10Q is out
on March 31, 1999, Marker Germany's DM 58.7 million (U.S.
$32.1 million) line of credit with Hypo Vereinsbank, Deutsche Bank AG ("Deutsche
Bank") and BFG Bank expired. Marker Germany's obligations to Hypo Vereinsbank
and Deutsche Bank are guaranteed by the Company. In addition, the Company
granted to the German Banks a second lien on its intangible assets. As a result,
the Company and Marker Germany commenced negotiations with Hypo Vereinsbank to
restructure the debt owed to Hypo Vereinsbank, culminating in a Settlement
Agreement dated as of August 18, 1999, between Hypo Vereinsbank, the Company and
CT (the "Hypo Vereinsbank Settlement Agreement").
Pursuant to the Plan and the Hypo Vereinsbank Settlement Agreement,
Hypo Vereinsbank will forgive in full upon Closing, the outstanding indebtedness
of the Company of DM 2,755,000 (U.S. $1,506,000) (plus interest accrued from
April 19, 1999 to August 13, 1999) as of August 13, 1999, under the Term Loan,
in full satisfaction of the Company's outstanding obligation to Hypo Vereinsbank
(New York).
Pursuant to the terms and conditions of the Hypo Vereinsbank Settlement
Agreement, Hypo Vereinsbank agrees to sell to Newco, effective as of the Closing
Date, DM 22,455,000 (U.S. $12,274,000) of the outstanding debt balance of DM
40,761,000 (U.S. $22,280,000) (as of August 13, 1999) under the Loan Agreement
between Hypo Vereinsbank and Marker Germany dated October 13, 1998, as amended,
for a consideration of DM 1, which effectively reduces the amount of debt that
Marker Germany owes to Hypo Vereinsbank by DM 22,455,000 (U.S. $12,274,000) to
an outstanding balance of DM 18,306,000 (U.S. $10,006,000) (as of August 13,
1999), which balance will be included in the New Financing Facility (defined
below).
In addition, Marker Germany is a party to six (6) loan agreements
entered into with Hypo Vereinsbank from 1995 to 1997 (collectively, the "Medium
Term Loan"). Pursuant to the Hypo Vereinsbank Settlement Agreement, Hypo
Vereinsbank agreed that the Medium Term Loan in the amount of DM 4,648,000 (U.S.
$2,541,000) will be included in the New Financing Facility. Finally, subject to
the conditions set forth in the Hypo Vereinsbank Settlement Agreement, the
Company's and Marker USA's guarantees of Marker Germany's obligations to Hypo
Vereinsbank under the Loan Agreement and Medium Term Loan, pursuant to
guarantees issued by each of the Company and Marker USA on August 1, 1990, in
the amount of DM 80,000,000 (U.S. $43,728,000), will be canceled, released and
terminated and of no further effect.
Pursuant to the Hypo Vereinsbank Settlement Agreement, Hypo Vereinsbank
agreed to make available to Marker Germany, effective as of October 27, 1999, a
new line of credit (the "New Financing Facility") to be used for financing
Marker Germany's 1999-2000 fiscal year, in an amount up to DM 58,480,000 (U.S.
$31,965,000) (the "Hypo New Commitment"). The Hypo New Commitment has already
been made available to Marker Germany since April 1, 1999, to be replaced by the
New Financing Facility. The New Financing Facility will be secured by a
first-priority security interest in: (i) all existing and future accounts
receivable of Marker Germany, (ii) all existing and future inventory of Marker
Germany and (iii) all existing and future trademarks, patents and licenses of
Newco relating in any way to the production or sale of ski bindings and their
components. Newco will become a contract party to, and liable for, the New
Financing Facility.
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
Marker Germany is indebted to Deutsche Bank pursuant to: (i) a Loan
Agreement between Deutsche Bank and Marker Germany dated November 5/9, 1998, as
amended on December 30, 1998, January 12, 1999, February 23, 1999 and August 18,
1999 (the "DBAG Cash Credit") and (ii) Loan Agreements between Deutsche Bank and
Marker Germany dated November 18/22, 1996 and September 9/16, 1997 (the "DBAG
Medium Term Loan"). Marker Germany's obligations under the DBAG Cash Credit and
the DBAG Medium Term Loan are guaranteed by each of the Company and Marker USA,
pursuant to guarantees issued by each of the Company and Marker USA on April 30,
1998, in the amount of DM 40,000,000 (U.S. $21,864,000).
Pursuant to the terms and conditions of the DBAG Settlement Agreement,
Deutsche Bank agrees to sell to Newco, effective as of the Closing Date, DM
5,690,000 (U.S. $3,110,000) of the outstanding debt balance of DM 10,798,000
(U.S. $5,900,000) (as of August 13, 1999) under the DBAG Cash Credit for a
consideration of DM 1, which effectively reduces the amount of debt that Marker
Germany owes to Deutsche Bank by DM 5,690,000 (U.S. $3,110,000) to an
outstanding balance of DM 5,108,000 (U.S. $2,790,000) (as of August 13, 1999),
which balance will be included in the New Commitment (as defined below).
In addition, pursuant to an Agreement dated as of August 18, 1999 (the
"DBAG Settlement Agreement"), by and among Deutsche Bank, Marker and CT, the
parties have agreed, among other things, to the terms of a restructuring of the
obligations owed to Deutsche Bank. Pursuant to the DBAG Settlement Agreement,
Deutsche Bank agreed, among other things, that the DBAG Medium Term Loan in the
amount of DM 1,142,000 (U.S. $624,000) will be included in the New Commitment.
Finally, subject to the fulfillment of the conditions set forth in the DBAG
Settlement Agreement, the Company's and Marker USA's guarantees of Marker
Germany's obligations to Deutsche Bank will be canceled, released and terminated
and of no further effect.
Deutsche Bank has also agreed to make available a new line of credit to
Marker Germany for the 1999-2000 fiscal year as part of a new financing facility
in an amount of up to DM 17,934,000 (U.S. $9,803,000), (the "New Commitment").
The New Commitment has already been made available to Marker Germany since April
1, 1999. Newco will be party to and will be liable for the obligations under
this new financing facility, which will be secured by all accounts receivable
and inventory of Marker Germany and all intangibles of Newco.
Series A Bonds Settlement - The Company did not make the required
interest payments of $125,000 due in October 1998 and $125,000 due in April 1999
on the Series A Bonds. As a result, the bondholder had the right to declare the
Series A Bonds in default and accelerate the entire outstanding balance of $12.0
million, plus accrued interest thereon. On March 26, 1999, CT entered into a
restructuring agreement, as amended, with the bondholder, which is contingent
upon numerous conditions. Under the agreement, the Series A Bonds will be
reduced to an aggregate principal amount of $5,750,000 and payable in four equal
annual installments of $750,000, with $2,750,000 payable after 5 years. The
agreement requires interest payments at 2% per annum during the first four
years, and thereafter at a variable rate not exceeding the prime rate on
commercial loans in Japan plus 0.5%. The agreement also requires that any
amounts paid by Eiichi Isomura pursuant to his personal guarantees on the debt
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
obligations of Marker Japan Co. Ltd. ("Marker Japan") shall be repaid commencing
on October 27, 2005. The agreement prohibits the bondholder from taking any
enforcement action against the Company and/or its subsidiaries or exercising any
other rights or remedies that the bondholder may have under the documentation
relating to the Series A Bonds or applicable law. However, if the conditions of
the agreement are not met, there can be no assurance that the bondholder will
not declare the Series A Bonds in default and accelerate the outstanding
balance.
M&T Bank and KeyBank Settlements - The Company notified Manufacturers
and Traders Trust Company ("M&T Bank") and KeyBank National Association
("KeyBank"), banks with which the Company had certain foreign exchange
arrangements, in May 1999 and June 1999, respectively, that the Company would be
unable to utilize its foreign exchange contracts as originally intended. As a
result, on May 25, 1999, M&T Bank terminated the foreign exchange netting
agreement (the "Netting Agreement") with the Company dated May 1, 1997. Pursuant
to its rights under the Netting Agreement, M&T Bank canceled and closed out all
of its outstanding foreign exchange contracts with the Company for a loss of
$3.7 million as of May 21, 1999, and demanded immediate payment of such amount.
On July 26, 1999, the Company entered into a letter agreement with M&T Bank,
Newco and CT, whereby M&T Bank agreed, subject to certain conditions (including,
but not limited to, consummation of the transactions contemplated by the
Purchase Agreement by November 30, 1999), to reduce its claim to $1,838,000,
payable in installments through 2004. The Company entered into a Supplemental
Agreement with M&T Bank, Newco and CT on August 11, 1999 (the "Supplemental
Agreement") whereby M&T agreed, subject to numerous conditions, not to take any
enforcement action against the Company and/or its subsidiaries or exercise any
rights or remedies under the Netting Agreement or any other documentation
relating thereto.
On August 13, 1999, KeyBank terminated the KeyBank Foreign Exchange
Contracts. KeyBank asserted that the Company owed KeyBank $1,279,626 (the
"KeyBank FX Debt") in realized losses under the terminated KeyBank Foreign
Exchange Contracts. Pursuant to the Agreement of Understanding dated as of
August 17, 1999 (the "KeyBank Settlement Agreement"), entered into by and among
KeyBank, the Company, Marker Germany, Marker Japan and Newco, the parties
reached an agreement which resolved the treatment of KeyBank's claims under the
Plan, as more particularly described therein and in the Disclosure Statement.
Pursuant to the KeyBank Settlement Agreement and the Plan, KeyBank agreed,
subject to certain conditions (including, but not limited to, consummation of
the transactions contemplated by the Purchase Agreement by November 30, 1999),
to reduce its claim to $638,534, payable in installments through 2004. In the
event that the terms of the restructuring agreement are not met, KeyBank can
proceed to obtain a judgment against the Company.
First Security Bank Settlement - As of June 30, 1999, the Company was
not in compliance with several loan covenants under the terms and conditions of
the revolving credit agreement dated October 30, 1998, as amended, among the
Company, its U.S. subsidiaries and First Security Bank (the "Revolving Credit
Agreement"). On July 30, 1999, the Company, its U.S. subsidiaries, Marker
Germany, Newco and First Security Bank entered into a Standstill Agreement (the
"Standstill Agreement"). Under the Standstill Agreement, First Security Bank
agreed to refrain from exercising any of its rights or remedies under the
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(continued)
Revolving Credit Agreement and other related loan documentation or under
applicable law including, without limitation, the right to exercise any right of
setoff, institute any suit or foreclose on their collateral until the earlier
of: (i) November 30, 1999 or (ii) the date upon which any default under the
Standstill Agreement occurs. Events which could occur and constitute defaults
under the Standstill Agreement include, but are not limited to, the following:
(i) the Exclusive Distributorship Agreement by and among the Company, Marker USA
and Marker Germany being rejected or otherwise terminated by any of the parties
thereto, or a party materially breaching its obligations thereunder, (ii) the
Closing not occurring by November 30, 1999, and (iii) the Borrowing Base (as
defined in the Revolving Credit Agreement) being less than 80% of the
outstanding obligations under the Revolving Credit Agreement at any time. In the
event of a default under the Standstill Agreement, First Security Bank may
exercise its rights to demand payment of all amounts due under the Revolving
Credit Agreement, foreclose on the Company's assets, which are pledged as
collateral under the agreement, or force the Company into an involuntary
bankruptcy. Pursuant to the Plan, First Security Bank's claims will be paid in
full, in cash, upon the Closing.
Zions First National Bank Settlement - On January 14, 1999, the
Company, in coordination with Zions First National Bank ("Zions"), disposed of
its leased snowboard equipment through an auction. The net proceeds of the
auction were paid to Zions. The remaining balance of $1.8 million owed to Zions
was to be paid according to the original terms of the lease. On March 17, 1999,
the Company signed an agreement with Zions, whereby the Company would make a
lump sum payment of $170,392 on or before July 1, 1999, as full settlement of
the remaining lease obligation of $1,703,916. On June 30, 1999, the Company
signed a revised agreement with Zions, whereby the Company paid $30,000 on June
30, 1999, and was required to pay the remaining $140,392 on or before October 1,
1999. On August 19, 1999, the Company paid the remaining $140,392 as full
settlement of the restructured lease obligation. The resulting gain of
$1,533,524 has been recorded as gain on disposal of snowboard business.
Henry E. Tauber Settlement - Henry E. Tauber ("Tauber"), former
president and chief executive officer of the Company and a member of the
Company's board of directors, is the record and beneficial owner of 1,000,000
shares of the Company's Series B Preferred Stock (the "Preferred Stock
Interests") which were acquired for $3.00 each in cash, for a total investment
of $3,000,000. Tauber and Newco entered into an Agreement of Understanding dated
as of July 13, 1999 (the "Tauber Agreement"), regarding the treatment of
Tauber's Preferred Stock Interests under the Plan. Pursuant to the Tauber
Agreement, Tauber, or the then existing holder of the Preferred Stock Interests,
is given an Allowed Claim (as defined in the Plan) in the principal amount of
$1,500,000 on account of the Preferred Stock Interests (the "Tauber Claim").
Pursuant to the Plan, in full satisfaction and release of the Tauber Claim, on
the Effective Date, Newco will assume the Tauber Claim and will pay, when due,
the Tauber Payment Obligations, as more particularly described in the Plan and
Disclosure Statement.
Wells Fargo Revolving Credit Line - On October 21, 1999, Marker USA
received a commitment letter from Wells Fargo Business Credit, Inc. ("WFBCI")
for a $15,000,000 secured revolving line of credit maturing on March 31, 2001.
31
.
Pursuant to the Plan, as of the Closing, the business and affairs of
the Company will be managed by and under the direction of a Board of Directors
which shall consist of the following three members: Kevin Hardy, Henry E. Tauber
and Louis M. Alpern. Prior to the Closing, the business and affairs of the
Company will continue to be managed by and under the direction of the current
Board of Directors.
Effective September 22, 1999, John G. McMillian, Chairman of the Board
of Directors, resigned.
Effective October 27, 1999, the Company canceled all 1,531,800
remaining stock options. |
