shall pay one-half of any
expenses associated with the escrow provided for herein.
2.6 Consistent Treatment. The parties hereto shall allocate the
Purchase Price among the Purchased Assets and the covenant not to compete set
forth in Section 5.1 hereof in accordance with Schedule 2.6 hereto, and shall
treat and report the transactions contemplated by this Agreement in all
respects consistently with such allocation upon all Tax Returns and for
purposes of any Taxes and not take any action inconsistent with such
obligation.
2.7 Procedures for Purchased Assets Not Transferable. If, either by
virtue of the provisions thereof or under applicable Law, any of the Contracts
or any other property or rights included in the Purchased Assets are not
assignable or transferable without the consent of some other Person, Seller
shall diligently use all commercially reasonable efforts to obtain such consent
prior to the Closing Date and Purchaser shall use all commercially reasonable
efforts to assist in that endeavor. If any such consent cannot be obtained
prior to the Closing Date and the Closing occurs, this Agreement and the
related instruments of transfer shall not constitute an assignment or transfer
thereof, but Seller shall diligently use all commercially reasonable efforts
for a period of nine (9) months following the Closing Date to obtain such
consent as soon as possible after the Closing Date or otherwise obtain for
Purchaser the practical benefit of such property or rights and Purchaser shall
use all commercially reasonable efforts to assist in that endeavor. With
respect to each Contract for which a necessary consent has not been obtained
prior to the Closing, Seller shall obtain for Purchaser, at no additional cost
to Purchaser, the benefits of such Contract (including all payments due to
Seller thereunder) until such consent is obtained. With respect to any right
under such Contract (including any right to payment), at Purchaser's request,
Seller shall institute legal proceedings to enforce such rights; provided that
such litigation shall be at the sole cost of Purchaser and Purchaser shall
control the conduct of such litigation. Except as so requested, Seller shall
have no obligation to take such action. Furthermore, until such consent is
obtained, Purchaser shall not assume Seller's obligations with respect to such
Contract but shall, as Seller's agent and on behalf of Seller, pay, perform and
discharge
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fully Seller's obligations thereunder to the extent that such obligations would
have otherwise constituted Assumed Liabilities. Without Purchaser's prior
written consent, Seller shall take no action to terminate or modify any such
Contract.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER
Parent and Seller jointly and severally represent and warrant to
Purchaser, as of the date of this Agreement, as follows:
3.1 Due Incorporation; Subsidiaries. Parent and Seller are duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and possess all requisite power and
authority to own, lease and operate their respective properties and to carry on
their respective businesses as they are now being owned, leased, operated and
conducted. Seller has no subsidiaries and is duly licensed or qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
set forth on Schedule 3.1 hereto, which are the only jurisdictions
where the nature of the properties owned, leased or operated by it or the
Business requires such licensing or qualification.
3.2 Due Authorization. Parent and Seller have full power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Parent and Seller of this
Agreement have been duly and validly approved by all necessary corporate action
and by any necessary action of its stockholders. Parent and Seller have duly
and validly executed and delivered this Agreement. This Agreement constitutes
and the Other Transaction Documents when executed and delivered by Seller and
Parent as contemplated hereby will constitute the legal, valid and binding
obligation of Parent and Seller, enforceable in accordance with its terms,
except as such enforceability may be limited by (a) applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws in effect which affect
the enforcement of creditors' rights generally, or (b) equitable limitations on
the availability of specific remedies.
3.3 Consents and Approvals. No consent, authorization or approval of,
filing or registration with, or cooperation from, any Governmental Authority or
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any other Person not a party to this Agreement is necessary in connection with
the execution and delivery of this Agreement and the Other Transaction
Documents and the consummation by Parent and Seller of the transactions
contemplated hereby, other than (a) the consents set forth on Schedule 3.3
hereto, (b) as required by applicable requirements of the Securities and
Exchange Commission (the "SEC") or the National Association of Securities
Dealers, and (c) filings and consents that may be required under any
Environmental Law necessitated by the transactions contemplated herein. Except
for matters set forth on Schedule 3.3 hereto, the execution, delivery and
performance by Seller and Parent of this Agreement does not and will not (i)
violate or conflict with, result in a breach or termination of, constitute a
default under or permit cancellation of any Seller Assigned Contract, (ii)
result in the creation of any Lien upon any of the Purchased Assets or (iii)
violate or conflict with any provision of the Amended Articles of Incorporation
or Bylaws of Seller.
3.4 Financial Statements. Except as set forth on Schedule 3.4 hereto
and except as otherwise provided in this Agreement, the Financial Statements
have been prepared in accordance with GAAP consistently applied and present
fairly the financial position, assets and liabilities of Seller as of the dates
thereof and the revenues, expenses, results of operations and cash flows of
Seller, for the periods covered thereby. The Financial Statements are in
accordance with the books and records of Seller and do not reflect any
transactions which are not bona fide transactions. Except as set forth on
Schedule 3.4 hereto or in the respective Financial Statements, Seller does not
have any liabilities, debts, claims or obligations, whether accrued, absolute,
contingent or otherwise, whether due or to become due, other than trade
payables to third parties and accrued expenses incurred in the ordinary course
of business since the date of the Interim Balance Sheet. Schedule 3.4 hereto
sets forth true and correct copies of the Financial Statements. Except as set
forth on Schedule 3.4, since the date of the Interim Balance Sheet, no
liabilities relating to the Business (absolute, accrued, contingent or
otherwise) have been incurred, except liabilities relating to the Business
incurred in the ordinary course of business consistent with past practice.
3.5 No Adverse Effects or Changes. Except as listed on Schedule 3.5
hereto, since the date of the Interim Balance Sheet, Seller has not (a)
suffered any
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damage or destruction to, or loss of, any of its assets or properties (whether
or not covered by insurance) in excess of $50,000; (b) permitted the imposition
of a Lien (other than Permitted Exceptions) on, or disposed of, any of its
material assets (other than sales of Inventories in the ordinary course of the
Business, consistent with past practice); (c) terminated or entered into any
Material Contract; (d) cancelled, waived, released or otherwise compromised any
trade debt, receivable or claim exceeding $50,000 individually or $100,000 in
the aggregate; (e) made or committed to make any capital expenditures or
capital additions or betterments in excess of $50,000 in the aggregate, whether
individually or as a part of related transactions; (f) entered into, adopted,
amended (except as may be required by Law and except for immaterial amendments)
or terminated any bonus, profit sharing, compensation, termination, stock
option, stock appreciation right, restricted stock, performance unit, pension,
retirement, deferred compensation, employment, severance or other employee
benefit agreements, trusts, plans, funds or other arrangements for the benefit
or welfare of any director, officer or employee, or increased in any manner the
compensation or fringe benefits of any director, officer or employee or paid
any benefit not required by any existing plan and arrangement (except for
normal salary increases consistent with past practice) or entered into any
contract, agreement, commitment or arrangement to do any of the foregoing; (g)
disposed of or permitted the lapse in registration of any Intellectual
Property; (h) experienced any Material Adverse Change in the accounts
receivable or accounts payable; (i) changed its accounting methods, systems,
policies, principles or practices; (j) incurred indebtedness (other than trade
payables in the ordinary course of the Business); or (k) otherwise experienced
a Material Adverse Change.
3.6 Title to Properties. Except as disclosed on Schedule 3.6 hereto
and except for Permitted Exceptions, Seller has good and marketable title to,
and is the lawful owner of, the Purchased Assets, free and clear of any Lien.
Except as set forth on Schedule 3.6 or 3.12 hereto, no other Person (including
Parent or any of its Affiliates) owns any assets, properties or rights relating
to or used in the Business, performs or furnishes services for the benefit of
the Business, or is a party to or otherwise enjoys rights under any Contracts
or arrangements pertaining to the operation of Seller or the Business. Subject
to the provisions of Section 2.7 hereof, the Assignment and Assumption
Agreement, endorse-
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ments and other instruments of transfer delivered at the Closing by Seller to
Purchaser will be sufficient to transfer to Purchaser the entire right, title
and interest, legal and beneficial, in the Purchased Assets, free and clear of
any Lien (except as set forth on Schedule 3.6 hereto and except for Permitted
Exceptions). Except as set forth on Schedule 3.6 hereto, all tangible personal
property of Seller (including all tooling, molds and dies) is located at the
Leased Premises or the Mexican Premises. The Purchased Assets and the Excluded
Assets constitute all of the assets used or held for use in connection with the
Business and material to the production by Seller of the income shown on the
statement of operations of Seller for the eight months ended August 31, 1997
(but the foregoing shall not constitute a representation of the prospective
income production of Purchaser using the Purchased Assets). Seller enjoys
peaceful and undisturbed possession under all leases set forth on Schedules 3.6
and 3.7(a) hereto, subject to the terms thereof.
3.7 Leased Premises and Mexican Premises.
(a) Seller operates the Business at the Leased Premises and
the Mexican Premises. Except as set forth on Schedule 3.7(b) hereto,
no written notice has been received by Seller or Parent from any
Governmental Authority requiring any alteration of the Leased Premises
or the Mexican Premises that has not been fully complied with. Other
than the Leases set forth on Schedule 3.7(a), Seller has no interest
in any real property. The Leases and the Mexican Premises cover all of
the real estate leased, used or occupied by Seller in connection with
the Business. Each of the Leases and the Mexican Premises is in full
force and effect and Seller holds a valid and existing leasehold
interest under each of the Leases. Seller is not in default, and no
circumstances exist which would result in such default (including upon
the giving of notice or the passage of time, or both), under any of
the Leases, and no other party to the Leases has the right to
terminate or accelerate performance under or otherwise modify any of
the Leases, provided, however, Seller is making no representation or
warranty concerning the assignment of the Leases to Purchaser in
connection with the transaction contemplated hereby (or any default
thereunder in connection with such assignment). To Seller's knowledge,
no lessor under any of the Leas-
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es is in default under any of such Leases in its duties to the lessee.
(b) Except as set forth on Schedule 3.7(b) hereto, to the
knowledge of Seller, the buildings, plants, facilities, fixtures,
structures and improvements on the Leased Premises and Mexican
Premises are in good operating condition and repair (normal wear and
tear excepted).
3.8 Personal Property. Set forth on Schedule 3.8(a) hereto are the
Equipment and Vehicles used or held for use in connection with the Business.
Set forth on Schedule 3.8(b) hereto is a description of the Tooling used in
connection with the Business. Except as disclosed on Schedule 3.7(b) hereto,
all of the tangible assets (whether owned or leased) included in the Purchased
Assets (a) are suitable for the purposes for which such assets are presently
used in the Business, and (b) have been maintained and are in good operating
condition and repair (normal wear and tear excepted).
3.9 Inventories. All of the Inventory, whether spare parts, finished
goods, work in process, raw materials or supplies, was produced or acquired by
Seller in the ordinary course of the Business and, except for inventory set
forth on Schedule 3.9, is of a quality and type which has been used or sold in
the ordinary course of the Business during the twelve months ended on the date
hereof. All Inventories of Seller are fairly reflected in the inventory
accounts of the Interim Balance Sheet valued on a first-in, first-out basis
consistent with past practice. Inventories, net of reserves, on the Closing
Schedule will be as set forth in Section 2.5(b).
3.10 No Third Party Options. There are no agreements, options,
commitments or rights with, of or to any Person (other than Purchaser) to
acquire any of Seller's assets, properties or rights or shares except for those
Contracts entered into for the sale of Inventories in the ordinary course of
the Business, consistent with past practice.
3.11 Intellectual Property. Schedule 3.11 hereto includes a true and
complete list as of the date of this Agreement, of all of the patents, patent
applications, trade names, trademark registrations, trademark applications,
copyright registrations, copyright applications and licenses therefor included
in the Intellectual Property and used in the conduct of the Business.
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(a) Except as disclosed on Schedule 3.11(a) hereto and except
for consumer off-the-shelf software used in the Business, all of the
Intellectual Property is owned by Seller, free and clear of all Liens
(other than Permitted Exceptions), is valid and enforceable and is not
subject to any license, royalty or other agreement, and Seller has not
granted any license or agreed to pay or receive any royalty in respect
of any of such Intellectual Property. All registration and maintenance
fees that have become due and payable to any Governmental Authority
with respect to any Intellectual Property set forth on Schedule 3.11
hereto have been paid and no act or omission has occurred to cancel,
impair, dedicate to the public or entitle any Governmental Authority
to cancel, modify, forfeit or hold abandoned any such Intellectual
Property except for any of the foregoing which is not reasonably
likely to cause a Material Adverse Change. Except as set forth on
Schedule 3.11(a), Seller owns or possesses, and Seller will transfer
to the Purchaser at the Closing valid and enforceable rights, or, in
the case of applications pending, adequate rights to, all Intellectual
Property necessary to conduct the Business as presently conducted.
(b) Except as set forth on Schedule 3.11(b) hereto, the
products manufactured or sold by Seller and any process, method, part,
design, material or other Intellectual Property it employs, and the
marketing and use by Seller of any such product, service or other
intellectual property, do not infringe any Intellectual Property or
confidential or proprietary rights of another and Seller has not
received any notice contesting its right to use the Intellectual
Property. To the knowledge of Seller and Parent, except as set forth
on Schedule 3.11(b) hereto, no products manufactured or activities
conducted by any other Person infringe on the Intellectual Property.
3.12 Contracts.
(a) Schedule 3.12 hereto lists, as of the date hereof, all
the Contracts and arrangements of the following types to which Seller
is a party, by which it is bound, or to which any of its assets or
properties is subject:
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(i) any labor agreement;
(ii) any Contract or arrangement of any kind with
any employee, officer, director or stockholder of Seller or
any of the Affiliates of such individuals, or any Contract or
other arrangement of any kind with Parent or any Affiliate of
Parent;
(iii) any Contract or arrangement with a sales
representative, manufacturer's representative, distributor,
dealer, broker, sales agency, advertising agency or other
Person engaged in sales, distribution or promotional
activities, or any Contract to act as one of the foregoing on
behalf of any Person (other than purchase and sales orders
and other Contracts of a type listed in clause (iv) below);
(iv) any Contract or arrangement of any nature
having an aggregate value in excess of $50,000 or not
terminable on notice of thirty (30) days or less;
(v) any indenture, credit agreement, loan agreements
note, mortgage, security agreement, letter of credit, loan
commitment, guaranty, repurchase agreement or other Contract
or arrangement relating to the borrowing of funds, an
extension of credit or financing, pledging of assets or
guarantying the obligations of any Person;
(vi) any Contract or arrangement involving Seller as
a participant in a partnership, joint venture or other
cooperative undertaking;
(vii) any Contract or arrangement involving any
restrictions on Seller with respect to the geographical area
of operations or scope or type of business of Seller;
(viii) any power of attorney or agency agreement or
arrangement pursuant to which a Person is granted the
authority to act for or on behalf of Seller, or Seller is
granted the authority to act for or on behalf of any Person;
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(ix) any Contract granting to any Person a right at
such Person's option to purchase or acquire any asset (other
than Inventory in the ordinary course of the Business) or
property of Seller (or interest therein);
(x) any Contract for capital improvements or
expenditures in excess of $50,000 individually or $100,000 in
the aggregate;
(xi) any Contract for which the full performance
thereof may extend beyond sixty (60) days from the date of
this Agreement (other than purchase and sales orders in the
ordinary course of the Business);
(xii) any Contract not made in the ordinary course
of the Business which is to be performed in whole or in part
at or after the date of this Agreement other than the
Contracts described on Schedule 3.14 hereto;
(xiii) the Mexican Agreement;
(xiv) any Contract or arrangement relating to
management support, facilities support or similar
arrangement; and
(xv) any Contract whereby any Person agrees (A) not
to compete with Seller or (B) to maintain the confidentiality
of any information of Seller.
(b) All of the Material Contracts are in full force and
effect and constitute the legal, valid and binding obligations of
Seller and, to the knowledge of Seller, the other parties thereto. All
of the Material Contracts are enforceable in accordance with their
respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the rights of creditors generally and by
equitable limitations on the availability of specific remedies. No
termination notice has been delivered by any party to a Material
Contract to any other party to such Material Contract with respect to
such Material Contract. Seller has delivered to Purchaser true and
complete copies of each written Material Contract and a complete and
accurate written description of any Material Contract not reduced
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to writing. Notwithstanding anything to the contrary in this Section
3.12, accounts receivable and product warranties shall be deemed not
to be Material Contracts or Contracts for purposes of this Section
3.12. Except as set forth on Schedule 3.12(b) hereto, since the date
of the Interim Balance Sheet, Seller has not entered into any Contract
other than in the ordinary course of the Business, consistent with
past practice.
3.13 Permits. Schedule 3.13 hereto is an accurate and complete list as
of the date hereof of all Permits held by Seller and used in the Business.
Except for such Permits, to Seller's knowledge, there are no permits, licenses,
consents or authorizations, whether federal, state, local or foreign, which are
necessary for the lawful operation of the Business. Seller is in full
compliance in all material respects with all requirements and limitations under
such Permits. No employee, officer, director or Affiliate of Seller owns or has
any interest in any such Permit.
3.14 Insurance. Schedule 3.14 hereto contains an accurate and complete
list as of the date hereof of all policies, currently in force, of fire,
liability, worker's compensation, public and product liability, title and other
forms of insurance owned, held by or applicable to Seller, its assets or the
Business. Seller has heretofore delivered to Purchaser an accurate summary
description of all such policies, including all occurrence-based policies
applicable to Seller or the Business for all periods prior to the Closing Date.
All such policies are in full force and effect.
3.15 Employee Benefit Plans and Employment Agreements. The following
terms, as used herein, have the following meanings:
"BENEFIT ARRANGEMENT" means an employment, severance or
similar contract, arrangement or policy and each plan or arrangement
providing for severance, insurance coverage (including any
self-insured arrangements), worker's compensation, disability
benefits, supplemental unemployment benefits, vacation benefits,
pension or retirement benefits or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation rights or
other forms of incentive compensation or post-retirement insurance,
compensation or benefits that (i) is not
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an Employee Plan and (ii) is maintained or contributed to by Seller
or any of its ERISA Affiliates.
"EMPLOYEE PENSION BENEFIT PLAN" means each "employee pension
benefit plan" as that term is defined in Section 3(2) of ERISA, that
is an Employee Plan, as defined below.
"EMPLOYEE PLAN" means each "employee benefit plan", as such
term is defined in Section 3(3) of ERISA, that (i) is subject to any
provision of ERISA and (ii) is maintained or contributed to by Seller
or any of its ERISA Affiliates, as the case may be.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
"ERISA AFFILIATE" of any entity means any other entity that,
together with such entity, would be treated as a single employer under
Section 414 of the Code.
"MULTIEMPLOYER PLAN" means each Employee Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
(a) ERISA Representations. Seller hereby represents and
warrants to Purchaser that Schedule 3.15(a) hereto lists each Employee
Plan and each Benefit Arrangement that covers any employee or former
employee of Seller and copies or descriptions of all of which have
previously been furnished or made available to Purchaser. With respect
to each Employee Plan, Seller has provided an accurate summary
description of such plan. With respect to the Meridian Sports
Incorporated Retirement Incentive Savings Plan (the "PARENT SAVINGS
PLAN"), Seller has also provided to Purchaser the most recently filed
Form 5500 and Internal Revenue Service determination letter.
(b) With respect to the Parent Savings Plan, except as set
forth on Schedule 3.15(b) hereto:
(i) the Parent Savings Plan is intended to be tax
qualified under Section 401(a) and 501(a) of the Code,
complies and has been administered in form and in operation
in all material respects with all applicable requirements of
law, including Sections 401(a) and
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501(a) of the Code, and no event has occurred which is
reasonably expected to cause the Parent Savings Plan to fail
to so comply with such requirements;
(ii) there are no material actions, suits or claims
(other than routine claims for benefits) pending or, to the
knowledge of Seller, threatened involving the Parent Savings
Plan or the assets thereof and Seller has no knowledge of any
facts which are reasonably expected to give rise to any such
actions, suits or claims (other than routine claims for
benefits); and
(iii) no "prohibited transaction" as defined in
Section 406 of ERISA or Section 4975 of the Code has
occurred.
(c) With respect to each of the Employee Plans or Benefit
Arrangements, as applicable:
(i) no material tax under Section 4980B of the Code
has been incurred in respect of any Employee Plan that is a
group health plan, as defined in Section 5000(b)(1) of the
Code; and
(ii) all contributions and payments accrued under
the Parent Savings Plan, determined in accordance with prior
funding and accrual practices, as adjusted to include
proportional accruals for the period ending on the Closing
Date, will be discharged and paid on or prior to the Closing
Date except to the extent (i) reflected on the Final Balance
Sheet or (ii) retained by Seller.
(d) With respect to each of Seller's Employee Plans which is
either a Multiemployer Plan or a plan subject to Title IV of ERISA:
(i) no accumulated funding deficiency, whether or
not waived, exists with respect to any such Employee Plan;
and
(ii) Seller has not incurred nor reasonably expects
to incur any liability under such Employee Plans which could
become a liability of Purchaser.
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3.16 Employees. Schedule 3.16 hereof contains a true, complete and
accurate list of the names, titles, annual compensation and all bonuses and
similar payments made for the current and preceding two (2) years for each
director and officer of Seller and each employee of Seller who has an annual
base salary of $75,000 or more. Except as disclosed on Schedule 3.16 hereof,
there is no, and during the past two (2) years there has been no, labor strike,
picketing, dispute, slow-down, work stoppage, union organization effort,
grievance filing or proceeding, or other labor difficulty actually pending or,
to the knowledge of Seller, threatened against or involving Seller. Seller is
not a party to any collective bargaining agreement and no such agreement
determines the terms and conditions of the employment of employees of Seller.
No collective bargaining agent has been certified as a representative of any
employees of Seller and no representation campaign or election is now in
progress with respect to any employees of Seller. As of August 31, 1997, Seller
had approximately 69 full-time employees and approximately 1 temporary employee
not including Mexican employees of North American Product Sharing, Inc. No
employee subject to an employment contract listed on Schedule 3.15(a) hereto
serves, or has served within the past two (2) years, as an officer, director,
employee or agent of any Affiliate of Seller. Except as set forth on Schedule
3.16 hereto, Seller has not received notice that any of its executive employees
intends to terminate his employment with Seller or would not be willing to work
for Purchaser. Schedule 3.16 sets forth a list of employees of the Seller who
are on disability leave or on temporary lay-off with rights to recall.
3.17 Taxes.
(a) Except for current Taxes not due and payable through the
Closing (such Taxes to be paid when due by Seller), Seller has paid to, and
where necessary collected or withheld and remitted to, the proper Governmental
Authority all Taxes related to taxable periods or portions thereof ending on
the Closing Date (including governmental charges, assessments and required
contributions of Seller with respect to the Business) that may result in the
filing of a Lien on the Purchased Assets or that may result in the imposition
of transferee or other liability on Purchaser for the payment of such Taxes.
(b) The federal and state income tax returns of Seller have
been audited by the Internal Revenue
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Service and appropriate state taxing authorities for the periods and to the
extent set forth in Schedule 3.17(b), and Seller has not received from the
Internal Revenue Service or from the tax authorities of any state, county,
local or other jurisdiction any notice of underpayment of taxes or other
deficiency which has not been paid nor any objection to any return or report
filed by Seller. There are outstanding no agreements or waivers extending the
statutory period of limitations applicable to any tax return or report.
(c) Except as set forth in Schedule 3.17(c), since 1993,
Seller has not (i) filed any consent or agreement under Section 341(f) of the
Code, (ii) applied for any tax ruling, (iii) entered into a closing agreement
with any taxing authority, (iv) filed an election under Section 338(g) or
Section 338(h)(10) of the Code (nor has a deemed election under Section 338(e)
of the Code occurred), (v) made any payments, or been a party to any agreement
(including this Agreement) that under any circumstances could obligate it to
make payments that will not be deductible because of section 280G of the Code,
or (vi) been a party to any tax allocation or tax sharing agreement.
3.18 No Defaults or Violations. Except as disclosed on Schedule 3.18
hereto:
(a) Seller is not in breach or default under the terms of any
Material Contract to which it is a party or by which it is bound, no
event has occurred or circumstance exists which, with notice or lapse
of time or both, would constitute a breach or default by Seller under
any such Material Contract, and, to the knowledge of Seller, no other
party to any such Material Contract is in breach or default under any
such Material Contract.
(b) Except for environmental matters (which are covered by
Section 3.19 hereof), Seller is in compliance in all material respects
with, and no material violation exists under, any Laws applicable to
Seller or the Business, and Seller is not aware that any event has
occurred or circumstance exists which, with or without notice or lapse
of time or both, would constitute a material violation under any such
Law.
(c) No notice from any Governmental Authority has been
received within the past two years claiming
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any material violation of any Law or requiring any material work,
construction or expenditure, or asserting any Tax, assessment or
penalty, with respect to Seller. Schedule 3.18 hereto sets forth a
description of any uncompleted improvement program required by any
Governmental Authority with respect to the Leased Premises.
3.19 Environmental Matters. Except as disclosed on Schedule 3.19
hereto:
(a) Seller has not used or stored any, and there are no,
Hazardous Substances in, on, at, under, emanating from or migrating
onto the Leased Premises except for substances which are used or are
to be used in the ordinary course of business (which inventories have
been stored and used in accordance with all applicable Environmental
Laws and Environmental Permits). There is not now at the Leased
Premises any (i) underground storage tank or surface impoundments,
(ii) asbestos-containing materials or (iii) polychlorinated biphenyls,
except in compliance with applicable Environmental Laws.
(b) No notice has been received from any Governmental
Authority or any other Person that Seller is responsible (or
potentially responsible) for any Remedial Action at any location or
that the Leased Premises is required or may be required to be subject
to Remedial Action. Included within the Permits are all Environmental
Permits necessary for the operation of the Business as presently
operated. There is no (i) civil, criminal or administrative claim,
suit, proceeding or investigation (including a request for
information) pending or, to the knowledge of Seller, threatened with
respect to the Business or the Leased Premises relating in any way to
any Environmental Laws or Environmental Permits and Seller does not
know of any fact or circumstance which would give rise to any such
claim, suit, proceeding or investigation, or (ii) outstanding written
orders or Contracts with any Governmental Authority relating in any
way to Environmental Laws or Environmental Permits. Seller has timely
filed all reports and notifications required to be filed with respect
to, and obtained and maintained all Environmental Permits required
for, the Leased Premises, all improvements on the foregoing and all
operations conducted therein, and has generated and maintained all
required reports, filings, records and data
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under all applicable Environmental Laws, and all operations conducted
therein are in compliance with such Environmental Laws.
(c) No condition has existed or event, act or omission has
occurred with respect to the Leased Premises that could, with or
without notice, passage of time or both, give rise to any present or
future liability with respect to the Leased Premises pursuant to any
Environmental Law.
3.20 Litigation; Product Liabilities.
(a) Except as disclosed on Schedule 3.20(a) hereto, as of the
Closing Date, there are no actions, suits, arbitrations, regulatory
proceedings or other litigation, proceedings or governmental
investigations pending or, to the knowledge of Seller, threatened
against or affecting Seller or any of its officers, directors,
employees, agents or stockholders in their capacity as such, or any of
its properties or businesses. There are no facts or circumstances
which may give rise to any of the foregoing. Except as set forth on
Schedule 3.20(a) hereto, all of the proceedings pending or threatened
against Seller are covered by insurance policies and are being
defended by Seller, subject to such deductibles, self-insured
retention or similar arrangements as are set forth in such policies.
Schedule 3.20(a) hereto is a complete and accurate list as of the date
hereof of all pending actions asserted by Seller. Except as disclosed
on Schedule 3.20(a) hereto, Seller is not subject to any order,
judgment, decree, injunction, stipulation or consent order of or with
any court or other Governmental Authority. Seller has not entered into
any agreement to settle or compromise any proceeding pending or
threatened against it which has involved any obligation other than the
payment of money or for which Seller has any continuing obligation. As
of the date hereof, there are no claims, actions, suits, proceedings
or investigations pending or, to the knowledge of Seller or Parent,
threatened by or against Seller or Parent relating to this Agreement
or the transactions contemplated hereby or thereby.
(b) Schedule 3.20(a) hereto sets forth a summary of all
product liability claims currently pending or, to the knowledge of
Seller, threatened against Seller. There are no defects in design,
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construction or manufacture of Products which would adversely affect
performance or create an unusual risk of injury to persons or
property. Except as set forth on Schedule 3.20(a), none of the
Products has been the subject of any replacement, field fix, retrofit,
modification or recall campaign and, to Seller's or Parent's
knowledge, no facts or conditions exist which could reasonably be
expected to result in such a recall campaign. The Products have been
designed and manufactured so as to meet and comply with any and all
governmental standards and specifications currently applicable to the
Products when manufactured and have received any and all governmental
approvals necessary to allow their sale and use. As used in this
Section 3.20, the term "Products" means any and all products currently
or at any time previously manufactured, distributed or sold by Seller
or by any predecessor of Seller under any brand name or mark under
which products are or have been manufactured, distributed or sold by
Seller.
3.21 Intentionally omitted
3.22 Related Parties. Except as disclosed on Schedule 3.22 hereto,
neither Parent nor any of its Affiliates have or claim to have any direct or
indirect interest in any other Person which conducts a business similar to, has
any Contract or arrangement with, or does business or is involved in any way
with, Seller. Schedule 3.22 hereto contains a complete and accurate description
as of the date hereof of all such Persons, interests, arrangements and other
matters.
3.23 Intercompany Services and Transactions. Schedule 3.23 hereto
contains a complete and accurate list, as of the date hereof, of all agreements
or arrangements (whether written or unwritten) relating to all intercompany
services and a complete and accurate description of transactions existing
between Seller and any of its Affiliates during the past two (2) years.
3.24 Product Warranties. Schedule 3.24 hereto sets forth copies of all
product warranties issued for Seller's products sold during the past two (2)
years.
3.25 Brokers. Neither Purchaser nor any Affiliate of Purchaser has or
shall have any liability or otherwise suffer or incur any Loss as a result of
or in connection with any brokerage or finder's fee or other
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commission of any Person retained by Parent, Seller or any of their respective
Affiliates in connection with any of the transactions contemplated by this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Parent and Seller, as of the date
of this Agreement and as of the Closing Date (such representations and
warranties being remade on the Closing Date), as follows:
4.1 Due Incorporation. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization with all requisite power and authority to own, lease and operate
its properties and to carry on its business as they are now being owned,
leased, operated and conducted.
4.2 Due Authorization. Purchaser has full power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by Purchaser of this Agreement have been
duly and validly approved by all necessary corporate action. Purchaser has duly
and validly executed and delivered this Agreement. This Agreement constitutes
the legal, valid and binding obligation of Purchaser, enforceable in accordance
with its terms, except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws in effect
which affect the enforcement of creditors' rights generally or (b) equitable
limitations on the availability of specific remedies.
4.3 Consents and Approvals. No consent, authorization or approval of,
filing or registration with, or cooperation from, any Governmental Authority or
any other Person not a party to this Agreement is necessary in connection with
the execution, delivery and performance by Purchaser of this Agreement and the
consummation by Purchaser of the transactions contemplated hereby or thereby,
other than (a) [intentionally omitted], (b) as required by applicable
requirements of the SEC and (c) filings and consents that may be required under
any environmental, health or safety law or regulation necessitated by the
transactions contemplated herein. The execution, delivery and performance by
Purchaser of this Agreement does not and will not (i) violate or
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conflict with, result in a breach or termination of, constitute a default under
or permit cancellation of any material contract to which Purchaser is a party
or to which any of its assets is subject, or (ii) violate or conflict with any
provision of Purchaser's Certificate of Incorporation or By-laws.
ARTICLE V
COVENANTS
5.1 Noncompetition; Confidentiality.
(a) In order to induce Purchaser to enter into this
Agreement, each of Parent and Seller expressly covenants and agrees
that for a period of three (3) years from and after the Closing Date,
neither Seller, Parent, nor, in the case of clauses (i) or (ii), any
of their respective Subsidiaries (for so long as they remain
Subsidiaries) will directly or indirectly, without the prior express
written consent of Purchaser, (i) own, manage, operate, join, control,
consult with or participate in or be connected with any business,
individual, partnership, firm, corporation or other entity which is
engaged in the Business, wholly or partly, in Canada, Mexico, the
United States, Europe or Asia, (ii) disturb or attempt to disturb any
business relationship between any third party and Purchaser or any of
its Affiliates in connection with the Business, or (iii) solicit, hire
or encourage any officer or employee employed by the Business to leave
the employ or retention of the Business. Nothing in Section 5.1(a)(i)
or (ii) above shall limit, prohibit or restrict (A) the operation of
the respective businesses of the present Subsidiaries of Meridian
Sports Incorporated other than Seller in substantially the same manner
as such businesses are operated on the date hereof, provided, however,
that neither Parent, Seller nor any of their Subsidiaries will engage
in the manufacture or marketing of Buoyancy Compensators and (B) the
bona fide arm's-length sale of products or provision of services, each
in the ordinary course of business, to any non-affiliated Person
engaged in the Business.
(b) Except to the extent expressly required by Law, Parent
and Seller shall, and shall cause their Affiliates to, keep secret and
confidential indefinitely all non-public information concerning Pur-
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chaser, the Business, the Intellectual Property and the Purchased
Assets and not disclose the same, either directly or indirectly, to
any other Person, or use the same in any way.
(c) Parent and Seller expressly agree that the remedies at
law for any breach of the provisions of this Section 5.1 would be
inadequate and that, in addition to any other remedies that Purchaser
may have, Purchaser shall be entitled to temporary and permanent
injunctive relief without the necessity of proving actual damages or
posting bond. To the extent that any part of this Section 5.1 may be
invalid, illegal or unenforceable for any reason, it is intended that
such part shall be enforceable to the extent that a court of competent
jurisdiction shall determine that such part, if more limited in scope,
would have been enforceable. Parent and Seller acknowledge that
Purchaser would not enter into this Agreement unless Parent and Seller
agreed to the provisions of this Section 5.1.
5.2 Exclusivity. Neither Parent, Seller, nor any of their respective
directors, officers, employees, representatives, agents or Affiliates shall,
directly or indirectly, (a) take any action which would have the effect of
preventing or impairing the performance by Parent or Seller of their
obligations under this Agreement or (b) solicit, initiate, encourage, respond
favorably to, permit or condone inquiries or proposals from, or provide any
information to, or participate in any discussions or negotiations with, any
Person (other than Purchaser and its representatives) concerning (i) any
merger, sale of assets (other than inventory in the ordinary course of business
consistent with past practice), acquisition, business combination, change of
control or other similar transaction involving Seller, (ii) any purchase or
other acquisition by any Person of any shares of capital stock of Seller or
(iii) any debt financing involving Seller or any of its assets. Parent and
Seller will promptly advise Purchaser of, and communicate to Purchaser in
writing the terms and conditions of (and the identity of the Person making),
any such inquiry, proposal or offer received.
5.3 Use of Name. From and after the Closing Date, Parent, Seller,
their respective Affiliates and any provider of services to Seller, Parent or
their respective Affiliates will not directly or indirectly use in any manner
any name, trade name, trademark, service mark
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or logo used by the Business or any word or logo that is similar in sound or
appearance. Promptly after the Closing Date, Seller shall file an amendment to
its Amended Articles of Incorporation changing its name to a name which does
not resemble "Soniform" in any way.
5.4 Product Liability.
(a) Seller is and shall be solely responsible for any and all
claims for injury (including, without limitation, death) or claims for
damage, direct or consequential, resulting from or connected with
goods manufactured or sold or products-related services provided by
Seller, to the extent that such claims for injury or damage are made
on or before the second anniversary of the Closing Date.
(b) Purchaser is and shall be solely responsible for any and
all claims for injury (including, without limitation, death) or claims
for damage, direct or consequential, resulting from or connected with
goods manufactured or sold or products-related services provided by
Seller, to the extent that such claims for injury or damage are made
after the second anniversary of the Closing Date.
5.5 Employees and Employee Benefits.
(a) On or prior to the Closing Date, Purchaser shall offer
employment to active employees of the Business other than the
employees set forth on Schedule 5.5(a); provided that, subject to this
Section 5.5, Purchaser may terminate at any time after the Closing
Date the employment of any employee who accepts such offer. For
purposes of this Section 5.5, the term "ACTIVE EMPLOYEE" shall mean
any Person who, on the Closing Date, is actively employed by Seller or
who is on disability leave, authorized leave of absence, military
service or lay-off with recall rights as of the Closing Date, but
shall exclude any former employee or any other Person who has been on
unauthorized leave of absence or who has terminated his or her
employment, retired or died before the Closing Date. Any such offers
shall be at such employee's current salary or wage levels and on such
other terms and conditions substantially comparable to the terms and
conditions of Seller's employment of such employees immediately prior
to the Closing Date. The employees who accept and commence employment
with Purchaser immediately follow-
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ing the Closing Date (or, if applicable, as provided above, the
expiration of leave, completion of military service, etc.) are
hereinafter collectively referred to as the "TRANSFERRED EMPLOYEES."
Seller will not take any action that would impede, hinder, interfere
or otherwise compete with Purchaser's effort to hire any Transferred
Employees. Purchaser shall not assume responsibility for any
Transferred Employee until such employee commences employment with
Purchaser, which assumption shall be retroactive to the Closing.
(b) Except as expressly set forth herein, Seller shall retain
all obligations and liabilities under the Employee Plans and Benefit
Arrangements in respect of each employee or former employee (including
any beneficiary or dependent thereof) who is not a Transferred
Employee. Except as expressly set forth herein, Seller or its
designated Affiliate shall retain all liabilities and obligations in
respect of benefits accrued prior to the Closing Date by Transferred
Employees under the Employee Plans and Benefit Arrangements, and
neither Purchaser nor any of its Affiliates shall have any liability
with respect thereto. Except as expressly set forth herein, no assets
of any Employee Plan or Benefit Arrangement shall be transferred to
Purchaser or any of its Affiliates or to any plan of Purchaser or any
of its Affiliates.
(c) With respect to the Transferred Employees (including any
beneficiary or dependent thereof), except as otherwise assumed
pursuant to Section 2.3 hereof or this Section 5.5, Seller shall
retain (i) all liabilities and obligations arising under any group
life, accident, medical, dental or disability plan or similar
arrangement (whether or not insured) to the extent that such liability
or obligation relates to contributions or premiums accrued (whether or
not payable), or to claims incurred (whether or not reported), prior
to the Closing Date, (ii) all liabilities and obligations arising
under any worker's compensation arrangement to the extent such
liability or obligation relates to the period prior to the Closing
Date, including liability for any retroactive worker's compensation
premiums attributable to such period and (iii) all other liabilities
and obligations arising under the Employee Plans and the Benefit
Arrangements to the extent any such liability or obligation relates to
the period prior
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to the Closing Date. It is the intention of the parties that Purchaser
shall not be obligated to provide COBRA coverage for any employee who
does not become a Transferred Employee. Seller shall be solely
responsible to provide COBRA coverage to the extent required by law.
(d) The Parent Savings Plan covers current and former
employees of Parent and certain of its Affiliates, including the
Seller. Effective as of the Closing Date, Parent shall amend the
Parent Savings Plan to cease all accruals of benefits in respect of
the Transferred Employees. As soon as practicable after the Closing
Date, the account balances including earnings thereon through the date
of transfer, of the Transferred Employees under the Parent Savings
Plan, shall be transferred to a defined contribution plan of Purchaser
(the "Purchaser Savings Plan"). Such transfer shall be effected in
accordance with applicable law and regulations and Purchaser shall
make or cause to be made, and Seller shall make or cause to be made,
any required filings in connection therewith. Purchaser or one of its
Affiliates may require, as a condition to the acceptance of any such
transfer, evidence satisfactory to Purchaser of the qualified status
of the Parent Savings Plan, including, without limitation, a copy of a
favorable determination letter from the Internal Revenue Service (the
"IRS") and an opinion of counsel that the Parent Savings Plan
continues in form to remain qualified at all relevant times. In
consideration of such transfer, Purchaser or one of its Affiliates
shall assume liability for the payment of the Transferred Employees
account balances to Transferred Employee under the Parent Savings
Plan. Each of the parties hereto shall pay its own expenses in
connection with such transfer. Neither Purchaser nor any of its
Affiliates shall assume any other obligations or liabilities arising
under or attributable to the 401(k) Plan, the same to be retained or
assumed by Seller.
Purchaser and Parent agree that for the period from the
Closing Date to the date of the actual transfer of assets provided for
under this Section 5.5(d) (the "SAVINGS TRANSFER DATE"), the Parent
Savings Plan shall be liable for any benefit payment that becomes due
to a Transferred Employee under such plan, and that after the transfer
of assets provided for under this Section 5.5(d), the Purchas-
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er Savings Plan shall be liable for any benefit payment that becomes
due to any Transferred Employee. In the event that benefit payments
are made when they become due from the Parent Savings Plan to a
Transferred Employee under this Section 5.5(d), the amount of assets
to be transferred from such plan shall be reduced by an amount equal
to such benefit payment. For the period from the Closing Date to the
Savings Transfer Date, the amount of such transfer shall be equitably
adjusted to reflect gains or losses allocable to such amount (as
determined by the actuary for the Parent Savings Plan in its sole
discretion).
Upon the transfer of cash or such other assets provided
hereunder, Parent shall have no further liability to the Transferred
Employees or to the Purchaser in connection with the accrued benefits
transferred.
(e) To the extent applicable, Transferred Employees (and
their eligible dependents) shall be given credit under employee
benefit plans, programs, policies and arrangements, including vacation
pay plans, that are established or maintained by Purchaser for the
benefit of Transferred Employees (the "PURCHASER'S PLANS") for their
service with Seller (i) for purposes of eligibility to participate and
vesting (but not benefit accrual (except for vacation pay, severance,
other fringe benefits and the Purchaser Savings Plan)) to the extent
such service was taken into account under a corresponding Seller's
Plan, and (ii) for purposes of satisfying any waiting periods,
evidence of insurability requirements or the application of any
pre-existing conditions limitations and shall be given credit for
amounts paid under a corresponding Seller's Plan during the same
period for purposes of applying deductibles, copayments and
out-of-pocket maximums as though such amounts had been paid in
accordance with the terms and conditions of the plans, programs,
policies and arrangements maintained by Purchaser.
(f) The parties hereto expressly acknowledge that Purchaser
shall be obligated to pay all liabilities in respect of any
Transferred Employee terminated for any reason on or after the Closing
Date, including without limitation, any severance benefits triggered
as a result of the transactions contem-
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plated under this Agreement, COBRA, any liability triggered under any
unemployment compensation or other government-mandated benefits
relating to the termination of any Transferred Employee's employment
on or after the Closing Date, including, without limitation, the
Worker Adjustment and Retraining Notification Act of 1988.
(g) To the extent requested by Purchaser in writing prior to
the Closing Date, Seller agrees to use its best efforts to continue
coverage to Transferred Employees under the Employee Plans and Benefit
Arrangements that currently provide for fully insured welfare plan
coverage for the period commencing on the Closing Date and ending on
December 31, 1997 or until such earlier time as Purchaser or its
designated Affiliate can assume responsibility for such insurance in
an orderly manner. Purchaser shall pay all premium costs directly to
the insurer and shall, upon 10 days notice, reimburse Seller for
Seller's costs reasonably incurred in continuing to provide such
insurance. Such continuation of insurance shall not affect the
allocation of liabilities and obligations as set forth in this Section
5.5. Purchaser shall use all reasonable efforts to arrange for such
insurance coverage as promptly as possible in order to avoid using
Seller's services under this section.
(h) Seller and Purchaser agree to take all actions reasonably
necessary to accomplish the transactions contemplated by this Section
5.5.
(i) Except as provided in this Section 5.5, nothing in this
Agreement shall limit or restrict in any way the rights of Purchaser
to modify, amend, terminate or establish employee benefit plans,
programs, policies or arrangements, in whole or in part, at any time
after the Closing Date.
(j) All provisions contained in this Agreement with respect
to employee benefit plans or employee compensation are included for
the sole benefit of the respective parties hereto and do not and shall
not create any right in any other person, including, but not limited
to, any Transferred Employee, any participant in any benefit or
compensation plan or any beneficiary thereof.
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(k) Seller shall not discourage any employee from accepting
employment with Purchaser.
(l) Seller agrees to make a clean cut-off of payroll and
payroll tax reporting with respect to the Transferred Employees paying
over to the federal, state and city governments those amounts
respectively withheld for periods ending on or prior to the Closing
Date. Seller also agrees to issue, by the date prescribed by IRS
Regulations, Form W-2 for wages paid through the Closing Date. Except
as set forth in this Agreement, Purchaser shall be responsible for all
payroll and payroll tax obligations after the Closing Date for
Transferred Employees.
5.6 Access.
(a) From and after the Closing Date, Purchaser will permit
Seller and Seller's representatives and agents to have reasonable
access, at all reasonable times, to the books, accounts, records,
properties, operations, facilities and personnel pertaining to the
Business and will furnish Seller with such financial and operating
data concerning the Business as Seller shall from time to time
reasonably request in connection with, but not limited to (i) the
preparation of any tax return, (ii) any audit or other investigation
by any taxing authority or any required reports or submissions to
governmental bodies with respect to Seller or the Business relating to
periods prior to the Closing Date, (iii) any third party claims and
investigations and insurance relating thereto and (iv) the preparation
of the Closing Schedule.
(b) From and after the Closing Date, Seller will make
available to Purchaser and Purchaser's representatives and agents all
books and records of Seller to the extent related to the Excluded
Assets or the Seller's Liabilities as may be reasonably requested by
Purchaser in connection with the preparation of financial statements
relating to the Business. In addition, at Purchaser's request and at
its sole cost and expense, Seller will use its best efforts to cause
Seller's Auditors to provide Purchaser with information or material
regarding the Business, including, but not limited to, financial
statements, trial balances or other accounting records relating to the
Business, reasonably requested from Seller's Auditors by Purchaser.
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5.7 Production of Witnesses and Individuals.
(a) From and after the Closing Date, Purchaser shall use
reasonable efforts to make available to Seller, upon written request
and upon reasonable notice, the employees of the Business for fact
finding, consultation and interviews and, if required, as witnesses,
in each case to the extent that any such person may reasonably be
required in connection with any action, claim, suit, arbitration,
subpoena, discovery request, proceeding or investigation in which
Seller may from time to time be involved relating to the Business,
Seller's Liabilities or the Excluded Assets. Seller agrees to
reimburse Purchaser for all reasonable out-of-pocket expenses (but not
labor charges or salary payments) incurred by Purchaser in connection
with providing employees pursuant to this Section 5.7.
(b) From and after the Closing Date, Parent and Seller shall
use reasonable efforts to make available to Purchaser, upon written
request and upon reasonable notice, the employees of Parent or Seller
for fact finding, consultation and interviews and, if required, as
witnesses to the extent that any such person may reasonably be
required in connection with any action, claim, suit, arbitration,
subpoena, discovery request, proceeding or investigation in which
Purchaser may from time to time be involved relating to the Business,
the Assumed Liabilities or the Purchased Assets. Purchaser agrees to
reimburse Parent for all reasonable out-of-pocket expenses (but not
labor charges or salary payments) incurred by Parent or Seller in
connection with provided employees pursuant to this Section 5.7.
5.8 Environmental Matters. Purchaser shall provide Seller with notice
of any Seller's Environmental Obligation within thirty (30) days of Purchaser's
receipt of written notice of the facts giving rise to such liability, or, in
the case of third-party claims, Purchaser's receipt of written notice from a
third party of a claim with respect to a Seller's Environmental Obligation. The
failure of Purchaser to give notice pursuant to this Section 5.8 shall not
relieve the Seller of its obligations hereunder except to the extent Seller has
been prejudiced thereby.
5.9 Accounts Receivable. No later than fifteen (15) days after the
Closing Date, Purchaser will
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furnish to Seller an aging report of all Receivables reflecting for each
account the name of the customer, the age and outstanding balance as of the
Closing Date and any underlying detail comprising the outstanding balance as of
the Closing Date. Purchaser shall, for a period of 90 days following the
Closing Date, collect the Receivables. Purchaser covenants and agrees to use
its normal collection practices in the ordinary course of business to collect
the Receivables. Purchaser does not guarantee collection of such Receivables.
Purchaser shall apply any and all amounts received from each account debtor in
accordance with the instructions of the account debtor, or if none is given
then to the repayment of outstanding accounts receivable existing as of the
time of this Agreement, unless the customer has directed Purchaser not so to
apply such amount because it has a bona fide claim that such Receivables
existing on the Closing Date is not payable by it. Notwithstanding the
foregoing, the application of payments received by Purchaser shall be applied
to the Receivables and remitted to Seller on a first-in, first-out basis except
to the extent that a bona fide dispute exists with respect to such Receivables.
To the extent that deducts are taken by customers in respect of liabilities
assumed by Purchaser, Purchaser shall reimburse Seller for such deducts when
remittances are made. Purchaser shall remit to Seller all such Receivables
collected on a bi-weekly basis except that to the extent that there is in
excess of $10,000 to be paid at the end of any week such amount shall be
remitted at the end of such week. Any Receivables not collected by Purchaser in
the 90 day period shall then be transferred to Seller.
ARTICLE VI
INDEMNIFICATION
6.1 Survival. The representations and warranties of the parties in
this Agreement or in any document delivered pursuant hereto shall survive the
Closing until eighteen (18) months after the Closing Date, provided, however,
that such time limitation shall not apply to the representations and warranties
set forth in (a) Section 3.6 hereof (such representations and warranties to
survive forever), (b) Section 3.17 hereof (such representations and warranties
to survive until the applicable statute of limitations) and (c) Section 3.19
hereof (such representations and warranties to survive until five (5) years
after the Closing Date). After the end of the relevant survival period
specified above, Seller's and Parent's obligations to Purchaser and its
Affiliates
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under this Article VI with respect to such representations and warranties shall
expire and terminate. Notwithstanding anything in this Agreement to the
contrary, Purchaser's obligation to indemnify Seller against the Assumed
Liabilities shall survive forever and the obligation of Seller and Parent to
indemnify Purchaser against the Seller's Liabilities shall survive forever.
6.2 Indemnification by Parent and Seller. Parent and Seller jointly
and severally agree to indemnify, defend and hold harmless each of the
Purchaser and its Affiliates against any Losses relating to or arising out of:
(a) any breach of any representation or warranty made by
Parent or Seller in this Agreement or any document delivered to
Purchaser at the Closing pursuant to this Agreement, provided,
however, that neither Parent nor Seller shall have any liability under
this Section 6.2(a) with respect to breaches of such representations
and warranties until the Losses arising out of such breaches equal or
exceed $100,000 (the "THRESHOLD") in the aggregate, at which point
Purchaser shall be entitled to recover all Losses in full for all
breaches of representations and warranties, provided, further, that no
Loss which is less than $5,000 shall be considered in determining
whether the Threshold has been met, provided, further, that (i) Losses
arising out of any breaches of the representations and warranties set
forth at Sections 3.6, 3.17, and 3.19 hereof shall be fully
indemnified and not subject to the Threshold except that no Loss under
Section 3.19 shall be indemnified to the extent that the amount of
such Loss is $1,000 or less, and (ii) Seller shall have no
indemnification obligation pursuant to this Section 6.2(a) for Losses
in excess of $2 million in the aggregate, provided that the foregoing
limitation shall not apply to Losses arising out of any breaches of
the representations and warranties set forth at Sections 3.6, 3.17 and
3.19 hereof;
(b) any breach of any covenant made by Parent or Seller in
this Agreement or any document delivered to Purchaser at the Closing
pursuant to this Agreement;
(c) the bulk sales Laws of any jurisdiction
applicable to the transactions contemplated herein,
and any Laws of any jurisdiction imposing liability
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on Purchaser for Seller's Taxes, including the failure to comply with
any such Laws;
(d) Seller's Liabilities, including any Remedial Action taken
by Purchaser with respect to Pre-Seller's Environmental Obligations;
and
(e) any damage to any Purchased Assets relating to the
removal of any Excluded Assets from the Leased Premises.
(f) any Loss or claim which is or relates to
Seller's Liabilities.
6.3 Indemnification by Purchaser. Purchaser agrees to indemnify,
defend and hold harmless Parent and Seller and each of their respective
Affiliates against any Losses relating to or arising out of:
(a) any breach of any representation or warranty made by
Purchaser in this Agreement or any document delivered to Seller at the
Closing pursuant to this Agreement, provided, however, that Purchaser
shall have no liability under this Section 6.3(a) with respect to
breaches of such representations and warranties until the Losses
arising out of such breaches equal or exceed $100,000 in the
aggregate, at which point Parent and Seller shall be entitled to
recover all Losses in full for all breaches or representations and
warranties, provided, further, that no Loss which is less than $5,000
shall be considered in determining whether the Threshold has been met,
provided, further, that Purchaser shall have no indemnification
obligation pursuant to this Section 6.3(a) for Losses in excess of $2
million in the aggregate;
(b) any breach of any covenant made by Purchaser in this
Agreement or any document delivered to Seller at the Closing pursuant
to this Agreement; and
(c) any Assumed Liability.
6.4 Claims. The provisions of this Section shall be subject to Section
6.5 below. As soon as is reasonably practicable after becoming aware of a claim
for which indemnification may be sought under this Agreement (including a claim
or suit by a third party) the indemnified Person shall give notice to the
indemnifying
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Person of such claim. The failure of the indemnified Person to give notice
shall not relieve the indemnifying Person of its obligations under this Article
VI except to the extent that the indemnifying Person shall have been prejudiced
thereby. If the indemnifying Person does not object in writing to such
indemnification claim within 60 calendar days of receiving notice thereof, the
indemnified Person shall be entitled to recover from the indemnifying Person
the amount of such claim, and no later objection by the indemnifying Person
shall be permitted. If the indemnifying Person agrees that it has an
indemnification obligation but objects that it is obligated to pay only a
lesser amount, the indemnifying Person shall promptly pay to the indemnified
Person the lesser amount, without prejudice to the indemnified Person's claim
for the difference. Upon receipt of an indemnification notice pursuant to this
Section 6.4 of a claim requiring Remedial Action, the indemnifying party shall
have the right to assume the management and control of such Remedial Action.
All such management and control actions taken shall be subject to the approval
of Purchaser which shall not be unreasonably withheld. In addition, following
the Closing, Purchaser agrees to give prompt notice to Seller of the assertion
of any claim, or the commencement of any suit, action, proceeding,
investigation or audit with respect to any Tax Return for any period or portion
thereof ending on or before the Closing Date, and shall cooperate fully in any
such action by, among other things, providing access as set forth in Section
5.6 and taking such other actions as may be reasonably necessary or helpful for
the defense against the assertions of any taxing authority as to any
consolidated, combined or separate Tax Return for such periods.
6.5 Third Party Claims; Assumption of Defense. The indemnifying Person
may, at its own expense, (a) defend, contest or otherwise protect the
indemnified party against any claim, suit, action or proceeding and (b) upon
notice to the indemnified Person, and the indemnifying Person's delivering to
the indemnified Person a written agreement that the indemnified Person is
entitled to indemnification pursuant to Section 6.2 or 6.3 above for all Losses
arising out of such claim, suit, action or proceeding and that the indemnifying
Person shall be liable for the entire amount of any Loss, may at any time
during the course of any such claim, suit, action or proceeding, assume the
defense thereof and, in the event of a claim requiring Remedial Action, assume
the management and control of such Remedial Action (any actions taken in the
course of such management and control shall
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be subject to the approval of Purchaser which shall not be unreasonably
withheld); provided, however, that (i) the indemnifying Person's counsel is
reasonably satisfactory to the indemnified Person, and (ii) the indemnifying
Person shall thereafter consult with the indemnified Person upon the
indemnified Person's reasonable request for such consultation from time to time
with respect to such claim, suit, action or proceeding. If the indemnifying
Person assumes such defense, the indemnified Person shall have the right (but
not the duty) to participate in the defense thereof and to employ counsel, at
its own expense, separate from the counsel employed by the indemnifying Person.
If representation by the indemnifying Person's counsel of both the indemnifying
Person and the indemnified Person would present such counsel with a conflict of
interest, then such indemnified Person may employ separate counsel reasonably
satisfactory to the indemnifying Person to represent or defend it in any such
claim, action, suit or proceeding and the indemnifying Person shall pay the
fees and disbursements of such separate counsel. Whether or not the
indemnifying Person chooses to assume the defense of any such claim, suit,
action or proceeding, all of the parties hereto shall cooperate in the defense
or prosecution thereof. Any settlement or compromise made or caused to be made
by the indemnified Person or the indemnifying Person, as the case may be, of
any such claim, suit, action or proceeding of the kind referred to in this
Section 6.5 shall also be binding upon the indemnifying Person or the
indemnified Person, as the case may be, in the same manner as if a final
judgment or decree had been entered by a court of competent jurisdiction in the
amount of such settlement or compromise. The indemnifying Person shall not be
permitted to settle or compromise any claim, suit, action or proceeding without
obtaining the prior written consent of the indemnified Person, which shall not
be unreasonably withheld or delayed; provided, however, in the event that the
settlement offer will result in the indemnified Person having no losses
(monetary or otherwise) or continuing obligations with respect to the claim,
suit, action or proceeding, the indemnifying Person shall be permitted to
settle or compromise such claim, suit, action or proceeding without the prior
written consent of the indemnified Person.
6.6 Payment. The Indemnifying Person shall promptly pay the
Indemnified Person any amounts due hereunder after receipt of satisfactory
documentation.
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6.7 Effect of Investigation. Any due diligence review, audit or other
investigation or inquiry undertaken or performed by or on behalf of Purchaser
shall not limit, qualify, modify or amend the representations, warranties or
covenants of, or indemnities by, Parent or Seller made pursuant to this
Agreement, irrespective of the knowledge and information received (or which
should have been received) therefrom by Purchaser.
6.8 Indemnification for Environmental Matters. Without limiting the
generality of the foregoing, Parent and Seller each, jointly and severally
agree to indemnify, reimburse, hold harmless and defend Purchaser for, from and
against all Losses asserted against or imposed on Purchaser in connection with
Hazardous Substances at the Leased Premises that is not related to Purchaser's
activities on the Leased Premises.
ARTICLE VII
MISCELLANEOUS
7.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party hereto shall bear its own expenses with respect to the
transactions contemplated hereby. Purchaser shall pay all sales, use, stamp,
transfer, service, recording, real estate and like taxes or fees, if any,
imposed in connection with the transfer of the Purchased Assets, provided, that
Seller shall promptly reimburse Purchaser for one-half of all such taxes and
fees upon request therefor.
7.2 Amendment. This Agreement may be amended, modified or supplemented
only by written agreement of the parties.
7.3 Notices. Any notice, request, instruction or other document to be
given hereunder by a party hereto shall be in writing and shall be deemed to
have been given, (a) when received if given in person or by courier or a
courier service, (b) on the date of transmission if sent by telex, facsimile or
other wire transmission or (c) three (3) Business Days after being deposited in
the U.S. mail, certified or registered mail, postage prepaid:
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(a) If to Parent or Seller,
addressed as follows:
Meridian Sports Incorporated
625 Madison Avenue, 12th Floor
New York, New York 10022
Attention: General Counsel
Facsimile No.: (212) 572-5056
with a copy to:
Meridian Sports Incorporated
38 East 63rd Street
New York, New York 10021
Attention: J. Eric Hanson
Facsimile No.: 212-572-8514
(b) If to Purchaser, addressed as follows:
Johnson Worldwide Associates, Inc.
1326 Willow Road
Sturtevant, Wisconsin 53177
Attention: Carl Schmidt
Facsimile No.: 414-884-1704
with a copy to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: James F. Stern
Facsimile No.: 414-297-4900
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
7.4 Waivers. The failure of a party to require performance of any
provision shall not affect its right at a later time to enforce the same. No
waiver by a party of any condition or of any breach of any term, covenant,
representation or warranty contained in this Agreement shall be effective
unless in writing. No waiver in any one or more instances shall be deemed to be
a further or continuing waiver of any such condition or breach in other
instances or a waiver of any other condition or breach of any other term,
covenant, representation or warranty. Consummation of the transactions
contemplated herein shall not be deemed a waiver of a
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breach of or inaccuracy in any representation, warranty or covenant or of any
party's rights and remedies with regard thereto, unless such breach or
inaccuracy was waived in accordance with the second sentence of this Section
7.5.
7.5 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
7.6 Interpretation. The headings preceding the text of Articles and
Sections included in this Agreement and the headings to Schedules attached to
this Agreement are for convenience only and shall not be deemed part of this
Agreement or be given any effect in interpreting this Agreement. The use of the
masculine, feminine or neuter gender shall not limit any provision of this
Agreement. The use of the terms "including" or "include" shall in all cases
herein mean "including, without limitation" or "include, without limitations"
respectively. If any representation or warranty is qualified by knowledge, the
party making such representation or warranty hereby confirms that it has made a
diligent inquiry into the matter addressed by the representation or warranty.
No specific representation, warranty or covenant contained herein shall limit
the generality or applicability of a more general representation, warranty or
covenant contained herein. A breach of or inaccuracy in any representation,
warranty or covenant shall not be affected by the fact that any more general or
less general representation, warranty or covenant was not also breached or
inaccurate. The language in all parts of this Agreement shall be construed, in
all cases, according to its fair meaning. The parties acknowledge that each
party and its counsel have reviewed and revised this Agreement and that any
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement.
7.7 Applicable Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without giving effect to the principles of conflicts of law thereof.
7.8 Binding Agreement. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
54
<PAGE>
7.9 No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and no provision of this Agreement shall be
deemed to confer rights upon any other Person.
7.10 Publicity. The parties shall cooperate on the form, content,
timing and manner of any press release or releases issued in respect of this
Agreement. Nothing in this Section shall prevent such parties from discussing
such transactions with those Persons whose approval, agreement or opinion, as
the case may be, is required for consummation of such transactions.
7.11 Further Assurances. Upon the request of Purchaser, Parent and
Seller will, on and after the Closing Date, execute and deliver to Purchaser
such other documents, further releases, assignments and other instruments as
may be required or deemed appropriate by Purchaser and Seller to effect or
evidence transfer and assignment to Purchaser of all or any of the Purchased
Assets and to otherwise carry out the purposes of this Agreement. At the
request of Seller or Parent, the Purchaser will, on or after the Closing Date,
execute and deliver such other documents, further releases, assignments and
other instruments as may be required or deemed appropriate by Seller in order
effectively to assume from Seller all of the Assumed Liabilities, to confirm
Seller's right, title and interest in and to the Excluded Assets and to
otherwise carry out the purposes of this Agreement. To the extent requested in
writing, Purchaser shall, at Seller's cost and expense, provide Seller with
copies of records relating to the Purchased Assets related to the period prior
to Closing.
7.12 Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability
of the other provisions hereof shall not be affected thereby, and there shall
be deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
7.13 Remedies Cumulative. The remedies provided in this Agreement
shall be cumulative and shall not preclude the assertion or exercise of any
other rights or remedies available by law, in equity or otherwise.
7.14 Liability of Parent and Seller. Whenever this Agreement requires
Seller or Parent to take any action, such requirement will be deemed to include
an
55
<PAGE>
undertaking on the part of each of Parent and Seller. Parent and Seller shall
be jointly and severally liable for all of the obligations to be performed by
any of them under this Agreement and any representation or warranty made by any
of them.
7.15 Allocation of Taxes. Real, personal and intangible property Taxes
for any portion of a taxable year or period that begins before and ends after
the Closing Date shall be apportioned between Seller and Purchaser in
accordance with the principles set forth in Section 164(d) of the Code.
7.16 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Purchaser may assign this Agreement or any of its rights hereunder to any of
its direct or indirect wholly owned subsidiaries. In the event of such
assignment, Purchaser shall be responsible for all obligations of such
subsidiary and shall continue to be bound in all respects by the provisions
hereof. Neither Seller nor Parent may assign this Agreement without the written
consent of Purchaser.
7.17 Entire Understanding. This Agreement sets forth the entire
agreement and understanding of the parties hereto and supersedes any and all
prior agreements, arrangements and understandings among the parties.
* * * *
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above written.
JOHNSON WORLDWIDE ASSOCIATES, INC.
By: /s/ Carl G. Schmidt
-------------------------------
Name: Carl G. Schmidt
Title: Senior VP and CFO
SONIFORM, INC.
By: /s/ Thomas E. Kohut
-------------------------------
Thomas E. Kohut
Vice President
MERIDIAN SPORTS INCORPORATED
By: /s/ Thomas E. Kohut
-------------------------------
Thomas E. Kohut
Vice President and Controller
57
<PAGE>
FIRST AMENDMENT
This First Amendment dated as of September 30, 1997 to Credit Agreement
dated as of March 28, 1997 (as amended, supplemented or modified from time to
time, the "Credit Agreement") between Meridian Sports Incorporated (the
"Borrower") and RGI Group Incorporated (fka Revlon Group Incorporated) (the
"Lender").
R E C I T A L S
- - - - - - - -
WHEREAS, the Borrower and the Lender desire to amend the Credit Agreement
as herein set forth.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. All terms defined in the Credit Agreement shall have
such defined meetings when used herein unless otherwise defined herein.
2. WORKING CAPITAL COMMITMENT. Section 2.1(b) of the Credit Agreement
is hereby amended to provide that the Working Capital Commitment shall be
$20,000,000.
3. MAINTENANCE OF NET WORTH. Section 4.1 of the Credit Agreement is
hereby amended to provide that for each fiscal quarter of the Borrower,
commencing with the fiscal quarter ending September 30, 1997, the
Borrower shall, as of the last day of each fiscal quarter, have a
Minimum Consolidated Net Worth (Deficit) of no less than $(10,000,000).
4. NO EVENT OF DEFAULT. The Borrower, as of the date hereof and after
giving effect to the amendments contained herein, hereby confirms that no
Event of Default has occurred and is continuing.
5. EFFECTIVENESS; EFFECT. This First Amendment shall become effective as
of the date first above written. Except as expressly modified herein, all of
the provisions of the Credit Agreement and the other Loan Documents are and
shall continue to remain in full force and effect in accordance with the
terms thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
MERIDIAN SPORTS INCORPORATED,
a Delaware corporation
By: /s/ Thomas E. Kohut
--------------------------
Thomas E. Kohut
Vice President and Controller
RGI GROUP INCORPORATED,
a Delaware corporation
By: /s/ Glenn P. Dickes
---------------------------
Glenn P. Dickes
Senior Vice President
and Secretary
2
<PAGE>
SECOND AMENDMENT
This Second Amendment dated as of March 3, 1998 to Credit Agreement dated
as of March 28, 1997 (as amended, supplemented or modified from time to time,
the "Credit Agreement") between Meridian Sports Incorporated (the "Borrower")
and RGI Group Incorporated (fka Revlon Group Incorporated) (the "Lender").
R E C I T A L S
- - - - - - - -
WHEREAS, the Borrower and the Lender desire to amend the Credit Agreement
as herein set forth.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. All terms defined in the Credit Agreement shall
have such defined meanings when used herein unless otherwise defined herein.
2. MATURITY DATE. The definition of "Maturity Date" as set forth in
Section 1.1 of the Credit Agreement is hereby amended by substituting "December
1, 1999" for "December 1, 1998", where it appears therein.
3. NO EVENT OF DEFAULT. The Borrower, as of the date hereof and after
giving effect to the amendments contained herein, hereby confirms that no Event
of Default has occurred and is continuing.
4. EFFECTIVENESS; EFFECT. This First Amendment shall become effective
as of the date first above written. Except as expressly modified herein, all of
the provisions of the Credit Agreement and the other Loan Documents are and
shall continue to remain in full force and effect in accordance with the terms
thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.
MERIDIAN SPORTS INCORPORATED,
a Delaware corporation
By: /s/ Thomas E. Kohut
-----------------------------
Thomas E. Kohut
Vice President and Controller
RGI GROUP INCORPORATED,
a Delaware corporation
By: /s/ Glenn P. Dickes
------------------------------
Glenn P. Dickes
Senior Vice President
and Secretary
2
<PAGE>
Exhibit 21.1
SUBSIDIARIES
MasterCraft Boat Company
Tennessee Acquisition Corp.
MasterCraft Acquisition Corp.
BW Sale Corp.
OB Sale Corp.
GK Sale Corp.
<PAGE>
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Thomas E. Kohut, Glenn P. Dickes, James Valkenaar and
Joram C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
MERIDIAN SPORTS INCORPORATED (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1997 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of
or in connection with the Form 10-K or amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 31st
day of January 1998.
/s/ Martin D. Payson
-------------------------------
MARTIN D. PAYSON
<PAGE>
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Thomas E. Kohut, Glenn P. Dickes, James Valkenaar and
Joram C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
MERIDIAN SPORTS INCORPORATED (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1997 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of
or in connection with the Form 10-K or amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 31st
day of January 1998.
/s/ Ronald O. Perelman
-------------------------------
RONALD O. PERELMAN
<PAGE>
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Thomas E. Kohut, Glenn P. Dickes, James Valkenaar and
Joram C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
MERIDIAN SPORTS INCORPORATED (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1997 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of
or in connection with the Form 10-K or amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 31st
day of January 1998.
/s/ Irwin Engelman
-------------------------------
IRWIN ENGELMAN
<PAGE>
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Thomas E. Kohut, Glenn P. Dickes, James Valkenaar and
Joram C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
MERIDIAN SPORTS INCORPORATED (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1997 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of
or in connection with the Form 10-K or amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 20th
day of January 1998.
/s/ J. Eric Hanson
-------------------------------
J. ERIC HANSON
<PAGE>
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Thomas E. Kohut, Glenn P. Dickes, James Valkenaar and
Joram C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
MERIDIAN SPORTS INCORPORATED (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1997 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of
or in connection with the Form 10-K or amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 31st
day of January 1998.
/s/ Jerry W. Levin
-------------------------------
JERRY W. LEVIN
<PAGE>
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Thomas E. Kohut, Glenn P. Dickes, James Valkenaar and
Joram C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
MERIDIAN SPORTS INCORPORATED (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1997 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of
or in connection with the Form 10-K or amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 27th
day of January 1998.
/s/ John P. Murray, Jr.
-------------------------------
JOHN P. MURRAY, JR.
<PAGE>
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints each of Thomas E. Kohut, Glenn P. Dickes, James Valkenaar and
Joram C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
MERIDIAN SPORTS INCORPORATED (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1997 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of
or in connection with the Form 10-K or amendments thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these presents this 31st
day of January 1998.
/s/ Bruce Slovin
-------------------------------
BRUCE SLOVIN
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Meridian
Sports Incorporated Consolidated Balance Sheet and Statement of Operations and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000926474
<NAME> MERIDIAN SPORTS INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,123
<SECURITIES> 0
<RECEIVABLES> 4,082
<ALLOWANCES> (401)
<INVENTORY> 8,040
<CURRENT-ASSETS> 16,818
<PP&E> 10,030
<DEPRECIATION> (3,314)
<TOTAL-ASSETS> 23,884
<CURRENT-LIABILITIES> 10,225
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> (9,553)
<TOTAL-LIABILITY-AND-EQUITY> 23,884
<SALES> 75,345
<TOTAL-REVENUES> 75,345
<CGS> 57,907
<TOTAL-COSTS> 57,907
<OTHER-EXPENSES> 17,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,172
<INCOME-PRETAX> (2,111)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,111)
<DISCONTINUED> 0
<EXTRAORDINARY> (408)
<CHANGES> 0
<NET-INCOME> (2,519)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
