-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, rpISG/wfvlafo+C24fTeP3eZlqk1/Nf3aRfheDG62yibDlbZVyct3uBl3DMSz+g+ TKbq24S+d/ZHgROSSMe0cQ== 0000950144-94-001515.txt : 19940817 0000950144-94-001515.hdr.sgml : 19940817 ACCESSION NUMBER: 0000950144-94-001515 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTAVA GROUP INC CENTRAL INDEX KEY: 0000039547 STANDARD INDUSTRIAL CLASSIFICATION: 7384 IRS NUMBER: 580971455 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05706 FILM NUMBER: 94544479 BUSINESS ADDRESS: STREET 1: 4900 GEORGIA PACIFIC CTR CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 4046589000 MAIL ADDRESS: STREET 1: 4900 GEORGIA PACIFIC CTR CITY: ATLANTIA STATE: GA ZIP: 30303 FORMER COMPANY: FORMER CONFORMED NAME: FUQUA INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 ACTAVA GROUP FORM 10-Q 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED JUNE 30, 1994 COMMISSION FILE NUMBER 1-5706 - -------------------------------------------------------------------------------- THE ACTAVA GROUP INC. (Exact name of registrant as specified in its charter) DELAWARE 58-0971455 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4900 GEORGIA-PACIFIC CENTER, ATLANTA, GEORGIA 30303 (Address of principal executive office) (ZIP Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 404/658-9000 NOT APPLICABLE Former name, former address and former fiscal year, if changed since last report 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 AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK AS OF AUGUST 8, 1994 -- 18,335,186 SHARES OF COMMON STOCK. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I -- FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS THE ACTAVA GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 1994 1993 ----------- ------------ (UNAUDITED) ASSETS Current assets Cash................................................................ $ 14,015 $ 18,770 Short-term investments.............................................. 31,922 29,635 Receivables (less allowances for doubtful accounts of $8,768 in 1994 and $10,227 in 1993)............................................. 171,972 276,018 Current portion of notes receivable................................. 5,300 -- Inventories......................................................... 67,051 108,439 Prepaid expenses.................................................... 4,710 43,809 Future income tax benefits.......................................... 25,343 32,434 ----------- ------------ Total current assets........................................ 320,313 509,105 Investment in Qualex.................................................. 142,832 -- Property, plant and equipment......................................... 113,455 474,235 Less allowances for depreciation.................................... (44,351) (198,881) ----------- ------------ 69,104 275,354 Notes receivable from Triton Group Ltd................................ 19,226 26,726 Other assets.......................................................... 5,610 50,702 Long-term investments................................................. 15,473 26,611 Intangibles........................................................... 15,048 386,626 ----------- ------------ Total assets................................................ $ 587,606 $1,275,124 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable, accrued expenses and other current liabilities.... $ 116,121 $ 263,883 Notes payable....................................................... 100,447 135,114 Current portion of long-term debt................................... 4,604 6,665 ----------- ------------ Total current liabilities................................... 221,172 405,662 Deferred income taxes................................................. 33,621 56,715 Long-term debt........................................................ 2,107 220,887 Subordinated debt..................................................... 187,787 190,551 Minority interest in photofinishing subsidiary........................ -- 205,395 Redeemable common stock............................................... 12,000 12,000 Stockholders' equity Common stock (22,767,744 shares in 1994 and 1993)................... 22,768 22,768 Additional capital.................................................. 37,153 46,361 Retained earnings................................................... 178,876 236,334 Less treasury stock -- at cost (4,432,558 shares in 1994 and 5,132,558 in 1993)............................................... (107,878) (121,549) ----------- ------------ 130,919 183,914 Total liabilities and stockholders' equity.................. $ 587,606 $1,275,124 ========= ==========
See Notes to Consolidated Financial Statements. 1 3 THE ACTAVA GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 1994 1993(A) 1994 1993(A) -------- -------- -------- -------- Net sales..................................... $123,943 $112,753 $279,214 $212,454 Operating costs and expenses Cost of products sold....................... 105,417 91,543 233,488 170,474 Selling, general and administrative expenses................................. 21,493 18,567 48,930 37,594 Provision for doubtful accounts............. 728 1,449 978 1,721 -------- -------- -------- -------- Operating profit (loss).................. (3,695) 1,194 (4,182) 2,665 Interest (expense)............................ (7,463) (6,443) (14,822) (12,568) Other (expense) -- net........................ 797 1,887 741 3,755 -------- -------- -------- -------- Loss before income taxes, discontinued operations and cumulative effect of change in accounting principle......... (10,361) (3,362) (18,263) (6,148) Income taxes (benefit)........................ (188) 306 -- (1,139) -------- -------- -------- -------- Loss from continuing operations.......... (10,173) (3,668) (18,263) (5,009) Discontinued operations Income (loss) from operations............... 1,748 3,711 (2,835) 1,852 (Loss) on disposal of business.............. (37,858) -- (37,858) -- -------- -------- -------- -------- Income (loss) from discontinued operations............................... (36,110) 3,711 (40,693) 1,852 (Loss) before cumulative effect of change in accounting principle................ (46,283) 43 (58,956) (3,157) Cumulative effect of change in accounting principle................................... -- -- -- (4,404) -------- -------- -------- -------- Net income (loss)........................ $(46,283) $ 43 $(58,956) $ (7,561) ======== ======== ======== ======== Earnings (loss) per share of common stock Continuing operations....................... $ (.56) $ (.22) $ (1.02) $ (.30) Discontinued operations..................... (1.98) .22 (2.27) .11 Cumulative effect of change in accounting principle................................ -- -- -- (.26) -------- -------- -------- -------- Primary and fully diluted................ $ (2.54) $ -- $ (3.29) $ (.45) ======== ======== ======== ======== Cash dividends per common share.......... $ -- $ .09 $ -- $ .18 ======== ======== ======== ======== Average common and common equivalent shares................................. 18,197 16,820 17,918 16,683 ======== ======== ======== ========
- --------------- (a) Restated for discontinued operations. See Notes to Consolidated Financial Statements. 2 4 THE ACTAVA GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
INCREASE (DECREASE) IN CASH ------------------------ SIX MONTHS ENDED JUNE 30, ------------------------ 1994 1993(A) --------- -------- Cash flows from operating activities: Income from continuing operations................................... $ (18,263) $ (5,009) Cumulative effect of change in accounting principle............... -- 4,404 --------- -------- Loss before cumulative effect of change in accounting principle... (18,263) (605) Items providing cash from operations.............................. 46,157 3,391 --------- -------- Net cash provided by continuing operations..................... 27,894 2,786 --------- -------- Income (loss) from discontinued operations.......................... (40,693) 1,852 Items providing cash from discontinued operations................. 29,363 41,886 --------- -------- Net cash provided (used) by discontinued operations............ (11,330) 43,738 --------- -------- Net cash provided by operating activities...................... 16,564 46,524 --------- -------- Cash flows from investing activities: Purchases of investments (maturities over 90 days)................ (52,584) (11,633) Sales of investments (maturities over 90 days).................... 51,232 9,543 Net sales of other investments (maturities less than 90 days)..... (935) 19,435 Payments for property, plant & equipment.......................... (19,552) (31,355) Proceeds from disposals of property, plant & equipment............ 4,362 2,041 Collections on notes receivable................................... 483 927 Payments for purchases of businesses.............................. -- (21,243) Payments from Triton Group Ltd.................................... 2,500 -- Payments for other intangibles.................................... -- -- Other investing activities -- net................................. (3,750) (7,217) --------- -------- Net cash (used) by investing activities........................ (18,244) (39,502) Cash flows from financing activities: Net borrowings under short-term bank agreements................... (27,617) 13,895 Borrowings under other long-term debt agreements.................. 228,000 10,611 Payments on long-term debt agreements............................. (194,470) (21,376) Payments of subordinated debt..................................... (3,000) (1,536) Proceeds from issuance of Actava common stock..................... 4,462 -- Cash dividends paid by Qualex to minority interest................ (10,450) (7,714) Cash dividends paid by The Actava Group........................... -- (3,076) --------- -------- Net cash (used) by financing activities........................ (3,075) (9,196) --------- -------- Decrease in cash.......................................... (4,755) (2,174) Cash at beginning of year........................................... 18,770 20,792 --------- -------- Cash at June 30........................................... $ 14,015 $ 18,618 ========= ========
- --------------- (a) Restated for discontinued operations. See Notes to Consolidated Financial Statements. 3 5 THE ACTAVA GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, such financial statements reflect all adjustments necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the six months ended June 30, 1994 are not necessarily indicative of the results that may be expected for the year ended December 31, 1994. CHANGES IN ACCOUNTING PRINCIPLES Change in Method of Accounting for Income Taxes Effective January 1, 1993, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes". Under Statement 109, the liability method is used in accounting for income taxes: deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement 109, income tax expense was determined using the deferred method: deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. As permitted by Statement 109, the Company has elected not to restate the financial statements of any prior years. The presentation of some items, such as depreciation, has changed; however, the cumulative effect of the change in accounting principle on pre-tax income from continuing operations, net income, and the effective tax rate was not material. Change in Method of Accounting for Postretirement Benefits Effective January 1, 1993, the Company adopted FASB Statement No. 106, "Accounting for Postretirement Benefits Other Than Pensions". The Company and its subsidiaries provide group medical plans and life insurance coverage for certain employees subsequent to retirement. The plans have been funded on a pay-as-you-go (cash) basis. The plans are contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles, coinsurance and life-time maximums. The plan accounting anticipates future cost-sharing changes that are consistent with the Company's expressed intent to increase the retiree contribution rate annually for the expected medical trend rate for that year. The coordination of benefits with medicare uses a supplemental, or exclusion of benefits, approach. As permitted by Statement 106, the Company elected to immediately recognize the effect in the statement of operations for the first quarter of 1993 as a $4,404,000 charge to net income as the cumulative effect of a change in accounting principle. The annual net periodic postretirement benefit expense for 1993 decreased by $38,000 as a result of adopting the new rules. The annual net periodic postretirement benefit expense for 1994 will be $240,000. The assumed health care cost trend rate used to measure the expected cost of benefits by the plan for 1993 was 14%, with 1% decrements to 6% in 2001 and years thereafter. A 7% discount rate per year, compounded annually, was assumed to measure the accumulated postretirement benefit obligation as of December 31, 1993. A 1% increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation as of December 31, 1993, by 16% and the net periodic postretirement benefit cost by 18%. 4 6 THE ACTAVA GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Change in Method of Accounting for Postemployment Benefits Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." The Company and its subsidiaries provide benefits to former or inactive employees after employment but before retirement such as severance benefits, disability-related benefits (including workers' compensation), and continuation of health care benefits and life insurance coverage. The cumulative effect as of January 1, 1994, of this change in accounting was not material. Prior to January 1, 1994, the Company recognized the cost of providing some postemployment benefits on a cash basis while substantially all other postemployment benefits were accounted for in the Company's self-insurance program. Under the new method of accounting, the Company will accrue benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid. As required by the Statement, prior year financial statements have not been restated to reflect the change in accounting method. Change in Method of Accounting for Certain Investments in Debt and Equity Securities The Company and its subsidiaries invest in various debt and equity securities. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which requires certain debt securities to be reported at amortized cost, certain debt and equity securities to be reported at market with current recognition of unrealized gains and losses, and certain debt and equity securities to be reported at market with unrealized gains and losses as a separate component of shareholders' equity. The Company adopted the provisions of the new standard for investments held as of or acquired after January 1, 1994. In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect as of January 1, 1994, of adopting Statement 115 was not material. REDEEMABLE COMMON STOCK Redeemable common stock represents 1,090,909 shares of common stock which were issued in the acquisition of substantially all the assets and liabilities of Diversified Products Corporation. These shares are subject to a right of redemption at the option of the holder with an exercise date of February 17, 1995. SALE OF SPORTS GROUP On July 20, 1994 the Company entered into a definitive agreement with Roadmaster Industries, Inc. (Roadmaster) to combine the Company's four sports companies with Roadmaster in exchange for common stock of Roadmaster which would represent an approximate 39% ownership interest in Roadmaster. QUALEX INC. -- DISCONTINUED OPERATIONS Qualex, Inc. is a photofinishing business formed in March 1988 by the combination of Actava's photofinishing operations with the domestic photofinishing operations of Eastman Kodak Company. Prior to June 30, 1994, the Company owned 51% of the voting securities of Qualex and had the right to designate a majority of the members of the Board of Directors of Qualex. As a result of its voting control, the Company in prior periods consolidated the accounts of Qualex and presented Kodak's portion of the ownership and equity in the income of Qualex as a minority interest. During the second quarter of 1994, a change of control of the Company occurred under the terms of the Shareholders Agreement between the Company and Kodak relating to Qualex (the "Qualex Shareholders Agreement"). The change of control occurred when John D. Phillips was elected as President and Chief Executive Officer of Actava on April 19, 1994. As a result of this change of control and as required by the Qualex Shareholders Agreement, the composition of the Board of Directors of Qualex was changed and certain shares of voting preferred stock of Qualex held by the Company were redeemed by Qualex on June 30, 1994. The effect of this redemption was to reduce the Company's ownership 5 7 THE ACTAVA GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of the voting securities of Qualex from 51% to 50%. Because of these changes, the Company discontinued its practice of consolidating the accounts of Qualex and began accounting for its ownership in Qualex under the equity method of accounting effective as of June 30, 1994. The change in the accounting treatment of the Company's interest in Qualex did not affect the net income or shareholders' equity of the Company, but it reduced the Company's consolidated total assets, liabilities, sales and costs and expenses because these specific accounts of Qualex were no longer included with those of the Company. FINANCIAL POSITION OF QUALEX (000'S)
JUNE 30, DECEMBER 31, 1994 1993 -------- ------------ Cash and short-term investments.............................. $ -- $ 4,060 Net accounts receivable...................................... 82,272 69,015 Inventories.................................................. 28,078 29,381 Other assets................................................. 30,745 38,153 -------- ------------ Total current assets............................... 141,095 140,609 Net property, plant and equipment............................ 198,642 202,150 Other assets................................................. 40,632 30,413 Long-term investments........................................ 26,868 26,611 Intangibles.................................................. 367,188 371,106 -------- ------------ Total assets....................................... $774,425 $770,889 ======== ========== Current liabilities.......................................... $119,928 $130,845 Deferred income taxes........................................ 22,402 22,446 Long-term debt............................................... 260,167 217,987 Stockholders' equity......................................... 371,928 399,611 -------- ------------ Total liabilities and stockholders' equity......... $774,425 $770,889 ======== ==========
In June 1994, the Company decided to sell its interest in Qualex and engaged in negotiations with Kodak regarding the sale of such interest. Accordingly, the results of Qualex for all years presented are reported in the accompanying statements of operations under discontinued operations. In the second quarter of 1994, the Company provided for an anticipated loss of $37,858,000 on the sale of its interest in Qualex. No income tax expenses or benefits were recognized due to the Company's net operating loss carryforwards and recognition of tax benefits in prior periods. On August 12, 1994, Kodak purchased all of the Company's interest in Qualex and obtained a covenant not to compete and related releases from the Company in exchange for $50,000,000 in cash and a promissory note in the principal amount of $100,000,000. The promissory note is payable in installments of $50,000,000 each, without interest, on February 13, 1995 and August 11, 1995. Because the principal amount due under the note does not bear interest, the Company discounted the value of the note to $92,832,000 and will record imputed interest income of $7,168,000 over the term of the note. 6 8 THE ACTAVA GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Effective with the second quarter of 1994, the results of operations of Qualex have been reclassified from income from continuing operations to income from discontinued operations and are as follows: RESULTS OF OPERATIONS OF QUALEX (000'S)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- 1994 1993 1994 1993 -------- -------- -------- -------- Net sales............................... $185,563 $200,508 $333,970 $364,694 Operating expenses...................... 179,742 180,991 342,134 349,151 -------- -------- -------- -------- Operating profit (loss)................. 5,821 19,517 (8,164) 15,543 Interest (expense)...................... (4,633) (4,568) (8,582) (8,572) Other income (expense).................. (38) 36 (439) (99) -------- -------- -------- -------- Income before tax....................... 1,150 14,985 (17,185) 6,872 Income taxes (benefit).................. (2,346) 7,562 (11,514) 3,168 -------- -------- -------- -------- Net income (loss) from discontinued operations before minority interest... 3,496 7,423 (5,671) 3,704 Minority interest....................... (1,748) (3,712) 2,836 (1,852) -------- -------- -------- -------- Net income (loss) from discontinued operations............................ $ 1,748 $ 3,711 $ (2,835) $ 1,852 ======== ======== ======== ========
ACQUISITIONS On June 8, 1993, the Company acquired substantially all the assets of Diversified Products Corporation ("DP") for a net purchase price consisting of $11,629,500, the issuance of 1,090,909 shares of the Company's Common Stock valued at $12,000,000, and the assumption or payment of certain liabilities including trade payables and a revolving credit facility. The Company also entered into an agreement which obligated the Company under certain conditions, all of which have been satisfied, to repurchase the shares of Common Stock issued in the acquisition for $12,000,000 at the option of the holder of such shares. SEE "REDEEMABLE COMMON STOCK" in Notes to Consolidated Financial Statements. The repurchase of such shares will not increase the cost of DP; any payment pursuant to the Company's repurchase obligation will only affect the manner in which the total purchase price is recorded by Actava. This transaction was accounted for using the purchase method of accounting; accordingly, the purchased assets and liabilities have been recorded at their estimated fair value at the date of the acquisition. The purchase price resulted in an excess of costs over net assets acquired of approximately $11,417,000. The results of operations of the acquired business have been included in the consolidated financial statements since the date of acquisition. INVENTORIES Inventory balances are summarized as follows (in thousands):
JUNE 30, DECEMBER 31, 1994 1993 -------- ------------ Finished goods and goods purchased for resale.................. $ 64,554 $ 82,559 Raw materials and supplies..................................... 23,141 46,018 -------- ------------ 87,695 128,577 Reserve for LIFO cost valuation................................ (20,644) (20,138) -------- ------------ $ 67,051 $108,439 ======== ==========
Work in process is not considered significant. 7 9 THE ACTAVA GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER INCOME (EXPENSE) -- NET Other income (expense) is summarized as follows (in thousands):
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, -------------- ---------------- 1994 1993 1994 1993 ----- ------ ------- ------ Interest and investment income....................... $ 927 $1,440 $ 1,845 $3,762 Miscellaneous (expense) -- net....................... (130) 447 (1,104) (7) ----- ------ ------- ------ $ 797 $1,887 $ 741 $3,755 ===== ====== ======= ======
Early payment interest credit expense results from cash payments received by Snapper from distributors prior to receivable due dates which reduce accrued interest and increase miscellaneous (expense) -- net. The early payment interest credit expense was $947,000 and $637,000 for the three month periods ended June 30, 1994 and 1993, respectively, and $2,110,000 and $1,778,000 for the six month periods ended June 30, 1994 and 1993, respectively. INCOME TAXES Income tax expense is based upon statutory tax rates and book income or loss adjusted for permanent differences between book and taxable income or loss. The Company's businesses may have an annual effective tax rate which is above or below statutory rates depending upon the amount of earnings from any short-term tax advantaged investments and other items. For the six month period ended June 30, 1994, the Company's consolidated effective tax rate has decreased as compared to the same prior period because the Company is not able to recognize a tax benefit for its losses due to limitations from prior period recognition. During the year, the Company provides for income taxes using anticipated effective annual tax rates for all Company operations. The rates are based on expected operating results for the year, estimated permanent differences between book and tax income, and estimated utilization of any net operating loss carryovers. Effective January 1, 1993, the Company changed its method of accounting for income taxes as required by FASB Statement No. 109, "Accounting for Income Taxes" (See "Changes in Accounting Principles -- Change in Method of Accounting for Income Taxes"). The adoption of Statement No. 109 did not have a material effect on net income and the Company's effective tax rate. LITIGATION In 1991, three lawsuits were filed against the Company, certain of the Company's current and former directors and Intermark, Inc., which owned approximately 26% of the Company's Common Stock. One complaint alleged, among other things, a long-standing pattern and practice by the defendants of misusing and abusing their power as directors and insiders of the Company by manipulating the affairs of the Company to the detriment of the Company's past and present stockholders. The complaint sought monetary damages from the director defendants, injunctive relief against the Company, Intermark and its current directors, and costs of suit and attorneys' fees. The other two complaints alleged, among other things, that members of the Company's Board of Directors contemplate either a sale, a merger, or other business combination involving Intermark and the Company or one or more of its subsidiaries or affiliates. The complaints sought costs of suit and attorneys' fees and preliminary and permanent injunctive relief and other equitable remedies, ordering the director defendants to carry out their fiduciary duties and to take all appropriate steps to enhance the Company's value as a merger/acquisition candidate. These three suits were consolidated on May 1, 1991. While these actions are in their preliminary stages, management currently believes the actions will not materially affect the operations or financial position of the Company. 8 10 THE ACTAVA GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Actava is a defendant in various other legal proceedings. However, the Company is not aware of any action which, in the opinion of management, would materially affect the financial position or results of operations of the Company. CONTINGENT LIABILITIES AND COMMITMENTS Actava, on behalf of its Snapper division, has an agreement with a financial institution which makes available to dealers floor plan financing for Snapper products. This agreement provides financing for dealer inventories and accelerates cash flow to Snapper's distributors and to Snapper. Under the terms of the agreement, a default in payment by one of the dealers on the program is non-recourse to both the distributor and to Snapper. However, the distributor is obligated to repurchase any equipment recovered from the dealer and Snapper is obligated to repurchase the recovered equipment if the distributor defaults. At December 31, 1993 and 1992, there was approximately $23,000,000 and $20,000,000, respectively, outstanding under these floor plan financing arrangements. At June 30, 1994 and 1993, there was approximately $31,000,000 and $25,000,000, respectively, outstanding under these floor plan financing arrangements. Actava is contingently liable under various guarantees of debt totaling approximately $5,600,000. The debt is primarily Industrial Revenue Bonds which were issued by former subsidiaries to finance their manufacturing facilities and equipment, and is secured by the facilities and equipment. In addition, upon the sale of the subsidiaries, Actava received lending institution guarantees of bank letters of credit to support Actava's contingent obligations. There are no material defaults on the debt agreements. Actava is contingently liable under various real estate leases of former subsidiaries. The total future payments under these leases, including real estate taxes, is estimated to be approximately $8,600,000. The leased properties generally have financially sound subleases. At June 30, 1994, approximately $5,000,000 of Actava's cash and short-term investments were pledged to secure a Snapper credit line. At August 12, an additional $12,000,000 was pledged to secure a letter of credit issued with regard to the Company's redeemable stock. 9 11 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Actava currently provides high-quality, brand-name consumer products through distribution channels to retail markets across the United States. As a result of the sale of its interest in Qualex, Actava presently operates in two distinct businesses; lawn and garden equipment and sporting goods. Actava has announced plans to combine its four sporting goods companies with Roadmaster. During the second quarter of 1994, certain events occurred which resulted in a change in the voting control of Qualex and a corresponding change in the method of accounting for Actava's investment in Qualex from consolidation to the equity method and the presentation of Qualex as a discontinued operation as of June 1994. Also during the second quarter of 1994, the Company made a decision to dispose of its interest in Qualex. On August 12, 1994, Actava sold its investment in Qualex to Kodak. Accordingly, the results of Qualex for all periods presented are reported in the accompanying consolidated statements of operations as discontinued operations. See "Qualex Inc. -- Discontinued Operations" in Notes to Consolidated Financial Statements. Actava's Snapper Division manufactures Snapper(R) brand power lawnmowers, lawn tractors, garden tillers, snow throwers, and related products, parts and accessories and distributes blowers, string trimmers and edgers. The lawnmowers include rear engine riding mowers, front engine riding mowers or lawn tractors, and walk-behind mowers. Snapper also manufactures a line of commercial lawn and turf equipment and markets a fertilizer line under the Snapper(R) brand. Actava Sports companies manufacture, import and distribute products for a broad cross-section of the sporting goods, fitness and leisure markets. Products are sold under a variety of Actava companies' own brand names, as well as under licenses from the National Football League, National Basketball Association, Major League Baseball, The Walt Disney Company, Inc., Remington Arms Company, Inc., The Keds Corporation (Keds(R) and Pro-Keds(R)), Body by Jake Licensing Corporation (Body by Jake(R)), and numerous colleges and universities. On July 20, 1994, Actava and Roadmaster entered into a definitive agreement under which the four Actava Sports companies will be combined with Roadmaster. Under the terms of the agreement, and upon consummation of the transaction, Actava would transfer its sporting goods companies to Roadmaster in exchange for approximately 19.2 million shares of Roadmasters' common stock, which will represent approximately 39% of Roadmaster's outstanding stock. The value of Actava's investment in Roadmaster would be approximately $70.7 million based on the $3.6875 closing price for Roadmaster common stock on June 30, 1994 and approximately $75.5 million based on the $3.9375 closing price for Roadmaster common stock on August 11, 1994. Completion of the transaction is subject to a number of conditions, including approval by the shareholders of both Roadmaster and Actava. Actava will account for this transaction by recording any gain or loss on the transaction and by thereafter accounting for its investment in Roadmaster under the equity method. The value of the Roadmaster common stock received in the combination will be determined by its market price on the closing date of the transaction. The book value of the Actava sporting goods companies, as adjusted by certain debt which will be repaid to Actava as a result of the transaction, as of June 30, 1994 was $70.7 million. Actava will not classify the sporting goods companies as a discontinued operation due to the interest retained by Actava as represented by its approximately 39% equity investment in Roadmaster. The following is a discussion of the operating results of each of the continuing operations of the Company and the operating results and financial position of the Company on a consolidated basis. Financial information summarizing the operating performance of Qualex Inc., which is classified as a discontinued operation, is presented in "Qualex Inc. -- Discontinued Operations" in Notes to Consolidated Financial Statements. Lawn and Garden: Snapper's second quarter sales to distributors decreased $18.8 million, or 25.3%, to $55.5 million in 1994 from $74.3 million in 1993. Snapper's gross profit decreased $3.6 million, or 26.6% for the second quarter, to $9.8 million in the 1994 period from $13.4 million in 1993. Sales for the six month period ended June 30, 1994 decreased to $130.2 million from $142.9 million, an 8.9% decrease from the same 1993 period. Gross profit for the six month period ended June 30, 1994 decreased by $986,000 or 3.6% to $26.5 million from $27.5 million for the same period in the prior year. The sales decrease in the second quarter and six month periods reflects the trend by Snapper distributors and dealers to order products only as neded by 10 12 them to replenish retail inventories as required by actual consumer demand. The 25% decrease in sales in the second quarter, compared to the second quarter of 1993, also reflects the fact that in June 1993 Snapper began production and shipment of products for the 1994 selling season, whereas in 1994 production for the 1995 selling season will not begin until the third fiscal quarter. The decrease in gross profit during the second quarter of 1994 is due to the lower than prior year sales level of core products as well as higher margin accessories. Also contributing to the decline in gross profit for the second quarter and the slight decrease in the gross profit for the 1994 year-to-date period when compared to the same 1993 periods was the impact in the 1994 periods of the 1993 transfer or sale of inventory at four company owned domestic distributors to independent distributors. During 1993 the Company closed three Company-owned domestic distributors and sold one such distributor. Selling, general and administrative expenses decreased by $1.7 million, or 14.7%, to $10.2 million for the second quarter of 1994 from $11.9 million for the comparable 1993 quarter, primarily due to the effect of lower second quarter 1994 sales on sales volume related expenses such as advertising. Selling, general and administrative expenses increased by $699,000, or 3%, to $24.2 million from $23.5 million for the six month period ended June 30, 1994 compared to the prior year period primarily due to special promotions for the period, which were implemented to encourage distributors to sell aged inventory items to dealers. A slight operating loss of $328,000 was experienced for the second quarter of 1994, compared to an operating profit of a $2.6 million for the second quarter of 1993. The operating profit for the six month period ended June 30, 1994 of $2.4 million represents a $2.4 million decrease from the $4.8 million operating profit for the same 1993 period. Sporting Goods: Sales for Actava Sports increased by $30.0 million, or 78%, to $68.5 million for the second quarter of 1994 from $38.5 million for the second quarter of 1993 and to $149.0 million from $69.5 million, a $79.5 million or 114.4%, increase for the 1994 year-to-date period as compared to the same period in 1993. This increase was primarily due to sales recorded by DP, which was acquired by the Company in June 1993. Actava Sports, excluding DP, experienced an increase in second quarter sales of $4.5 million, a 13.4% increase, from $33.7 million for 1993 to $38.2 million for 1994. Actava Sports, excluding DP, experienced an increase in year-to-date sales of $5.8 million, or 8.9%, from $64.8 million for 1993 to $70.6 million for 1994. Gross profit increased $890,000, or 11.4%, from $7.8 million for the 1993 second quarter to $8.7 million for the second quarter of 1994. The gross profit of Actava Sports, excluding DP, increased by $844,000 from the second quarter of 1993 to the comparable 1994 quarter. The gross profit for the 1994 year-to-date period, when compared to the same 1993 period, increased from $14.5 million to $19.2 million primarily due to a gross profit increase of $4.1 million attributable to the inclusion of DP for the full six month period for 1994 as compared to three weeks in 1993. Selling, general and administrative expenses increased from $11.5 million to $18.9 million for the first six months of 1993 and 1994, respectively. This $7.4 million increase is primarily due to a $6.6 million increase in selling, general and administrative expenses resulting from the inclusion of DP's expenses for the full six month 1994 period compared to only three weeks for 1993. Selling, general and administrative expenses for the second quarter of 1994 increased by $3.0 million to $9.2 million from $6.2 million for the 1993 period. This 47.6% increase is primarily due to a $2.7 million increase attributable to the inclusion of DP for the entire 1994 quarter compared to only three weeks in the 1993 quarter. Actava Sports experienced a $558,000 operating loss for the second quarter of 1994, a $2.0 million decrease from the $1.5 million operating profit for the 1993 second quarter. The Actava Sports operating profit for the 1994 year-to-date period of $305,000 represents a $2.6 million, or 89.6%, decrease from the $2.9 million operating profit reported for the same 1993 period. Both the second quarter and year-to-date decreases are due to the inclusion of DP's operations for the entire 1994 period as compared to three weeks for the 1993 period. Consolidated Continuing Operations: Actava's consolidated sales increased $11.2 million, or 9.9%, for the second quarter of 1994 as compared to the second quarter of 1993, principally because of the inclusion of $25.5 million in sales from DP, which was acquired in June 1993, as partially offset by the $18.8 million Snapper sales decrease. Actava's year-to-date consolidated sales increase of $66.8 million, or 31.4%, from 11 13 $212.5 million for 1993 to $279.2 million for 1994 is primarily due to a $73.7 million increase attributable to DP, and a $5.8 million increase from all other Actava Sports companies, partially offset by a $12.8 million decrease from Snapper. The 1994 second quarter consolidated gross profit percentage of 14.9% represents gross profit dollars of $18.5 million, a $2.7 million decrease in gross profit dollars as compared to the same 1993 quarter. The increase of $3.7 million to $45.7 million for 1994 year-to-date gross profit from $42.0 million for 1993 represents a $3.7 million increase in gross profit dollars. The 1994 year-to-date gross profit percentage decreased to 16.4% from 19.8% for 1993. The 1994 second quarter $1.4 million increase in consolidated selling, general and administrative expenses to $22.2 million from $20.8 million for 1993 and the 1994 year-to-date increase of $8.6 million to $48.6 million from $40.0 million for 1993 are primarily due to the inclusion of DP, which was acquired in June 1993, and a 1994 first quarter provision of $1.3 million for the settlement of employment agreements. Actava's consolidated operating loss from continuing operations for the 1994 second quarter of $3.7 million represents a $4.9 million decrease from the $1.2 million 1993 second quarter operating profit. The 1994 year-to-date consolidated operating loss of $4.2 million represents a decrease of $6.8 million from the $2.7 million 1993 year-to-date operating profit. Interest expense for the second quarter of 1994 of $7.5 million is an increase of $1.0 million from the second quarter of 1993. Interest expense for the six months ended June 30, 1994 of $14.8 million is an increase of $2.3 million from the $12.5 million of interest expense for the same 1993 period. These increases are primarily due to interest expense at DP, which was acquired in June 1993, and higher average borrowings at Snapper and DP under the revolving credit facilities established to provide working capital and higher interest rates for the 1994 period. During the second quarter of 1994, Snapper and all of the Actava Sports companies had separate credit lines in place, which has substantially reduced their reliance on Actava for working capital needs. Other income (net of other deductions) decreased by $1.1 million in the second quarter of 1994 and by $3.0 for the 1994 year-to-date period when compared to 1993. This decrease is primarily the result of a decrease in investment income from lower investment levels due to liquidations of short-term investments to fund corporate purposes such as the purchase of DP and DP's initial working capital needs. During the year Actava provides for income taxes using anticipated effective annual tax rates. The rates are based on expected operating results for the year and estimated permanent differences between book and taxable income. As a result of the sale of Qualex, the Company will no longer include any income tax expense related to Qualex in continuing operations because Qualex is now reported as a discontinued operation rather than as a consolidated subsidiary for financial reporting purposes and is still not included in the Company's consolidated federal income tax return. See "Income Taxes" in Notes to Consolidated Financial Statements. Discontinued Operations: In 1988 the Company combined its photofinishing operations with the domestic photofinishing operations of Kodak in a transaction accounted for as a purchase, forming a jointly-owned company, Qualex. During the second quarter of 1994, certain events occurred which resulted in a change in the method of accounting for Actava's investment in Qualex and the presentation of Qualex as a discontinued operation as of June 30, 1994. On August 12, 1994, Actava sold its investment in Qualex to Kodak. Accordingly, the Qualex results for all periods presented are reported in the accompanying consolidated statements of operations as discontinued operations. A loss of $37.9 million for loss on the disposal of discontinued operations and a loss of $2.8 million from operations of discontinued operations is reflected in Actava's year-to-date net loss as a result. See "Qualex Inc. -- Discontinued Operations" in Notes to Consolidated Financial Statements. Net Income (Loss): Actava reported a loss from continuing operations of $10.2 million for the second quarter of 1994, compared to a loss from continuing operations of $3.7 million for the second quarter of 1993. Actava's net loss of $46.3 million for the second quarter of 1994 included a loss from discontinued operations of $36.1 million. 12 14 The Company's $43,000 of income for the second quarter of 1993 included income of $3.7 million from discontinued operations. For the first six months of 1994, Actava had a loss from continuing operations of $18.3 million, compared to a loss from continuing operations of $5.0 million for the comparable 1993 period. Actava also experienced a $40.7 million loss from discontinued operations for the first six months of 1994, resulting in a net loss for the period of $59 million. Actava's $7.6 million net loss for the first six months of 1993 included income from discontinued operations of $1.8 million, and a loss from the cumulative effect of a change in accounting principle of $4.4 million. Changes in Accounting Principles: The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Actava adopted the new method of accounting for income taxes on January 1, 1993. Statement No. 109 affects the manner and rates at which deferred income taxes are reflected on the balance sheet and, therefore, possibly the amount of taxes reflected in the statement of operations. The adoption of Statement No. 109 did not result in a material effect on net income for the first quarter of 1993. See "Summary of Significant Accounting Policies -- Changes in Accounting Principles" in Notes to Consolidated Financial Statements. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". Statement No. 106 requires the cost of postretirement benefits to be recognized in the financial statements over an employee's active working career. Actava adopted the new method of accounting for these benefits as of January 1, 1993. The adoption of Statement No. 106 resulted in a charge to net income of $4.4 million and was reported as the cumulative effect of a change in accounting principle in the first quarter of 1993. See "Summary of Significant Accounting Policies -- Changes in Accounting Principles" in Notes to Consolidated Financial Statements. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits". Statement No. 112 requires the recognition of the cost of benefits to be provided after employment, but before retirement, in the financial statements over an employee's active working career. Actava adopted the new method of accounting for these benefits as of January 1, 1994. The adoption of Statement No. 112 will not result in a material impact on the Company's financial statements when reported. See "Postemployment Benefits" in Notes to Consolidated Financial Statements. The Company and its subsidiaries invest in various debt and equity securities. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires certain debt securities to be reported at amortized cost, certain debt and equity securities to be reported at market with current recognition of unrealized gains and losses, and certain debt and equity securities to be reported at market with unrealized gains and losses as a separate component of shareholders' equity. The Company adopted the provisions of the new standard for investments held as of or acquired after January 1, 1994. In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect as of January 1, 1994, of adopting Statement 115 was not material, See "Summary of Significant Accounting Policies -- Changes in Accounting Principles" in Notes to Consolidated Financial Statements. Financial Position: Actava's working capital, excluding Qualex, was $99.1 million at June 30, 1994 as compared to $93.7 million at December 31, 1993. The increase is primarily due to changes in the Triton loan agreement which resulted in classifying $5.0 million as a current note receivable. Cash and short-term investments at Actava, excluding Qualex, increased by $1.6 million in the first six months of 1994 to $45.9 million. At June 30, 1994, approximately $5.0 million of the Company's cash and short-term investments were pledged to secure a Snapper credit line. In addition, subsequent to June 30, 1994, $12.0 million was pledged to secure a letter of credit issued on August 12, 1994, with regard to the Company's redeemable common stock. Approximately $16.2 million of cash and short-term investments which were pledged to support outstanding letters of credit at March 31, 1994 were released to Actava during the 1994 second quarter. These letters of credit are now issued on an unsecured basis. 13 15 On August 12, 1994 the Company sold its interest in Qualex to Kodak. As a result of this sale, the Company received, on August 12, 1994, cash of $50 million and will receive two additional payments of $50 million each in six months and twelve months. The Company has entered into a contract to sell a real estate investment near Houston, Texas, which is known as Sienna Plantation. An investment group has agreed to purchase the property from a partnership in which Actava has an interest. Actava is expected to receive approximately $9.0 million in cash upon consummation of the transaction. The purchase price is approximately equal to Actava's book value and is expected to close in or before December 1994. For the six month period ended June 30, 1994, cash flows of $16.6 million were provided by operating activities while investing and financing activities used $18.2 million and $3.1 million of cash, respectively. Cash flows of $27.9 million were provided by continuing operations while discontinued operations used $11.3 million. For operations, accounts receivable decreased by $31.4 million, inventories decreased by $12.0 million, prepaid expenses decreased by $10.9 million, and accounts payable and other similar items decreased by $14.2 million. Depreciation of $7.3 million and amortization of $213,000 are included in determining cash flow provided by continuing operations. Investing activities for the six months ended June 30, 1994 used $18.2 million of cash, including payments for property, plant and equipment (net of disposals) of $15.2 million. Financing activities for the six months ended June 30, 1994 used $3.1 million during the quarter with repayments under short-term bank agreements of $27.6 million, net borrowings of $33.5 million under long-term debt agreements, payments of $3.0 million for subordinated debt and payments of dividends by Qualex prior to being discontinued to minority interest of $10.5 million. Long-term debt, including the current portion, for Actava, excluding Qualex, decreased from $3.3 million at December 31, 1993 to $3.0 million at June 30, 1994 due to payments thereon. Actava's subordinated debt position, including the current portion, of $191.5 million at June 30, 1994 reflects a decrease of $2.8 million from year-end 1993. Subordinated debt is 98.4% of Actava's total long-term debt, including the current portion, with the first significant maturity due in 1996. The Company has a currency swap agreement with a financial institution in order to eliminate exposure to foreign currency exchange rates for its 6% Senior Subordinated Swiss Franc Bonds. A default by the financial institution that is a party to the swap agreement would expose the Company to potential currency exchange risk on the remaining bond interest and principal payments. The approximate fair market value of the currency swap as of June 30, 1994, was $15.0 million. The Company is subject to various contingent liabilities and commitments. These include a floor plan agreement entered into by Snapper under which approximately $31.0 million and $25.0 million was outstanding at June 30, 1994 and 1993, respectively, various guaranties of debt totaling approximately $5.6 million, various real estate leases with estimated future payments of approximately $8.6 million, various potential liabilities relating to environmental matters, various other litigation matters and various pledges of cash and short-term investments. See "Contingent Liabilities and Commitments" in Notes to Consolidated Financial Statements. On June 8, 1993, the Company acquired substantially all the assets of DP for a net purchase price consisting of $11.6 million in cash, the issuance of 1,090,909 shares of the Company's Common Stock (the "Acquisition Shares") valued at $12 million, and the assumption or payment of certain liabilities including trade payables and a revolving credit facility. See "Acquisitions" in Notes to Consolidated Financial Statements. The Company also entered into an agreement providing the holder of the Acquisition Shares (the "Holder") with the right to receive additional payments depending upon the value of the Acquisition Shares over a period of not longer than one year from the purchase date. The agreement gives the Holder the right under certain circumstances, to require the Company to purchase the Acquisition Shares at a price equal to $11.00 per share. The repurchase of the Acquisition Shares will not increase the cost recorded by Actava for DP, but will affect the manner in which the total purchase price is recorded by Actava. The right of the Holder 14 16 to receive additional payments of cash became exercisable after June 8, 1994 and would have expired if not exercised on or before August 7, 1994. On August 3, 1994, the Holder agreed to extend the exercise date to February 17, 1995 in exchange for a $435,000 fee and an irrevocable letter of credit in the amount of $12.0 million which is available and payable to the Holder on and after February 17, 1995 upon demand and tender of the Acquisition Shares. Actava's debt agreements contain covenants which, among other things, place restrictions upon the amount of stock the Company may repurchase and dividends it may pay. The repurchase of the Acquisition Shares may violate some of these covenants. In November 1991, the Company entered into a Loan Agreement with its then 25.0% stockholder, Triton Group Ltd. ("Triton"), whereby Triton could borrow up to $32.0 million from the Company secured by the stock in the Company owned by Triton (the "Triton Loan"). The Triton Loan Agreement was modified in June 1993, pursuant to the Plan of Reorganization filed by Triton in its Chapter 11 bankruptcy proceeding. The modification reduced the interest rate on the Triton Loan, extended the maturity date from November 1994 to April 1997 and modified the mandatory payment (margin call) provisions and the Stockholder Agreement between Actava and Triton, as described in the Notes to the Consolidated Financial Statements. As modified, the Triton Loan provided for quarterly payments of interest only with no scheduled principal payments due until final maturity in April 1997. In December 1993, Triton and Actava entered into a further amendment to the Loan Agreement pursuant to which Triton made a principal payment of $5.0 million plus accrued interest on the Triton Loan, reducing the loan balance to approximately $26.7 million. In addition, the December 1993 amendment provided for quarterly principal payments of $1.25 million commencing March 31, 1994 and modified the mandatory payment (margin call) provisions of the loan. Triton has announced that on March 2, 1994, Triton obtained a commitment from a bank which would enable Triton to prepay the entire balance under the Loan Agreement, subject to the preparation of definitive documents. Triton also announced that while the terms and cost of this new financing would be less favorable than those of the existing arrangement, Triton is willing to consider a refinancing as part of a broader strategy to enhance the value of Actava. Triton has announced that the bank commitment, which was originally scheduled to expire on June 30, 1994, has been extended until September 30, 1994. As of June 30, 1994 the outstanding balance under the Triton Loan was $24.2 million. During the first and second quarters of 1994 the Company received cash dividends from its subsidiaries of $12.0 million and $811,000, respectively. The Company, excluding its operating subsidiaries and Snapper, had $63.4 million of unpledged cash and short-term investments as of August 12, 1994. Such subsidiaries, however, are restricted by financial covenants in their credit agreements from paying the Company more than 70% of their net income as dividends. The Company uses its existing cash and short-term investments, as well as dividends from is subsidiaries and payments on the Triton Loan, to provide for items such as operating expense payments and debt service. The Company, excluding its subsidiaries and Snapper, has debt service payments scheduled for the remainder of 1994 of approximately $10.4 million. The credit agreements with Snapper and one of the Company's sporting goods subsidiaries contain financial covenants (involving tangible net worth, book net worth and other matters) which the Company must comply with to prevent a default. A default under these credit agreements would have serious adverse consequences, including the elimination of funding for the operations of Snapper and the sporting goods company, as well as the prohibition on payment of any dividends to the Company by these businesses. As a result of the loss incurred by the Company in connection with the sale of Qualex, the Company obtained financial covenant amendments from its lenders so that the Company would remain in compliance with these covenants through August 31, 1994. It will be necessary for the Company to negotiate additional amendments to these financial covenants in order for the Company to be in compliance with these covenants after August 31, 1994. Management believes that it will be successful in negotiating these additional amendments. The Company's subsidiaries and division, excluding Qualex, had unused borrowing capacity of approximately $47.7 million at June 30, 1994, under credit agreements which are secured by assets such as accounts receivable or inventory. The assets which serve as collateral are determined by reference to the outstanding balance under the credit agreements and the qualification of the assets as collateral as defined in the credit agreements; however, the assets potentially available as collateral are, in the aggregate, $335.1 million. 15 17 On April 19, 1994, John D. Phillips was elected president and chief executive officer of the Company. He was also elected to the Board of Directors of the Company. Mr. Phillips succeeds Charles R. Scott, who had served as the Company's president and chief executive officer since 1991. In connection with the election of Mr. Phillips, Renaissance Partners, an investment partnership in which Mr. Phillips serves as a general partner, purchased from the Company 700,000 shares of the Company's Common Stock for $4,462,500, representing a price of $6.375 per share. Mr. Phillips also received an immediately vested option to purchase 300,000 shares of the Company's Common Stock at a price of $6.375 per share. This price represents the last sale price of the Company's Common Stock on the New York Stock Exchange on April 11, 1994, the day before the Company announced that it had received the investment and employment proposals from Mr. Phillips. The Company has entered into a Registration Rights Agreement with Renaissance Partners pursuant to which the Company has agreed to register with Securities and Exchange Commission the 700,000 shares of Common Stock purchased by Renaissance Partners. 16 18 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Due to the disposition by the Company on August 12, 1994 of its interest in Qualex, any litigation to which Qualex was a party will be terminated as to the Company's future involvement. This would include the lawsuit captioned Photographic Concepts, Inc. v. Qualex Inc. previously disclosed in its Form 10-K for the year ended December 31, 1993. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) An Annual Meeting of Shareholders of the Company was held on June 10, 1994. The stockholders elected nine directors to serve for the ensuing year and until their successors are duly elected and have qualified. (b) Not Required (c) The following were elected as directors:
VOTES FOR VOTES WITHHELD ---------- -------------- John E. Aderhold........................................ 16,393,632 222,660 Michael E. Cahr......................................... 16,382,106 284,186 John M. Darden, III..................................... 16,400,103 216,189 John P. Imlay, Jr....................................... 16,401,811 214,481 Clark A. Johnson........................................ 16,395,540 220,752 Anthony F. Kopp......................................... 16,406,019 210,273 Richard Nevins.......................................... 16,387,445 208,847 John D. Phillips........................................ 16,405,200 211,092 Carl E. Sanders......................................... 16,394,436 221,856
(d) Not Required ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 2. Agreement and Plan of Reorganization dated as of July 20, 1994, by and among The Actava Group Inc., Diversified Products Corporation, Hutch Sports USA Inc., Nelson/ Weather-Rite, Inc., Willow Hosiery Company, Inc. and Roadmaster Industries, Inc. 4.1 Amendment, dated as of August 15, 1994, to Finance and Security Agreement, dated as of December 15, 1993, with respect to a revolving credit facility of up to $50 million, between Diversified Products Corporation and ITT Commercial Finance Corp. and the Provident Bank. A copy of this amendment is not filed as the debt does not exceed 10% of the total assets of the registered; however, registrant hereby agrees to furnish a copy of such agreement to the commission upon request. 10. Employment Agreement dated July 19, 1994, between The Actava Group Inc. and Charles R. Scott. 11. Computation of Earnings Per Share.
17 19 (b) Two Forms 8-K have been filed during the quarter for which this report is filed. (i) On April 14, 1994, a Form 8-K was filed to report and provide as exhibits a press release dated March 3, 1994 regarding 1993 results; a press release dated March 3, 1994 regarding the Triton loan; and, a press release dated March 16, 1994 regarding election of a new director and the Triton loan. No financial statements were filed. (ii) On May 4, 1994, a Form 8-K was filed to report and provide as exhibits an employment agreement among the Company and John D. Phillips dated April 19, 1994; an option agreement among the Company and John D. Phillips dated April 19, 1994; and, a registration rights agreement among the Company, Renaissance Partners and John D. Phillips dated April 19, 1994. 18 20 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 thereto duly authorized. THE ACTAVA GROUP INC. Registrant /s/ FREDERICK B. BEILSTEIN, III -------------------------------------- Frederick B. Beilstein, III Senior Vice President, Treasurer and Chief Financial Officer Date: August 15, 1994 19 EX-2 2 AGREEMENT PLAN RE-ORGANIZATION 1 EXHIBIT 2 AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF JULY 20, 1994 BY AND AMONG THE ACTAVA GROUP INC., DIVERSIFIED PRODUCTS CORPORATION, HUTCH SPORTS USA, INC., NELSON/WEATHER-RITE, INC., WILLOW HOSIERY COMPANY, INC., AND ROADMASTER INDUSTRIES, INC. 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I THE EXCHANGES Section 1.1 The Exchanges......................................................... Section 1.2 Transfer of Shares.................................................... Section 1.3 Closing............................................................... ARTICLE II REPRESENTATIONS AND WARRANTIES OF ACTAVA Section 2.1 Organization and Qualification........................................ Section 2.2 Authority; Non-Contravention; Approvals............................... Section 2.3 Ownership of the Sports Subsidiaries Stock............................ ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACTAVA AND THE SPORTS SUBSIDIARIES Section 3.1 Organization and Qualification........................................ Section 3.2 Capitalization........................................................ Section 3.3 Subsidiaries.......................................................... Section 3.4 Authority; Non-Contravention; Approvals............................... Section 3.5 Reports and Financial Statements...................................... Section 3.6 Absence of Undisclosed Liabilities.................................... Section 3.7 Absence of Certain Changes or Events.................................. Section 3.8 Litigation............................................................ Section 3.9 Transfer Claims....................................................... Section 3.10 No Violation of Law................................................... Section 3.11 Compliance with Agreements............................................ Section 3.12 Taxes................................................................. Section 3.13 Employee Benefit Plans; ERISA......................................... Section 3.14 Investment Company Act................................................ Section 3.15 Labor Controversies................................................... Section 3.16 Environmental Matters................................................. Section 3.17 Certain Agreements.................................................... Section 3.19 Affiliate Transactions................................................ Section 3.20 Proxy Statement....................................................... Section 3.21 Materiality........................................................... ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ROADMASTER Section 4.1 Organization and Qualification........................................ Section 4.2 Capitalization........................................................ Section 4.3 Subsidiaries.......................................................... Section 4.4 Authority; Non-Contravention; Approvals............................... Section 4.5 Reports and Financial Statements...................................... Section 4.6 Absence of Undisclosed Liabilities.................................... Section 4.7 Absence of Certain Changes or Events.................................. Section 4.8 Litigation............................................................ Section 4.9 Transfer Claims....................................................... Section 4.10 No Violation of Law................................................... Section 4.11 Compliance with Agreements............................................ Section 4.12 Taxes................................................................. Section 4.13 Employee Benefit Plans; ERISA.........................................
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PAGE ---- Section 4.14 Investment Company Act................................................ Section 4.15 Labor Controversies................................................... Section 4.16 Environmental Matters................................................. Section 4.17 Certain Agreements.................................................... Section 4.18 Properties............................................................ Section 4.19 Affiliate Transactions................................................ Section 4.20 Proxy Statement....................................................... Section 4.21 Materiality........................................................... ARTICLE V CONDUCT OF BUSINESS PENDING THE EXCHANGES Section 5.1 Conduct of Business by the Sports Subsidiaries Pending the Exchanges............................................................. Section 5.2 Conduct of Business by Roadmaster Pending the Exchanges............... Section 5.3 Acquisition Transactions.............................................. Section 5.4 Access to Information................................................. ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Public Announcements.................................................. Section 6.2 Shareholders' Approval; Proxy Statement............................... Section 6.3 Expenses.............................................................. Section 6.4 Agreement to Cooperate................................................ Section 6.5 Stock Exchange Listing................................................ Section 6.6 Insurance Coverage.................................................... Section 6.7 Releases.............................................................. Section 6.8 Additional Income Tax Matters......................................... Section 6.9 Intercompany Accounts................................................. Section 6.10 Employee Benefits Matters............................................. Section 6.11 Financial Statements.................................................. Section 6.12 Products Liability.................................................... Section 6.13 Satisfaction of Indemnity With Roadmaster Common Stock................ Section 6.14 Certain Environmental Matters......................................... ARTICLE VII CONDITIONS Section 7.1 Conditions to Each Party's Obligation to Effect the Exchanges......... Section 7.2 Conditions to Obligation of Actava to Effect the Exchanges............ Section 7.3 Conditions to Obligations of Roadmaster to Effect the Exchanges....... ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER Section 8.1 Termination........................................................... Section 8.2 Effect of Termination................................................. Section 8.3 Amendment............................................................. Section 8.4 Waiver................................................................ ARTICLE IX GENERAL PROVISIONS Section 9.1 Survival.............................................................. Section 9.2 Brokers............................................................... Section 9.3 Notices............................................................... Section 9.4 Interpretation........................................................ Section 9.5 Miscellaneous.........................................................
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PAGE ---- Section 9.6 Counterparts.......................................................... Section 9.7 Parties in Interest................................................... Section 9.8 Schedules............................................................. EXHIBITS Exhibit A Opinion of Counsel to Roadmaster Exhibit B Registration Rights Agreement Exhibit C Shareholders Agreement Exhibit D Employment Agreement for Henry Fong Exhibit E Employment Term Sheet for Edward E. Shake Exhibit F Roadmaster Restated Certificate of Incorporation Exhibit G Roadmaster Amended and Restated By-laws Exhibit H Environmental Indemnity Agreement Exhibit I Opinion of Counsel to Actava SCHEDULES 1.1 Allocation of Exchange Shares 2.2 (b) Actava Required Third Party Approvals 2.2 (c) Actava Required Statutory Approvals 2.3 Sports Subsidiaries Stock Encumbrances 3.2 (b) Sports Subsidiaries Preemptive Rights and Options 3.3 Subsidiaries of the Sports Subsidiaries 3.4 (b) Sports Subsidiaries Required Third Party Approvals 3.6 Sports Subsidiaries Undisclosed Liabilities 3.8 Sports Subsidiaries Litigation 3.10 Sports Subsidiaries Legal Compliance 3.11 Sports Subsidiaries Defaults 3.12 Sports Subsidiaries Tax Matters 3.13(a) Sports Subsidiaries Employee Benefits Plans 3.13(b) Sports Subsidiaries Employee Benefits Liabilities 3.13(c) Sports Subsidiaries Insurance Arrangements 3.15 Sports Subsidiaries Labor Controversies 3.16 Sports Subsidiaries Environmental Matters 3.17 Sports Subsidiaries Employment and Consulting Agreements 3.18(a) Sports Subsidiaries Property Matters 3.18(b) Sports Subsidiaries Intellectual Property 3.19 Sports Subsidiaries Affiliate Transactions 4.2 (b) Roadmaster Preemptive Rights and Options 4.3 Subsidiaries of Roadmaster 4.4 (b) Roadmaster Required Third Party Approvals 4.4 (c) Roadmaster Required Statutory Approvals 4.6 Roadmaster Undisclosed Liabilities 4.8 Roadmaster Litigation 4.10 Roadmaster Legal Compliance 4.11 Roadmaster Defaults 4.12 Roadmaster Tax Matters 4.13(a) Roadmaster Employee Benefits Plans 4.13(b) Roadmaster Employee Benefits Liabilities 4.13(c) Roadmaster Insurance Arrangements 4.15 Roadmaster Labor Controversies 4.16 Roadmaster Environmental Matters
iii 5 4.17 Roadmaster Employment and Consulting Agreements 4.18(a) Roadmaster Property Matters 4.18(b) Roadmaster Intellectual Property 4.19 Roadmaster Affiliate Transactions 5.1 Exceptions to Conduct of the Sports Subsidiaries Businesses 5.2 Exceptions to Conduct of Roadmaster Business 6.9 (e) Actava Intercompany Balances as of July 1, 1994 6.14 Description of Orbitron Parcel 9.2 Brokers Receiving Fees from Roadmaster
iv 6 AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as of July 20, 1994 (the "Agreement"), by and among The Actava Group Inc., a Delaware corporation ("Actava"), Diversified Products Corporation, an Alabama corporation ("DP"), Hutch Sports USA, Inc., a Delaware corporation ("Hutch"), Nelson/Weather-Rite Inc., a Delaware corporation ("NWR"), Willow Hosiery Company, Inc., a New York corporation ("Willow"), and Roadmaster Industries, Inc., a Delaware corporation ("Roadmaster"). DP, Hutch, NWR and Willow are referred to herein individually as a "Sports Subsidiary" and collectively as the "Sports Subsidiaries." WHEREAS, Actava owns all of the issued and outstanding shares of the capital stock of each of the Sports Subsidiaries (the "Sports Subsidiaries Stock"); WHEREAS, the Boards of Directors of Actava and Roadmaster have approved the exchange of the Sports Subsidiaries Stock for shares of Roadmaster's common stock, $.01 par value ("Roadmaster Common Stock"), pursuant to this Agreement (individually an "Exchange" and collectively, the "Exchanges") and the transactions contemplated hereby upon the terms and subject to the conditions set forth herein; and WHEREAS, Actava, Roadmaster and each of the Sports Subsidiaries intend that this Agreement constitute a plan of reorganization and that the separate exchanges of all of the Sports Subsidiaries Stock by Actava solely for Roadmaster Common Stock each qualify for federal income tax purposes as a separate "reorganization" within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code") with respect to DP, Hutch, NWR and Willow; NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I THE EXCHANGES Section 1.1 THE EXCHANGES. Upon the terms and subject to the conditions of this Agreement, at the Closing (as hereinafter defined), Actava shall exchange the Sports Subsidiaries Stock for a total of 19,169,000 validly issued, fully paid and nonassessable shares of Roadmaster Common Stock (the "Exchange Shares"). The Exchange Shares shall be allocated in the manner set forth below unless Actava and Roadmaster, prior to the Closing Date, have agreed on and attached as Schedule 1.1 hereto an allocation of the Exchange Shares which is different from that set forth below: (a) all of the issued and outstanding shares of DP in exchange for 6,709,150 of the Exchange Shares; (b) all of the issued and outstanding shares of Hutch in exchange for 5,654,855 of the Exchange Shares; (c) all of the issued and outstanding shares of NWR in exchange for 4,061,902 of the Exchange Shares; and (d) all of the issued and outstanding shares of Willow in exchange for 2,743,093 of the Exchange Shares. Section 1.2 TRANSFER OF SHARES. At the Closing, Actava shall deliver to Roadmaster certificates evidencing the Sports Subsidiaries Stock, duly endorsed in blank or accompanied by duly executed stock transfer powers. At the Closing, Roadmaster shall deliver to Actava certificates evidencing the Exchange Shares. Section 1.3 CLOSING. The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of Smith, Gambrell & Russell, Suite 3100, Promenade II, 1230 Peachtree Street, Atlanta, Georgia 30303, on the date on which the last of the conditions set forth in Article VII hereof is 7 fulfilled or waived, or at such other time and place as Actava and Roadmaster shall agree (the date on which the Closing occurs being the "Closing Date"). ARTICLE II REPRESENTATIONS AND WARRANTIES OF ACTAVA Actava represents and warrants to Roadmaster as follows: Section 2.1 ORGANIZATION AND QUALIFICATION. Actava is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Actava is qualified to do business and is in good standing in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing will not, when taken together with all other such failures, have a material adverse effect on the business, condition (financial or other) or results of operations of Actava and its subsidiaries, taken as a whole. Section 2.2 AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Actava has full corporate power and authority to enter into this Agreement and, subject to obtaining the Actava Shareholders' Approval (if required and as defined in Section 6.2(b)) and the Actava Required Statutory Approvals (as defined in Section 2.2(c)), to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, and the consummation by Actava of the transactions contemplated hereby, have been duly authorized by Actava's Board of Directors and no other corporate proceedings on the part of Actava is necessary to authorize the execution and delivery of this Agreement and the consummation by Actava of the transactions contemplated hereby, except for obtaining the Actava Shareholders' Approval (if required) and the Actava Required Statutory Approvals. This Agreement has been duly and validly executed and delivered by Actava, and, assuming the due authorization, execution and delivery hereof by Roadmaster, constitutes a valid and binding Agreement of Actava enforceable in accordance with its terms. (b) The execution and delivery of this Agreement by Actava do not, and the consummation by Actava of the transactions contemplated hereby will not as of the Closing Date, violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Actava or any of its subsidiaries under any of the terms, conditions or provisions of (i) the respective charters or by-laws of Actava or any of its subsidiaries, (ii) subject to obtaining the Actava Required Statutory Approvals and the receipt of the Actava Shareholders' Approval (if required), any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to Actava or any of its subsidiaries or any of their respective properties or assets, or (iii) subject to obtaining the required approvals set forth in Schedule 2.2(b) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which Actava or any of its subsidiaries is now a party or by which Actava or any of its subsidiaries or any of their respective properties or assets may be bound or affected, excluding from the foregoing clauses (ii) and (iii) such violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens, security interests, charges or encumbrances that would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of Actava and its subsidiaries, taken as a whole. (c) Except for (i) the filings by Actava and Roadmaster required by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the "HSR Act"), and (ii) the required filings with or approvals set forth in Schedule 2.2(c) (the filings and approvals referred to in clauses (i) and (ii) are collectively referred to as the "Actava Required Statutory Approvals"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by Actava or the consummation by Actava of the 2 8 transactions contemplated hereby, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not made or obtained, as the case may be, would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of Actava and its subsidiaries, taken as a whole. Section 2.3 OWNERSHIP OF THE SPORTS SUBSIDIARIES STOCK. All of the shares of Sports Subsidiaries Stock are validly issued, fully paid and nonassessable and free of preemptive rights, and, except as set forth in Schedule 2.3, are owned by Actava free and clear of any liens, claims, encumbrances, security interests, equities, charges and options of any nature whatsoever. Except as set forth in Schedule 2.3, there are no subscriptions, options, warrants, rights, calls, contracts, voting trusts, proxies or other commitments, understandings, restrictions or arrangements relating to the issuance, sale, voting, transfer, ownership or other rights with respect to any shares of the Sports Subsidiaries Stock, including any right of conversion or exchange under any outstanding security, instrument or agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACTAVA AND THE SPORTS SUBSIDIARIES Actava and the Sports Subsidiaries represent and warrant to Roadmaster as follows: Section 3.1 ORGANIZATION AND QUALIFICATION. Each Sports Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Each Sports Subsidiary is qualified to do business and is in good standing in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing will not, when taken together with all other such failures, have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. True, accurate and complete copies of each Sports Subsidiary's certificate of incorporation and by-laws, in each case as in effect on the date hereof, including all amendments thereto, have heretofore been delivered to Roadmaster. Section 3.2 CAPITALIZATION. (a) The authorized capital stock of: (i) DP consists of 1,000 shares of common stock, $1.00 par value per share, all of which shares are issued and outstanding, and (ii) NWR consists of 1,000 shares of common stock, $1.00 par value per share, all of which shares are issued and outstanding, and (iii) Hutch consists of 1,000 shares of common stock, $1.00 par value per share, all of which shares are issued and outstanding; and (iv) Willow consists of 100,000 shares of common stock, $1.00 par value per share, of which 46,000 shares are issued and outstanding, and 10,000 shares of preferred stock, $1.00 par value per share, of which 2,052 shares are issued and outstanding. All of the issued and outstanding shares of Sports Subsidiaries Stock are validly issued and are fully paid, nonassessable and free of preemptive rights. No subsidiary of any Sports Subsidiary holds any shares of the capital stock of any Sports Subsidiary. (b) Except as set forth in Schedule 3.2(b) hereof, as of the date hereof, there are no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement, obligating any Sports Subsidiary or any subsidiary of any Sports Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of any Sports Subsidiary or obligating any Sports Subsidiary or any subsidiary of any Sports Subsidiary to grant, extend or enter into any such agreement or commitment. Except as set forth in Schedule 3.2(b), there are no voting trusts, proxies or other agreements or understandings to which any Sports Subsidiary or any subsidiary of a Sports Subsidiary is a party or is bound with respect to the voting of any shares of capital stock of any Sports Subsidiary. Section 3.3 SUBSIDIARIES. Schedule 3.3 sets forth every subsidiary of each of the Sports Subsidiaries and the jurisdiction of its incorporation. Each direct and indirect corporate subsidiary of each of the Sports Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the requisite power and authority to own, lease and operate its assets and 3 9 properties and to carry on its business as it is now being conducted. Each subsidiary of each of the Sports Subsidiaries is qualified to do business, and is in good standing, in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing will not, when taken together with all such other failures, have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Except as set forth in Schedule 3.3, all of the outstanding shares of capital stock of each corporate subsidiary of each of the Sports Subsidiaries are validly issued, fully paid, nonassessable and except, with respect to wholly owned subsidiaries, free of preemptive rights and those shares owned directly or indirectly by the Sports Subsidiaries are owned free and clear of any liens, claims, encumbrances, security interests, equities, charges and options of any nature whatsoever. Except as set forth in Schedule 3.3, the Sports Subsidiaries own directly or indirectly all of the issued and outstanding shares of the capital stock of each of their corporate subsidiaries. Except as set forth in Schedule 3.3, there are no subscriptions, options, warrants, rights, calls, contracts, voting trusts, proxies or other commitments, understandings, restrictions or arrangements relating to the issuance, sale, voting, transfer, ownership or other rights with respect to any shares of capital stock of any corporate subsidiary of any Sports Subsidiary, including any right of conversion or exchange under any outstanding security, instrument or agreement. As used in this Agreement, the term "subsidiary" shall mean any corporation, partnership, joint venture or other entity of which the specified entity, directly or indirectly, controls or which the specified entity (either acting alone or together with its other subsidiaries) owns, directly or indirectly, more than 50% of the stock or other voting interests, the holders of which are, ordinarily or generally, in the absence of contingencies (which contingencies have not occurred) or understandings (which understandings have not yet been required to be performed) entitled to vote for the election of a majority of the board of directors or any similar governing body. Section 3.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Each Sports Subsidiary has full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, and the consummation by each Sports Subsidiary of the transactions contemplated hereby, have been duly authorized by each Sports Subsidiary's Board of Directors and no other corporate proceedings on the part of any Sports Subsidiary are necessary to authorize the execution and delivery of this Agreement and the consummation by the Sports Subsidiaries of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each Sports Subsidiary, and, assuming the due authorization, execution and delivery hereof by Roadmaster, constitutes a valid and binding agreement of each Sports Subsidiary, enforceable against each Sports Subsidiary in accordance with its terms. (b) The execution and delivery of this Agreement by each Sports Subsidiary do not, and the consummation by each Sports Subsidiary of the transactions contemplated hereby will not as of the Closing Date, violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of any Sports Subsidiary or any of their subsidiaries under any of the terms, conditions or provisions of (i) the respective charters or by-laws of each Sports Subsidiary or any of their subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to any Sports Subsidiary or any of their subsidiaries or any of their respective properties or assets, or (iii) subject to obtaining the required approvals set forth in Schedule 3.4(b) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which any Sports Subsidiary or any of their subsidiaries is now a party or by which any Sports Subsidiary or any of their subsidiaries or any of their respective properties or assets may be bound or affected, excluding from the foregoing clauses (ii) and (iii) such violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens, security interests, charges or encumbrances that would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. 4 10 (c) Except as set forth on Schedule 2.2(c), no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by the Sports Subsidiaries or the consummation by the Sports Subsidiaries of the transactions contemplated hereby, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not made or obtained, as the case may be, would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Section 3.5 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1991, Actava and each of its subsidiaries required to make filings under the Securities Act of 1933, as amended (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act") have filed with the Securities and Exchange Commission (the "SEC") all material forms, statements, reports and documents (including all exhibits, amendments and supplements thereto) required to be filed by them under each of the Securities Act, the Exchange Act, and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and the respective rules and regulations thereunder, all of which complied in all material respects with all applicable requirements of the appropriate act and the rules and regulations thereunder, except where such failure to file or non-compliance would not have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Actava has previously delivered to Roadmaster copies of its (a) Annual Reports on Form 10-K for the fiscal year ended December 31, 1993 and for each of the two immediately preceding fiscal years, including the exhibits and schedules thereto, all as filed with the SEC, (b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, including the exhibits and schedules thereto, as filed with the SEC, (c) proxy and information statements, to the extent required, relating to (i) all meetings of its shareholders (whether annual or special) and (ii) actions by written consent in lieu of a shareholders meeting from January 1, 1991 until the date hereof, and (d) all other reports or registration statements (which have been declared effective) including the exhibits and schedules thereto, all as filed by Actava with the SEC since January 1, 1991 (other than registration statements filed on Form S-8) (collectively, the "Actava SEC Reports"). As of their respective dates, Actava SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact regarding the Sports Subsidiaries required to be stated therein or necessary to make the statements regarding the Sports Subsidiaries therein, in light of the circumstances under which they were made, not misleading. Actava has also delivered to Roadmaster copies of (X)(1) an audited balance sheet of each Sports Subsidiary as of December 31, 1993 and, except with respect to DP, for each of the two immediately preceding fiscal years, and the related audited statements of income (excluding the income statement for the fiscal year ended December 31, 1991 which shall be unaudited), retained earnings, and cash flows for the years then ended, and the related notes thereto and (2) an unaudited balance sheet of DP as of June 7, 1993 and the related unaudited statements of income, retained earnings, and cash flows for the period then ended, and audited balance sheets as of June 27, 1992 and June 29, 1991 and the related audited statements of income, retained earnings and cash flows for the years then ended (collectively, the "Sports Subsidiaries Annual Financial Statements") and (Y) an unaudited balance sheet of each Sports Subsidiary as of March 31, 1994, and the related unaudited statements of income, retained earnings, and cash flows for the three-month period then ended (the "Sports Subsidiaries Interim Financial Statements"). The Sports Subsidiaries Annual Financial Statements and the Sports Subsidiaries Interim Financial Statements are referred to herein collectively as the "Sports Subsidiaries Financial Statements." The Sports Subsidiaries Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present in all material respects the financial position of the Sports Subsidiaries and their subsidiaries, taken as a whole, as of the dates thereof and the results of their operations and changes in financial position for the periods then ended, subject, in the case of the Sports Subsidiaries Interim Financial Statements or any of the unaudited financial statements included in the Sports Subsidiaries Annual Financial Statements, to normal year-end and audit adjustments and any other adjustments described therein. Section 3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in Actava's Annual Report on Form 10-K for the year ended December 31, 1993 and the exhibits and schedules thereto (the "Actava 10-K"), Actava's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 and the exhibits 5 11 and schedules thereto (the "Actava 10-Q"), any Form 8-K filed by Actava after December 31, 1993 (the "Actava 8-Ks") or in Schedule 3.6, neither the Sports Subsidiaries nor any of their subsidiaries had at March 31, 1994, or has incurred since that date, any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature, (a) except liabilities, obligations or contingencies (i) which are accrued or reserved against in the Sports Subsidiaries Financial Statements or reflected in the notes thereto or (ii) which were incurred after March 31, 1994 in the ordinary course of business and consistent with past practices and (b) except for any liabilities, obligations or contingencies which (i) would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole, or (ii) have been discharged or paid in full prior to the date hereof. Section 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the Actava 10-Q or the other Actava SEC Reports, from March 31, 1994 through the date hereof, (i) there has not been any material adverse change in the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole and (ii) no Sports Subsidiary has made any declaration, setting aside or payment of any dividend or other distribution with respect to the Sports Subsidiaries Stock. Section 3.8 LITIGATION. Except as disclosed in the Actava 10-K, the Actava 10-Q, the Actava 8-Ks, the Sports Subsidiaries Financial Statements or Schedule 3.8, there are no claims, suits, actions or proceedings pending or, to the knowledge of Actava or any Sports Subsidiary, threatened against, relating to or affecting the Sports Subsidiaries or any of their subsidiaries, before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator, which could reasonably be expected, either alone or in the aggregate with all such claims, actions or proceedings, to materially and adversely affect the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Except as set forth in Schedule 3.8, neither the Sports Subsidiaries nor any of their subsidiaries is subject to any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or authority, or of any arbitrator which prohibits or restricts the consummation of the transactions contemplated hereby or would have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Section 3.9 TRANSFER CLAIMS. No prior offer, issue, redemption, call, purchase, sale, transfer, negotiation or other transaction of any nature or kind with respect to any capital stock (including shares, offers, options, warrants, or debt convertible into shares, options or warrants) of the Sports Subsidiaries or any of their subsidiaries, or any corporation which has been merged into the Sports Subsidiaries or any of their subsidiaries, has given or may give rise to any claim or action by any person which is enforceable against any Sports Subsidiary, and, to the knowledge of the Sports Subsidiaries, no fact or circumstance exists which could give rise to any such claim or action on behalf of any person, except for claims or actions which would not have, in the aggregate, a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Section 3.10 NO VIOLATION OF LAW. Except as disclosed in the Actava 10-K, the Actava 10-Q, the Actava 8-Ks, the Sports Subsidiaries Financial Statements or Schedule 3.10, neither the Sports Subsidiaries nor any of their subsidiaries is in violation of or has been given notice or been charged with any violation of any law, statute, order, rule, regulation, ordinance or judgment (including, without limitation, any applicable environmental law, ordinance or regulation) of any governmental or regulatory body or authority, except for violations which, in the aggregate, do not have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Except as disclosed in the Actava 10-K, the Actava 10-Q, the Actava 8-Ks, the Sports Subsidiaries Financial Statements or Schedule 3.10, as of the date of this Agreement, to the knowledge of Actava and the Sports Subsidiaries no investigation or review by any governmental or regulatory body or authority is pending or threatened, nor has any governmental or regulatory body or authority indicated an intention to conduct the same, other than, in each case, those the outcome of which, as far as reasonably can be foreseen, will not have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. The Sports Subsidiaries and their subsidiaries have all 6 12 permits, licenses, franchises, variances, exemptions, orders and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted (the "Sports Subsidiaries Permits"), except for permits, licenses, franchises, variances, exemptions, orders, authorizations, consents and approvals the absence of which, alone or in the aggregate, would not have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. The Sports Subsidiaries and their subsidiaries (a) have duly and currently filed all reports and other information required to be filed with any governmental or regulatory authority in connection with the Sports Subsidiaries Permits, and (b) are not in violation of the terms of any Sports Subsidiaries Permit, except for delays in filing reports or violations which, alone or in the aggregate, would not have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Section 3.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed in the Actava 10-K, the Actava 10-Q, the Actava 8-Ks, the Sports Subsidiaries Financial Statements or Schedule 3.11, the Sports Subsidiaries and each of their subsidiaries are not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default under, (a) the respective charters, by-laws or similar organizational instruments of the Sports Subsidiaries or any of their subsidiaries or (b) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which the Sports Subsidiaries or any of their subsidiaries is a party or by which any of them is bound or to which any of their property is subject, which breaches, violations and defaults, in the case of clause (b) of this Section 3.11, would have, in the aggregate, a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Section 3.12 TAXES. (a) Except as set forth on Schedule 3.12, each of the Sports Subsidiaries and their subsidiaries has, or prior to the Closing Date, will have (i) timely filed (or have or, prior to the Closing Date, will have obtained valid extensions of time to file) with the appropriate governmental authorities all Tax Returns required to be filed by them for all periods ending on or prior to the Closing Date, other than those Tax Returns the failure of which to file would not have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole, and such Tax Returns are true, correct and complete in all material respects, and (ii) duly paid in full or made adequate provision for the payment of all Taxes for all periods ending on or prior to the Closing Date, except where the failure to have paid or to have made adequate provision for the payment of Taxes would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Except as set forth on Schedule 3.12, the liabilities and reserves for Taxes reflected in the balance sheets contained in the Sports Subsidiaries Financial Statements and in the Sports Subsidiaries Interim Statements are adequate to cover all Taxes for all periods ending on or prior to March 31, 1994, except where the inadequacy of such balance sheet liabilities and reserves in covering all Taxes for all periods ending on or prior to March 31, 1994 would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole, and there are no material liens for Taxes upon any property or assets of the Sports Subsidiaries or their subsidiaries, except for liens for Taxes not yet due and payable. There are no unresolved issues of law or fact arising out of a notice of deficiency, proposed deficiency or assessment from the IRS or any other governmental taxing authority with respect to Taxes of the Sports Subsidiaries or their subsidiaries which, if decided adversely, singly or in the aggregate, would have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. (b) Except as set forth on Schedule 3.12, no waivers of statutes of limitation with respect to Tax Returns have been given by or requested from the Sports Subsidiaries or their subsidiaries. Except as set forth on Schedule 3.12, neither the Sports Subsidiaries nor any of their subsidiaries, nor to the knowledge of the Sports Subsidiaries any predecessor in interest to any of them, has filed a consent to the application of Section 341(f) of the Code or filed, or shall be deemed to have filed, any election under Section 338 or Section 197 of the Code. For Actava's taxable year ending December 31, 1993, each of the Sports Subsidiaries and their 7 13 subsidiaries, will have been a member of and will join in the filing of a consolidated federal income tax return of an affiliated group of corporations, as that term is defined in Section 1504(a) of the Code, of which Actava is the common parent (the "Affiliated Group"). (c) For purposes of this Agreement, the term "Taxes" shall mean all taxes, charges, fees, levies or other assessments, including, without limitation, net income, gross income, gross receipts, excise, premium, property, environmental, sales, withholding, backup withholding, social security, occupation, stamp, use, service, service use, license, lease, payroll, employment, workers' compensation, franchise, severance, transfer and recording taxes, customs, duties or other taxes, fees, assessments or charges of any kind whatever, imposed by the United States, or any state, local or foreign government or subdivision or agency thereof whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest, fines, penalties or additional amounts attributable or imposed or with respect to any such taxes, charges, fees, levies or other assessments. For purposes of this Agreement, the term "Tax Return" shall mean any return, report or other document or information required to be supplied to a taxing authority in connection with Taxes. Section 3.13 EMPLOYEE BENEFIT PLANS; ERISA. (a) Schedule 3.13(a) hereof lists all Employee Arrangements under which the Sports Subsidiaries could incur any material liability (the "Material Subsidiary Arrangements"). For purposes of the preceding sentence, the term "Employee Arrangement" shall, with respect to a person, mean all plans, programs or arrangements providing any benefits to any individual which is sponsored, maintained or contributed to by such person, including employee benefit plans within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, ("ERISA"), any arrangement involving shares of stock, or any other similar arrangements. Schedule 3.13(a) hereto also separately lists all such Material Subsidiary Arrangements which are "Multiemployer Plans" within the meaning of Section 3(37) and 4001(3) of ERISA or "Multiple Employer Plans" within the meaning of Section 413(c) of the Code. For purposes of this Section 3.13, the term "ERISA Affiliate" shall, with respect to the Sports Subsidiaries, mean any person or entity required to be aggregated with the Sports Subsidiaries under Sections 414(b), (c), (m) or (o) of the Code. (b) Except as disclosed in Schedule 3.13(b), (i) there is no liability (a) under Title IV of ERISA, (b) arising out of any communication or failure to communicate, or (c) by reason of the transactions contemplated by this Agreement, with respect to any Employee Arrangement which would have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole, (ii) the current present value of all projected benefit obligations under each of the Material Subsidiary Arrangements which is subject to Title IV of ERISA did not, as of its latest valuation date, exceed the then current value of the assets of such Employee Arrangement allocable to such benefit liabilities (based upon actuarial assumptions used by the Pension Benefit Guaranty Corporation for valuing benefits in single-employer plans on termination), (iii) each of the Material Subsidiary Arrangements has been written, operated and administered in all respects in accordance with applicable laws and regulations during the period of time covered by the applicable statute of limitations, except where noncompliance would not have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole, (iv) each of the Material Subsidiary Arrangements which is intended to be "qualified" within the meaning of Section 401(a) of the Code has been determined by the IRS to be so qualified (or if not, the remedial amendment period for filing an application for determination has not yet expired) and such determination has not been modified, revoked or limited by failure to satisfy any condition thereof, (v) there are no liens arising under ERISA or the Code and there are no claims, suits, actions, audits or proceedings pending or, to the knowledge of Actava or the Sports Subsidiaries, threatened against, relating to or affecting any Employee Arrangement or any person affiliated therewith which could have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole, and (vi) each Material Subsidiary Arrangement may be terminated at any time and for any reason by one of the Sports Subsidiaries, an ERISA Affiliate of the Sports Subsidiaries, or an officer or employee thereof. (c) Schedule 3.13(c) separately sets forth a complete and accurate list and description of all material insurance contracts or agreements, annuity contracts, fidelity bonds and fiduciary liability policies, investment 8 14 manager or investment advisory contracts, and administrative services contracts or agreements with respect to all Material Subsidiary Arrangements. Section 3.14 INVESTMENT COMPANY ACT. Actava, the Sports Subsidiaries and each of their subsidiaries either (a) is not an "investment company", or a company "controlled" by, or an "affiliated company" with respect to, an "investment company", within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"), or (b) satisfies all conditions for an exemption from the Investment Company Act, and, accordingly, neither Actava, the Sports Subsidiaries nor any of their subsidiaries is required to be registered under the Investment Company Act. Section 3.15 LABOR CONTROVERSIES. Except as set forth in the Actava 10-K, the Actava 10-Q, the Actava 8-Ks, the Sports Subsidiaries Financial Statements or Schedule 3.15, (a) there are no significant controversies pending or, to the knowledge of Actava and the Sports Subsidiaries, threatened between any Sports Subsidiary or its subsidiaries and any representatives of any of their employees, (b) to the knowledge of Actava and the Sports Subsidiaries there are no organizational efforts presently being made involving any of the presently unorganized employees of the any Sports Subsidiary or its subsidiaries, (c) the Sports Subsidiaries and their subsidiaries have complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, immigration and the payment of social security and similar Taxes, and (d) no person has, to the knowledge of Actava and the Sports Subsidiaries, asserted that the Sports Subsidiaries or any of their subsidiaries is liable in any material amount for any arrears of wages or any Taxes or penalties for failure to comply with any of the foregoing, except for such controversies, organizational efforts, noncompliance and liabilities which, singly or in the aggregate, could not reasonably be expected to materially and adversely affect the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries taken as a whole. Section 3.16 ENVIRONMENTAL MATTERS. The Sports Subsidiaries and their subsidiaries (i) have obtained all permits, licenses and other authorizations and filed all notices which are required to be obtained or filed by the Sports Subsidiaries or any of their subsidiaries for the operation of its business under federal, state and local laws relating to pollution or protection of the environment; (ii) are in compliance with all terms and conditions of such required permits, licenses and authorizations; (iii) are in compliance with all other applicable limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those laws or contained in any law, regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder, except, under (i), (ii) or (iii) above, where noncompliance would not have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. Except as disclosed on Schedule 3.16 or where it would not have a material adverse effect on the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole, there are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent continued compliance, or which may give rise to any common law or statutory liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, or hazardous or toxic material or waste with respect to the Sports Subsidiaries or any of their subsidiaries. Section 3.17 CERTAIN AGREEMENTS. Except as set forth in the Actava 10-K, the Actava 10-Q, the Actava 8-Ks or Schedule 3.17, and except for this Agreement, as of the date hereof, neither the Sports Subsidiaries nor any of their subsidiaries is a party to any oral or written (a) consulting or similar agreement with any present or former director, officer or employee or any entity controlled by any such person involving the payment of remuneration more than $50,000 per annum or $200,000 in the aggregate, (b) agreement with any director, officer or employee of the Sports Subsidiaries or any of their subsidiaries the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Sports Subsidiaries of the nature contemplated by this Agreement, or (c) agreement with respect to any 9 15 officer or employee of the Sports Subsidiaries or any of their subsidiaries providing any term of employment or compensation guarantee extending for a period longer than one year and for the payment of remuneration in excess of $50,000 per annum or $200,000 in the aggregate. Section 3.18 PROPERTIES. (a) Except as disclosed in Schedule 3.18(a), the Sports Subsidiaries and their subsidiaries have good title to each of their material properties set forth in the Sports Subsidiaries Financial Statements, free and clear of all security interests, liens, encumbrances, encroachments and condemnation notices, except liens for current Taxes not yet due and payable, security interests securing indebtedness reflected in the Sports Subsidiaries Financial Statements and imperfections of title and agreements of record which do not materially detract from the value or materially interfere with the current use of such properties. (b) Schedule 3.18(b) sets forth a list of all patents, trademarks, service marks, trade names and copyrights owned or licensed by the Sports Subsidiaries or their subsidiaries that are material to the business of the Sports Subsidiaries and their subsidiaries taken as a whole. Section 3.19 AFFILIATE TRANSACTIONS. Except as set forth in Schedule 3.19, there are no contracts, agreements, understandings or arrangements pursuant to which any goods or services are provided or obtained with any director, officer or shareholder of any Sports Subsidiary, or with any person related to or affiliated with any such person or with any company or other organization in which any director, officer or shareholder of any Sports Subsidiary, or any such person, has a direct or indirect financial interest. Section 3.20 PROXY STATEMENT. If Actava Shareholders' Approval is required, none of the information relating to the Sports Subsidiaries and their subsidiaries included in the Actava Proxy Statement (as defined in Section 6.2) will be false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except for information supplied or to be supplied by Roadmaster and its subsidiaries in writing for inclusion therein, as to which no representation is made, the Actava Proxy Statement will comply in all material respects with the Securities Act and in the rules and regulations thereunder. Section 3.21 MATERIALITY. The representations and warranties set forth in this Article III would in the aggregate be true and correct even without the materiality exceptions or qualifications contained therein except for such exceptions and qualifications which, in the aggregate for all such representations and warranties, are not materially adverse to the business, condition (financial or other), results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ROADMASTER Roadmaster represents and warrants to Actava and the Sports Subsidiaries as follows: Section 4.1 ORGANIZATION AND QUALIFICATION. Roadmaster is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Roadmaster is qualified to do business and is in good standing in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing will not, when taken together with all other such failures, have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. True, accurate and complete copies of Roadmaster's Certificate of Incorporation and By-laws, as in effect on the date hereof, including all amendments thereto, have heretofore been delivered to Actava. Section 4.2 CAPITALIZATION. (a) The authorized capital stock of Roadmaster consists of 60,000,000 shares of Roadmaster Common Stock and 10,000,000 shares of preferred stock, $.01 par value ("Roadmaster Preferred Stock"). As of July 20, 1994, 29,419,444 shares of Roadmaster Common Stock and no shares of 10 16 Roadmaster Preferred Stock were issued and outstanding. All of the issued and outstanding shares of Roadmaster Common Stock are validly issued and are fully paid, nonassessable and free of preemptive rights. Except for 3,586,222 shares of Roadmaster Common Stock owned by Roadmaster Corporation, no subsidiary of Roadmaster holds any shares of capital stock of Roadmaster. (b) Except as set forth in Schedule 4.2(b) hereof, as of the date hereof, there are no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement obligating Roadmaster or any subsidiary of Roadmaster to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of Roadmaster or obligating Roadmaster or any subsidiary of Roadmaster to grant, extend or enter into any such agreement or commitment, except for this Agreement. Except as set forth in Schedule 4.2(b), there are no voting trusts, proxies or other agreements or understandings to which Roadmaster or any subsidiary of Roadmaster is a party or is bound with respect to the voting of any shares of capital stock of Roadmaster. The Exchange Shares will be at the Closing duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights. Section 4.3 SUBSIDIARIES. Schedule 4.3 sets forth every subsidiary of Roadmaster and the jurisdiction of its incorporation. Each direct and indirect corporate subsidiary of Roadmaster is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Each subsidiary of Roadmaster is qualified to do business, and is in good standing, in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified and in good standing will not, when taken together with all such other failures, have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. Except as set forth in Schedule 4.3, all of the outstanding shares of capital stock of each corporate subsidiary of Roadmaster are validly issued, fully paid, nonassessable and except with respect to wholly owned subsidiaries, free of preemptive rights, and those shares owned directly or indirectly by Roadmaster are owned free and clear of any liens, claims, encumbrances, security interests, equities, charges and options of any nature whatsoever. Except as set forth in Schedule 4.3, Roadmaster owns directly or indirectly all of the issued and outstanding shares of the capital stock of each of its corporate subsidiaries. Except as set forth in Schedule 4.3, there are no subscriptions, options, warrants, rights, calls, contracts, voting trusts, proxies or other commitments, understandings, restrictions or arrangements relating to the issuance, sale, voting, transfer, ownership or other rights with respect to any shares of capital stock of any corporate subsidiary of Roadmaster, including any right of conversion or exchange under any outstanding security, instrument or agreement. Section 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS. (a) Roadmaster has full corporate power and authority to enter into this Agreement and, subject to obtaining the Roadmaster Shareholder's Approval (as defined in Section 6.2(a)), and the Roadmaster Required Statutory Approvals (as defined in Section 4.4(c)), to consummate the transactions contemplated hereby. The execution and delivery of this Agreement, and the consummation by Roadmaster of the transactions contemplated hereby, have been duly authorized by Roadmaster's Board of Directors, and no other corporate proceedings on the part of Roadmaster are necessary to authorize the execution and delivery of this Agreement and the consummation by Roadmaster of the transactions contemplated hereby, except for obtaining the Roadmaster Shareholder's Approval and the Roadmaster Required Statutory Approvals. This Agreement has been duly and validly executed and delivered by Roadmaster, and, assuming the due authorization, execution and delivery hereof by Actava and the Sports Subsidiaries, constitutes a valid and binding agreement of Roadmaster enforceable against it in accordance with its terms. (b) The execution and delivery of this Agreement by Roadmaster does not, and the consummation by Roadmaster of the transactions contemplated hereby will not as of the Closing Date, violate, conflict with or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under, or result in the creation of any lien, security 11 17 interest, charge or encumbrance upon any of the properties or assets of Roadmaster or any of its subsidiaries under any of the terms, conditions or provisions of (i) the respective charters or by-laws of Roadmaster or any of its subsidiaries, (ii) subject to obtaining the Roadmaster Required Statutory Approvals and the Roadmaster Shareholders' Approval, any statute, law, ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit or license of any court or governmental authority applicable to Roadmaster or any of its subsidiaries or any of their respective properties or assets, or (iii) subject to obtaining the approvals set forth in Schedule 4.4(b), any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which Roadmaster or any of its subsidiaries is now a party or by which Roadmaster or any of its subsidiaries or any of their respective properties or assets may be bound or affected, excluding from the foregoing clauses (ii) and (iii) such violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens, security interests, charges or encumbrances that would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. (c) Except for (i) the filings by Roadmaster and Actava required by Title II of the HSR Act, and (ii) the required filings with or approvals set forth in Schedule 4.4(c) (the filings and approvals referred to in clauses (i) and (ii) are collectively referred to as the "Roadmaster Required Statutory Approvals"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of, any governmental or regulatory body or authority is necessary for the execution and delivery of this Agreement by Roadmaster or the consummation by Roadmaster of the transactions contemplated hereby, other than such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not made or obtained, as the case may be, would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. Section 4.5 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1991, Roadmaster and each of its subsidiaries required to make filings under the Securities Act or the Exchange Act have filed with the SEC all material forms, statements, reports and documents (including all exhibits, amendments and supplements thereto) required to be filed by them under the Securities Act, the Exchange Act and the Trust Indenture Act, and the respective rules and regulations thereunder, all of which complied in all material respects with all applicable requirements of the appropriate act and the rules and regulations thereunder, except where such failure to file or non-compliance would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster or its subsidiaries, taken as a whole. Roadmaster has previously delivered to the Actava copies of its (a) Annual Reports on Form 10-K for the fiscal year ended December 31, 1993 and for each of the two immediately preceding fiscal years, including the exhibits and schedules thereto, all as filed with the SEC, (b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, including the exhibits and schedules thereto, as filed with the SEC, (c) proxy and information statements, to the extent required, relating to (i) all meetings of its shareholders (whether annual or special) and (ii) actions by written consent in lieu of a shareholders meeting from January 1, 1991, until the date hereof, and (d) all other reports or registration statements (which have been declared effective) including the exhibits and schedules thereto, all as filed by Roadmaster with the SEC since January 1, 1991 (other than registration statements filed on Form S-8) (collectively, the "Roadmaster SEC Reports"). As of their respective dates, the Roadmaster SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim consolidated financial statements of Roadmaster included in such reports (the "Roadmaster Financial Statements") have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present, in all material respects, the financial position of Roadmaster and its subsidiaries on a consolidated basis as of the dates thereof and the results of their operations and changes in financial position for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal year-end and audit adjustments and any other adjustments described therein. Section 4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in Roadmaster's Annual Report on Form 10-K for the year ended December 31, 1993 and the exhibits and schedules thereto (the 12 18 "Roadmaster 10-K"), or Roadmaster's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 and the exhibits and schedules thereto (the "Roadmaster 10-Q") or in Schedule 4.6, neither Roadmaster nor any of its subsidiaries had at March 31, 1994, or has incurred since that date, any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature, (a) except liabilities, obligations or contingencies (i) which are accrued or reserved against in the Roadmaster Financial Statements or reflected in the notes thereto or (ii) which were incurred after March 31, 1994 in the ordinary course of business and consistent with past practices and (b) except for any liabilities, obligations or contingencies which (i) would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole, or (ii) have been discharged or paid in full prior to the date hereof. Section 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the Roadmaster 10-Q or the other Roadmaster SEC Reports, from March 31, 1994 through the date hereof, (i) there has not been any material adverse change in the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole, and (ii) Roadmaster has not made any declaration, setting aside or payment of any dividend or other distribution with respect to any of Roadmaster's capital stock. Section 4.8 LITIGATION. Except as disclosed in the Roadmaster 10-K, the Roadmaster 10-Q or Schedule 4.8, there are no claims, suits, actions or proceedings pending or, to the knowledge of Roadmaster, threatened against, relating to or affecting Roadmaster or any of its subsidiaries, before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator, which could reasonably be expected, either alone or in the aggregate with all such claims, actions or proceedings, to materially and adversely affect the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. Except as set forth in Schedule 4.8, neither Roadmaster nor any of its subsidiaries is subject to any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or authority or of any arbitrator which prohibits or restricts the consummation of the transactions contemplated hereby or would have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. Section 4.9 TRANSFER CLAIMS. No prior offer, issue, redemption, call, purchase, sale, transfer, negotiation or other transaction of any nature or kind with respect to any capital stock (including shares, offers, options, warrants, or debt convertible into shares, options or warrants) of Roadmaster or any of its subsidiaries, or any corporation which has been merged into Roadmaster or any of its subsidiaries, has given or may give rise to any claim or action by any person which is enforceable against Roadmaster or to the knowledge of Roadmaster any of its subsidiaries, and, to the knowledge of Roadmaster, no fact or circumstance exists which could give rise to any such claim or action on behalf of any person, except for claims or actions which would not have, in the aggregate, a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. Section 4.10 NO VIOLATION OF LAW. Except as disclosed in the Roadmaster 10-K, the Roadmaster 10-Q or Schedule 4.10, neither Roadmaster nor any of its subsidiaries is in violation of, or has been given notice or been charged with any violation of any law, statute, order, rule, regulation, ordinance, or judgment (including, without limitation, any applicable environmental law, ordinance or regulation) of any governmental or regulatory body or authority, except for violations which, in the aggregate, do not have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. Except as disclosed in the Roadmaster 10-K, the Roadmaster 10-Q or Schedule 4.10, as of the date of this Agreement, to the knowledge of Roadmaster no investigation or review by any governmental or regulatory body or authority is pending or threatened, nor has any governmental or regulatory body or authority indicated an intention to conduct the same, other than, in each case, those the outcome of which, as far as reasonably can be foreseen, will not have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries taken as a whole. Roadmaster and its subsidiaries have all permits, licenses, franchises, variances, exemptions, orders and other governmental authorizations, consents and approvals necessary to conduct their businesses as presently conducted, (the "Roadmaster Permits"), except for permits, licenses, franchises, variances, exemptions, 13 19 orders, authorizations, consents and approvals the absence of which, alone or in the aggregate, would not have a material adverse effect on the business, condition (financial or other) or results of operations of the Roadmaster and its subsidiaries, taken as a whole. Roadmaster and its subsidiaries (a) have duly and currently filed all reports and other information required to be filed with any governmental or regulatory authority in connection with the Roadmaster Permits, and (b) are not in violation of the terms of any Roadmaster Permit, except for delays in filing reports or violations which, alone or in the aggregate, would not have a material adverse effect on the business, condition (financial or other) or results of operations of the Roadmaster and its subsidiaries, taken as a whole. Section 4.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed in the Roadmaster 10-K, the Roadmaster 10-Q or in Schedule 4.11, Roadmaster and each of its subsidiaries are not in breach or violation of or in default in the performance or observance of any term or provision of, and no event has occurred which, with lapse of time or action by a third party, could result in a default under, (a) the respective charters, by-laws or other similar organizational instruments of Roadmaster or any of its subsidiaries or (b) any contract, commitment, agreement, indenture, mortgage, loan agreement, note, lease, bond, license, approval or other instrument to which Roadmaster or any of its subsidiaries is a party or by which any of them is bound or to which any of their property is subject, which breaches, violations and defaults, in the case of clause (b) of this Section 4.11, would have, in the aggregate, a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. Section 4.12 TAXES. Except as set forth on Schedule 4.12, Roadmaster and its subsidiaries have, or prior to the Closing Date, will have (i) timely filed (or have, or prior to the Closing Date, will have obtained valid extensions of time to file) with the appropriate governmental authorities all Tax Returns required to be filed by them for all periods ending on or prior to the Closing Date, other than those Tax Returns the failure of which to file would not have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole, and such Tax Returns are true, correct and complete in all material respects, and (ii) duly paid in full or made adequate provision for the payment of all Taxes for all periods ending on or prior to the Closing Date, except where the failure to have paid or to have made adequate provision for the payment of Taxes would not, in the aggregate, have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. Except as set forth on Schedule 4.12, the liabilities and reserves for Taxes reflected in the Roadmaster balance sheets contained in the Roadmaster Financial Statements are adequate to cover all Taxes for all periods ending on or prior to March 31, 1994, except where the inadequacy of such balance sheet liabilities and reserves in covering all Taxes for all periods ending on or prior to March 31, 1994 would not, in the aggregate, have a material adverse effect on the business, conditions (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole, and there are no material liens for Taxes upon any property or assets of Roadmaster or any subsidiary thereof, except for liens for Taxes not yet due and payable. There are no unresolved issues of law or fact arising out of a notice of deficiency, proposed deficiency or assessment from the IRS or any other governmental taxing authority with respect to Taxes of the Roadmaster or any of its subsidiaries which, if decided adversely, singly or in the aggregate, would have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. Except as set forth on Schedule 4.12, no waivers of statutes of limitation with respect to Tax Returns have been given by or requested from Roadmaster or its subsidiaries. Except as set forth on Schedule 4.12, neither Roadmaster nor any of its subsidiaries, nor to the knowledge of Roadmaster any predecessor in interest to any of them, has filed a consent to the application of Section 341(f) of the Code or filed, or shall be deemed to have filed, any election under Section 338 or Section 197 of the Code. Section 4.13 EMPLOYEE BENEFIT PLANS; ERISA. (a) Schedule 4.13(a) hereof lists all Employee Arrangements with respect to which Roadmaster could incur any material liability (the "Material Roadmaster Arrangements"). For purposes of the preceding sentence, the term "Employee Arrangements" shall have the meaning set forth in Section 3.13(a) of this Agreement. Schedule 4.13(a) hereto also separately lists all such Material Roadmaster Arrangements which are "Multiemployer Plans" within the meaning of Sections 3(37) and 4001(3) of ERISA or "Multiple Employer Plans" within the meaning of Section 413(c) of the Code. For 14 20 purposes of this Section 4.13, the term "ERISA Affiliate" shall, with respect to Roadmaster, mean any person or entity required to be aggregated with Roadmaster under Sections 414(b), (c), (m) or (o) of the Code. (b) Except as disclosed in Schedule 4.13(b), (1) there is no liability (a) under Title IV of ERISA, (b) arising out of any communication or failure to communicate, or (c) by reason of the transactions contemplated by this Agreement, with respect to any Employee Arrangement which would have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole, (2) the current present value of all projected benefit obligations under each of the Material Roadmaster Arrangements which is subject to Title IV of ERISA did not, as of its latest valuation date, exceed the then current value of the assets of such Employee Arrangement allocable to such benefit liabilities (based upon actuarial assumptions used by the Pension Benefit Guaranty Corporation for valuing benefits in single-employer plans on termination), (3) each of the Material Roadmaster Arrangements has been written, operated and administered in all respects in accordance with applicable laws and regulations during the period of time covered by the applicable statute of limitations, except where noncompliance would not have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole, (4) each of the Material Roadmaster Arrangements which is intended to be "qualified" within the meaning of Section 401(a) of the Code has been determined by the IRS to be so qualified (or if not, the remedial amendment period for filing an application for determination has not yet expired) and such determination has not been modified, revoked or limited by failure to satisfy any condition thereof, (5) there are no liens arising under ERISA or the Code and there are no claims, suits, actions, audits or proceedings pending or, to the knowledge of Roadmaster, threatened against, relating to or affecting any Employee Arrangement or any person affiliated therewith which could have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole, and (6) each Material Roadmaster Arrangement may be terminated at any time and for any reason by Roadmaster, an ERISA Affiliate of Roadmaster, or an officer or employee thereof. (c) Schedule 4.13(c) separately sets forth a complete and accurate list and description of all material insurance contracts or agreements, annuity contracts, fidelity bonds and fiduciary liability policies, investment manager or investment advisory contacts, and administrative services contracts or agreements with respect to all Material Roadmaster Arrangements. Section 4.14 INVESTMENT COMPANY ACT. Roadmaster and each of its subsidiaries either (a) is not an "investment company", or a company "controlled" by, or an "affiliated company" with respect to, an "investment company", within the meaning of the Investment Company Act or (b) satisfies all conditions for an exemption from the Investment Company Act, and, accordingly, neither Roadmaster nor any of its subsidiaries is required to be registered under the Investment Company Act. Section 4.15 LABOR CONTROVERSIES. Except as set forth in the Roadmaster 10-K, the Roadmaster 10-Q or Schedule 4.15, (a) there are no significant controversies pending or, to the knowledge of Roadmaster, threatened between Roadmaster or its subsidiaries and any representatives of any of their employees, (b) to the knowledge of Roadmaster there are no organizational efforts presently being made involving any of the presently unorganized employees of Roadmaster and its subsidiaries, (c) Roadmaster and its subsidiaries have complied in all material respects with all laws relating to the employment of labor, including, without limitation, any provisions thereof relating to wages, hours, collective bargaining, immigration and the payment of social security and similar Taxes, and (d) no person has, to the knowledge of Roadmaster, asserted that Roadmaster or any of its subsidiaries is liable in any material amount for any arrears of wages or any Taxes or penalties for failure to comply with any of the foregoing, except for such controversies, organizational efforts, noncompliance and liabilities which, singly or in the aggregate, could not reasonably be expected to materially and adversely affect the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole. Section 4.16 ENVIRONMENTAL MATTERS. Roadmaster and its subsidiaries (i) have obtained all permits, licenses and other authorizations and filed all notices which are required to be obtained or filed by Roadmaster or any of its subsidiaries for the operation of its business under federal, state and local laws relating to pollution 15 21 or protection of the environment; (ii) are in compliance with all terms and conditions of such required permits, licenses and authorizations; (iii) are in compliance with all other applicable limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in those laws or contained in any law, regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder, except, under (i), (ii) or (iii) above, where noncompliance would not have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries taken as a whole. Except as disclosed on Schedule 4.16 or where it would not have a material adverse effect on the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries taken as a whole, there are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent continued compliance, or which may give rise to any common law or statutory liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, or hazardous or toxic material or waste with respect to Roadmaster or any of its subsidiaries. Section 4.17 CERTAIN AGREEMENTS. Except as set forth in the Roadmaster 10-K, the Roadmaster 10-Q, or Schedule 4.17, and except for this Agreement, as of the date hereof, neither Roadmaster nor any of its subsidiaries is a party to any oral or written (a) consulting or similar agreement with any present or former director, officer or employee or any entity controlled by any such Person involving the payment or remuneration of more than $50,000 per annum or $200,000 in the aggregate, (b) agreement with any director, officer or employee of Roadmaster or any of its subsidiaries the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Roadmaster of the nature contemplated by this Agreement, (c) agreement with respect to any officer or employee of Roadmaster or any of its subsidiaries providing any term of employment or compensation guarantee extending for a period longer than one year and for the payment or remuneration in excess of $50,000 per annum or $200,000 in the aggregate. Section 4.18 PROPERTIES. (a) Except as disclosed in Schedule 4.18(a), Roadmaster and its subsidiaries have good title to each of their material properties set forth in the Roadmaster Financial Statements, free and clear of all security interests, liens, encumbrances, encroachments and condemnation notices, except liens for current Taxes not yet due and payable, security interests securing indebtedness reflected in the Roadmaster Financial Statements and imperfections of title and agreements of record which do not materially detract from the value or materially interfere with the current use of such properties. (b) Schedule 4.18(b) sets forth a list of all patents, trademarks, service marks, trade names and copyrights owned or licensed by Roadmaster or its subsidiaries that are material to the business of Roadmaster and its subsidiaries, taken as a whole. Section 4.19 AFFILIATE TRANSACTIONS. Except as set forth in Schedule 4.19, there are no contracts, agreements, understandings or arrangements pursuant to which any goods or services are provided or obtained with any director, officer or shareholder of Roadmaster, or with any person related to or affiliated with any such person or with any company or other organization in which any director, officer or shareholder of Roadmaster, or any such person, has a direct or indirect financial interest. Section 4.20 PROXY STATEMENT. None of the information relating to Roadmaster and its subsidiaries included in the Roadmaster Proxy Statement (as defined in Section 6.2) will be false or misleading with respect to any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except for information supplied or to be supplied by Actava or the Sports Subsidiaries in writing for inclusion therein, as to which no representation is made, the Roadmaster Proxy Statement, and any supplements or amendments thereto, will comply in all material respects with the Exchange Act and the Securities Act, as the case may be, and in each case the rules and regulations thereunder. Section 4.21 MATERIALITY. The representations and warranties set forth in this Article IV would in the aggregate be true and correct even without the materiality exceptions or qualifications contained therein 16 22 except for such exceptions and qualifications which, in the aggregate for all such representations and warranties, are not materially adverse to the business, condition (financial or other), results of operations of Roadmaster and its subsidiaries, taken as a whole. ARTICLE V CONDUCT OF BUSINESS PENDING THE EXCHANGES Section 5.1 CONDUCT OF BUSINESS BY THE SPORTS SUBSIDIARIES PENDING THE EXCHANGES. Except as set forth in Schedule 5.1 hereof or as otherwise contemplated by this Agreement, after the date hereof and prior to the Closing or earlier termination of this Agreement, unless Roadmaster shall otherwise agree in writing, the Sports Subsidiaries shall, and shall cause each of their subsidiaries, to: (a) Conduct their respective businesses in the ordinary and usual course of business and consistent with past practice. (b) Not (i) amend or propose to amend their respective charters or by-laws, or (ii) split, combine or reclassify their outstanding capital stock or declare, set aside or pay any dividend or distribution payable in cash, stock, property or otherwise; provided, however, the Sports Subsidiaries shall be permitted to declare and pay to Actava prior to the Closing a cash dividend in an aggregate amount not to exceed $300,000 less accounting fees of independent certified public accountants previously billed by Actava to the Sports Subsidiaries and collected by Actava with respect to accounting work performed in connection with this Agreement for the Sports Subsidiaries' fiscal years prior to 1992. (c) Not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any additional shares of, or any options, warrants or rights of any kind to acquire any shares of their capital stock of any class or any debt or equity securities convertible into or exchangeable for such capital stock. (d) Not (i) incur or become contingently liable with respect to any indebtedness for borrowed money other than (A) borrowings or guarantees in the ordinary course of business or (B) borrowings to refinance existing indebtedness, (ii) redeem, purchase, acquire or offer to purchase or acquire any shares of its capital stock, other than as required by the governing terms of such capital stock, (iii) make any acquisition of any assets or businesses other than (A) the acquisitions described in Schedule 5.1 hereto, (B) expenditures for fixed or capital assets in the ordinary course of business as contemplated in each Sports Subsidiaries capital budget, (C) expenditures for inventory in the ordinary course of business or (D) other acquisitions having a value (including the principal amount of indebtedness assumed or acquired) of less than $1,000,000 individually and $2,000,000 in the aggregate, (iv) sell any assets or businesses other than (A) the sales described in Schedule 5.1 hereto, (B) sales in the ordinary course of business or (C) other sales of less than $1,000,000 individually and $2,000,000 in the aggregate or (v) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing. (e) Use all reasonable efforts to preserve intact their respective business organizations, keep available the services of their respective present officers and key employees, and preserve the business relationships with suppliers, distributors, customers, and others having business relationships with them and not engage in any action, directly or indirectly, with the intent to adversely impact the transactions contemplated by this Agreement. (f) Not enter into or amend any employment, severance, special pay arrangement with respect to termination of employment or other similar arrangements or agreements with any directors, officers or employees, except in the ordinary course and consistent with past practice. (g) Not adopt, enter into or amend any Material Subsidiary Arrangement. (h) Maintain insurance on its assets and its businesses in such amounts and against such risks and losses as are consistent with past practice. Section 5.2 CONDUCT OF BUSINESS BY ROADMASTER PENDING THE EXCHANGES. Except as set forth in Schedule 5.2 or as otherwise contemplated hereby, after the date hereof and prior to the Closing Date or 17 23 earlier termination of this Agreement, unless Actava shall otherwise agree in writing, Roadmaster shall, and shall cause its subsidiaries to: (a) Conduct their respective businesses in the ordinary and usual course of business and consistent with past practice. (b) Not (i) amend or propose to amend their respective charters or by-laws, or (ii) split, combine or reclassify their outstanding capital stock or declare, set aside or pay any dividend or distribution payable in cash, stock, property or otherwise, except for the payment of dividends or distributions by a wholly owned subsidiary of Roadmaster. (c) Not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any additional shares of, or any options, warrants or rights of any kind to acquire any shares of their capital stock of any class or any debt or equity securities convertible into or exchangeable for such capital stock, except that Roadmaster may issue shares upon exercise of outstanding options in the ordinary course of its business and consistent with its past practices. (d) Not (i) incur or become contingently liable with respect to any indebtedness for borrowed money other than (A) borrowings or guarantees in the ordinary course of business or (B) borrowings to refinance existing indebtedness, (ii) redeem, purchase, acquire or offer to purchase or acquire any shares of its capital stock, other than as required by the governing terms of such capital stock, (iii) take or fail to take any action which action or failure to take action would cause Actava to recognize gain or loss for federal income tax purposes as a result of the consummation of the Exchanges, (iv) make any acquisition of any assets or businesses other than (A) the acquisitions described in Schedule 5.2 hereto, (B) expenditures for fixed or capital assets in the ordinary course of business as contemplated in Roadmaster's capital budget, (C) expenditures for inventory in the ordinary course of business or (D) other acquisitions having a value (including the principal amount of indebtedness assumed or acquired) of less than $1,000,000 individually and $2,000,000 in the aggregate, (v) sell any assets or businesses other than (A) the sales described in Schedule 5.2 hereto, (B) sales in the ordinary course of business or (C) other sales of less than $1,000,000 individually and $2,000,000 in the aggregate or (vi) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing. (e) Use all reasonable efforts to preserve intact their respective business organizations, keep available the services of their respective present officers and key employees, and preserve the business relationships with suppliers, distributors, customers, and others having business relationships with them and not engage in any action, directly or indirectly, with the intent to adversely impact the transactions contemplated by this Agreement. (f) Not enter into or amend any employment, severance, special pay arrangement with respect to termination of employment or other similar arrangements or agreements with any directors, officers or employees, except in the ordinary course and consistent with past practice. (g) Not adopt, enter into or amend any Material Roadmaster Arrangement. (h) Maintain with financially responsible insurance companies insurance on its assets and its businesses in such amounts and against such risks and losses as are consistent with past practice. Section 5.3 ACQUISITION TRANSACTIONS. After the date hereof and prior to the Closing or earlier termination of this Agreement, unless the other party shall otherwise agree in writing, neither Roadmaster nor Actava shall, nor shall they permit any of their subsidiaries to, initiate, solicit, negotiate, encourage, or provide confidential information to facilitate any proposal or offer to acquire all or any substantial part of the business and properties of Roadmaster or the Sports Subsidiaries and their respective subsidiaries, taken as a whole, or all or any part of the capital stock of Roadmaster or the Sports Subsidiaries, whether by merger, purchase of assets, tender offer or otherwise, whether for cash, securities or any other consideration or combination thereof (such transactions, exclusive of an acquisition of assets that do not constitute substantially all of the assets of Roadmaster or the Sports Subsidiaries and their respective subsidiaries taken as a whole, being referred to herein as "Acquisition Transactions"). 18 24 Section 5.4 ACCESS TO INFORMATION. The Sports Subsidiaries and their subsidiaries shall, and Actava shall cause the Sports Subsidiaries to, afford to Roadmaster and its respective accountants, counsel, financial advisors and other representatives (the "Roadmaster Representatives") and Roadmaster and its subsidiaries shall afford to Actava and its accountants, counsel, financial advisors and other representatives (the "Actava Representatives") full access during normal business hours throughout the period prior to the Closing to all of their respective properties, books, contracts, commitments and records (including, but not limited to, the Tax Returns of the Sports Subsidiaries and their subsidiaries) and employee compensation information, but not including any records pertaining to confidential employee health, disciplinary or other matters which are not legally relevant to the transactions contemplated by this Agreement and, during such period, shall furnish promptly to one another (i) a copy of each report, schedule and other document filed or received by any of them pursuant to the requirements of federal or state securities laws or filed by any of them with the SEC, and (ii) such other information concerning their respective businesses, properties and personnel as Roadmaster or Actava, as the case may be, shall reasonably request; provided that no investigation pursuant to this Section 5.4 shall affect any representations or warranties made herein or the conditions to the obligations of the respective parties to consummate the Exchanges. The parties acknowledge that the information to be provided by one party to the other under this Section 5.4, and which has been provided prior to the execution and delivery of this Agreement, includes information which is nonpublic, confidential or proprietary in nature. All of such information, in whole or in part, together with any analyses, compilations, studies or other documents prepared by any party, the Roadmaster Representatives, or the Actava Representatives, which contain or otherwise reflect any such information is hereinafter referred to as the "Information". Each party hereby agrees as follows: (a) The Information will be kept confidential and shall not, without the prior mutual written consent of Roadmaster and Actava be disclosed by any party, the Roadmaster Representatives, or the Actava Representatives, in any manner whatsoever, in whole or in part, and shall not be used by any party, the Roadmaster Representatives, or the Actava Representatives, following any termination of this Agreement. Each party agrees to transmit the Information only to its respective employees and representatives who need to know the Information and who shall agree to be bound by the terms and conditions of this Agreement. In any event, each party shall be responsible for any breach of this Agreement by its respective employees or representatives. (b) Each party agrees to keep a record of the location of the Information. If the Exchanges are not consummated, the Information, except for that portion of the Information which consists of analyses, compilations, studies or other documents prepared by each party's respective employees and representatives, will be returned to the other promptly upon request and no party shall retain any copies. That portion of the Information, and all copies thereof, which consists of analyses, compilations, studies or other documents prepared by each party's respective employees and representatives will be destroyed. (c) In the event any party becomes legally compelled to disclose any of the Information, such party will provide to the other prompt notice so that each other party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. In the event that such protective order or other remedy is not obtained, or compliance with the provisions of this Agreement is waived, a party will furnish only that portion of the Information which is legally required, and to the extent requested by the other party, will exercise its best efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded the Information. The term "Information" does not include information which (i) was known to any party about the other prior to its disclosure, provided that Roadmaster, Actava, or their Representatives lawfully obtained or developed such information, (ii) becomes generally available to the public other than as a result of a disclosure by Roadmaster, Actava, or their Representatives in violation of this Agreement, or (iii) becomes available from a source other than Roadmaster, Actava, or their Representatives, if the source is not bound by a confidentiality agreement and such source lawfully obtained such information. 19 25 ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect, Actava and Roadmaster shall not, and shall cause their affiliates not to, issue or cause the publication of any press release or any other announcement with respect to the Exchanges or the transactions contemplated by this Agreement without the consent of the other party, except where such release or announcement is required by applicable law or pursuant to any listing agreement with, or the rules or regulations of, any national securities exchange on which securities of Actava or Roadmaster, are listed or traded. Section 6.2 SHAREHOLDERS' APPROVAL; PROXY STATEMENT. (a) Roadmaster shall promptly submit this Agreement and the transactions contemplated hereby for the approval of its shareholders and, subject to the fiduciary duties of the Board of Directors of Roadmaster under applicable law, shall use its best efforts to obtain stockholder approval and adoption of this Agreement and the transactions contemplated hereby (the "Roadmaster Shareholders' Approval"). Subject to the fiduciary duties of the Board of Directors of Roadmaster under applicable law, Roadmaster shall, through its Board of Directors, recommend to its shareholders approval of the transactions contemplated by this Agreement. As soon as practicable, Roadmaster shall file with the SEC under the Exchange Act, and shall use its best efforts to have cleared by the SEC, a proxy statement (the "Roadmaster Proxy Statement"), with respect to the approval of the Roadmaster's stockholders referred to above. Roadmaster shall comply with all applicable requirements of "Blue Sky" and state securities laws in connection with the Exchanges and the issuance of the Exchange Shares prior to the Closing. (b) If required, Actava shall submit this Agreement and the transactions contemplated hereby for the approval of its shareholders and, subject to the fiduciary duties of the Board of Directors of Actava under applicable law, shall use its best efforts to obtain shareholder approval and adoption of this Agreement and the transactions contemplated hereby (the "Actava Shareholders' Approval"). Subject to the fiduciary duties of the Board of Directors of Actava under applicable law, Actava shall, through its Board of Directors, recommend to its shareholders approval of the transactions contemplated by this Agreement. If Actava Shareholders' Approval is required, Actava shall file with the SEC under the Exchange Act, and shall use its best efforts to have cleared by the SEC, a proxy statement (the "Actava Proxy Statement"), with respect to the approval of the Actava's shareholders referred to above. Section 6.3 EXPENSES. Except as provided in Section 5.1(b) hereof as to Actava, Actava shall be responsible for all costs and expenses incurred by Actava and the Sports Subsidiaries in connection with this Agreement and Roadmaster shall be responsible for all costs and expenses incurred by Roadmaster in connection with this Agreement. Section 6.4 AGREEMENT TO COOPERATE. Subject to the terms and conditions herein provided, each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including using its reasonable efforts to obtain all necessary or appropriate governmental or third party waivers, consents and approvals and SEC "no-action" letters, to effect all necessary registrations, filings and submissions (including, but not limited to, filings under the HSR Act and any other submissions requested by the Federal Trade Commission (the "FTC") or Department of Justice the ("DOJ")) and to lift any injunction or other legal bar to the Exchanges (and, in such case, to proceed with the Exchanges as expeditiously as possible). Section 6.5 STOCK EXCHANGE LISTING. Roadmaster shall use its reasonable best efforts to cause the listing of all shares of Roadmaster Common Stock and the Exchange Shares on the New York Stock Exchange (the "NYSE") prior to or simultaneous with the Closing. Section 6.6 INSURANCE COVERAGE. Roadmaster acknowledges and agrees that all of the insurance policies in force naming the Sport Subsidiaries, any of their subsidiaries or employees thereof as an insured or beneficiary or as a loss payee or for which the Sports Subsidiaries or any of their subsidiaries has paid or is obligated to pay all or part of the premiums shall be terminated as of the Closing. Roadmaster agrees that it 20 26 will arrange to provide, effective as of the Closing, insurance coverage for the Sports Subsidiaries from responsible companies in such amounts and against such risks as Roadmaster and its subsidiaries maintain in the ordinary course of business. Section 6.7 RELEASES. Roadmaster agrees to use all reasonable efforts to take, or cause to be taken, all action and to do or cause to be done, all things necessary, proper or advisable to release Actava from any guaranty or assurance of any obligation (payment or performance) of the Sports Subsidiaries and their subsidiaries, including, without limitation, Actava's obligations under that certain (a) Support Agreement, dated as of April 29, 1993, between Actava and Sterling National Bank & Trust Company of New York (the "Support Agreement"), (b) Guaranty (Arbitration), dated December 15, 1993, as amended, in favor of ITT Commercial Finance Corp. and The Provident Bank (the "ITT Guaranty"), (c) Limited Guaranty, dated October 13, 1992, in favor of First Union National Bank of North Carolina (the "1992 First Union Guaranty"); and (d) Guaranty, dated June 6, 1988, in favor of First Union National Bank of North Carolina (the "1988 First Union Guaranty"); provided, however, the parties agree that such actions on the part of Roadmaster to obtain the release of Actava from any such guaranty or assurance shall in no event include the contribution of cash to the Sports Subsidiaries by Roadmaster where such funds would be required to be used by the Sports Subsidiaries to satisfy their respective obligations to which any such Actava guaranty or assurance relates. Roadmaster shall indemnify and reimburse Actava for any and all claims, losses, liabilities, damages, costs (including court costs), and expenses (including reasonable attorneys and accountants' fees) incurred by Actava, its successors or assigns, and their respective officers, employees, consultants and agents after the Closing as a result of any guaranty or assurance of any obligation (payment or performance) of the Sports Subsidiaries and their subsidiaries, including, without limitation, the ones specifically set forth herein; provided, however, Roadmaster's indemnity obligation set forth herein shall not apply to any liability or obligation required to be, but which was not disclosed on the schedules to this Agreement. Section 6.8 ADDITIONAL INCOME TAX MATTERS. (a) Each of the Sports Subsidiaries will continue to join, for all taxable periods of such Sports Subsidiaries ending on or before the Closing Date, as members of the Affiliated Group filing a consolidated federal income tax return for federal income tax purposes. Actava shall be responsible for preparing and filing such consolidated federal income tax returns to be filed on behalf of the Affiliated Group for such periods and shall timely pay or cause to be paid all federal income taxes shown as due on such tax returns. Roadmaster agrees that it shall provide (or shall cause its accountants and other representatives to provide) to Actava within three (3) months after the Closing Date, the information, including but not limited to internally prepared financial statements, tax work papers and records relating to the Sports Subsidiaries, that is reasonably necessary or related to Actava's preparation of the federal income tax returns of the Sports Subsidiaries for the taxable period ending on the Closing Date which will be included in the consolidated federal income tax return for the Affiliated Group for its taxable year beginning January 1, 1994 which will be filed by Actava (the "1994 Consolidated Return"). (b) Each of the Sports Subsidiaries will file their respective state or local income or franchise tax returns based on the statutory filing requirements of the jurisdictions in which they have filing responsibilities including, but not limited to, filing on a combined, separate company or other statutory basis as required by the particular jurisdiction. The returns will be filed based on the statutorily defined tax period of the particular jurisdiction in which the filing occurs. Such tax returns may, for example, include the period January 1, 1994 to the Closing Date or may include the period January 1, 1994 to December 31, 1994 depending on the particular jurisdiction's requirements. The Sports Subsidiaries shall be responsible for preparing all their respective state or local income or franchise tax returns that have a tax period of January 1, 1994 to the Closing Date and shall timely pay or cause to be paid all state or local income or franchise taxes shown as due on such returns. The Sports Subsidiaries shall also be responsible for preparing all their respective state or local income or franchise tax returns that have a tax period of either the Closing Date to December 31, 1994 or January 1, 1994 to December 31, 1994 and shall timely pay or cause to be paid all state or local income or franchise taxes shown as due on such returns. If a jurisdiction has a short period filing requirement other than that described above, it is the intent of this Section 6.8(b) that the Sports Subsidiaries have all filing and payment responsibility for the tax returns for both the first and second such short periods. Actava agrees that it shall provide (or shall cause its accountants and other representatives to provide) to the Sports Subsidiaries 21 27 within three (3) months after the Closing Date, the information, including but not limited to internally prepared financial statements, tax work papers and records relating to the operations of the Sports Subsidiaries for the period January 1, 1994 through the Closing Date, that is reasonably necessary or related to the Sports Subsidiaries' preparation of all the state or local income or franchise tax returns for which they have filing and payment responsibility pursuant to this Section 6.8(b). Notwithstanding anything to the contrary in this Section 6.8(b), for any taxable period ending on or before the Closing Date, Actava shall be responsible (and the Sports Subsidiaries shall not be responsible) for the payment of any state or local income or franchise taxes related to or arising out of business conducted by any Actava entity other than the Sports Subsidiaries and their subsidiaries. (c) Roadmaster shall indemnify and hold harmless Actava against, all Taxes with respect to the Sports Subsidiaries and their subsidiaries for any taxable period ending on or before the Closing Date; provided, however, Actava will indemnify and hold harmless Roadmaster and the Sports Subsidiaries against: (i) any and all liability for or with respect to federal income taxes for any taxable period ending on or before the Closing Date that is asserted against one or more of the Sports Subsidiaries by reason of it being severally liable for the entire federal income taxes of the Affiliated Group pursuant to Section 1.1502-6 of the Treasury Regulations; (ii) state or local income or franchise tax liability related to or arising out of business conducted by any Actava entity other than the Sports Subsidiaries and their subsidiaries for any taxable period ending on or before the Closing Date; and (iii) state or local income or franchise taxes of the Sports Subsidiaries for any taxable period ending on or before the Closing Date but only after there have been one or more Adjustments (as defined below) of such particular tax so that as adjusted, such particular state or local income or franchise tax plus any penalties and interest thereon (each such Adjustment plus the attributable penalties and interest being hereinafter referred to as an "Actava Adjustment Amount"), as reduced by the Tax Benefits (as defined and as calculated as set forth below) realized by the Sports Subsidiaries, Roadmaster and its other subsidiaries in connection with each such Adjustment in the manner described below, have exceeded on a cumulative basis, the amount of such particular state or local income or franchise tax to which each such Adjustment relates which has been accrued for and relates solely to the taxable periods ending on or before the Closing Date and which was reflected in the Sports Subsidiaries Financial Statements plus $250,000.00 (each such particular accrued tax reflected on such financial statements plus the single $250,000.00 amount, which applies on an aggregate basis to all such Actava Adjustment Amounts and not to each Actava Adjustment Amount, being hereinafter referred to as the "Actava Threshold"), all subject to the provisions set forth below in this Section 6.8(c) governing the provisions of the potential indemnity obligation created pursuant to this clause (iii). Roadmaster shall also indemnify and hold harmless Actava against: (X) all Taxes with respect to the Sports Subsidiaries and their subsidiaries for all taxable periods beginning after the Closing Date, and (Y) state or local income or franchise taxes of Roadmaster and its subsidiaries for any taxable period ending on or before the Closing Date but only after there have been one or more Adjustments of such particular tax so that adjusted, such particular state or local income or franchise tax plus any penalties and interest thereon (each such Adjustment plus the attributable penalties and interest being hereinafter referred to as a "Roadmaster Adjustment Amount"), as reduced by the Tax Benefits realized by Actava and its subsidiaries in connection with each such Adjustment in the manner described below, have exceeded on a cumulative basis, the amount of such particular state or local income or franchise tax which has been accrued for and relates solely to the taxable periods ending on or before the Closing Date and which was reflected in the Roadmaster Financial Statements plus $250,000.00 (each such particular accrued tax reflected on such financial statements plus the single $250,000.00 amount, which applies on an aggregate basis to such Roadmaster Adjustment Amounts and not to each such Roadmaster Adjustment Amount, being hereinafter referred to as the "Roadmaster Threshold"), all subject to the provisions set forth below in this Section 6.8(c) governing the provisions of the potential indemnity obligation created pursuant to this clause (Y). Except for the Roadmaster obligation described in clause (Y) above in the second sentence of this Section 6.8(c), any indemnity payable by Roadmaster to Actava pursuant to this Section 6.8(c) shall be paid within ten (10) days after Actava's written request therefor, or if later, ten (10) days prior to the date the liability for Taxes upon which the indemnity is based is required to be satisfied by Actava. Except for the Actava indemnity obligation described in clauses (ii) and (iii) above in the first sentence of this Section 6.8(c), any indemnity payable by 22 28 Actava to Roadmaster pursuant to this Section 6.8(c) shall be paid within ten (10) days after Roadmaster's written request therefor, or if later, ten (10) days prior to the date the liability for federal income taxes upon which the indemnity is based is required to be satisfied by the Sports Subsidiaries. To the extent that Roadmaster on the one hand, and Actava on the other hand, shall be required to make any indemnity payment to the other party pursuant to any of the provisions of this Section 6.8, all such indemnity payments shall be treated by the parties as non-taxable adjustments to the Exchanges; provided, that if, pursuant to a written opinion of independent counsel of recognized standing selected by the party receiving the indemnity payment and reasonably approved by the party making the indemnity payment, to the effect that such indemnity payment is required to be included in the taxable income of the party receiving the indemnity payment or its affiliates, then the amount of any such indemnity payment shall include a "gross-up" for any federal, state or local income or franchise taxes actually payable by the recipient of such indemnity payment as a result of the receipt or accrual of such indemnity payment (including such "gross-up"). Notwithstanding anything to the contrary in this Section 6.8(c), the parties hereto agree that the party who is entitled to receive any indemnity payment from another party pursuant to this Section 6.8(c) shall have the right, exercisable in its sole discretion, to waive its right to receive such indemnity payment in cash and also, solely in the case of any indemnity payment Actava is entitled to receive from Roadmaster pursuant to Section 6.8(c), Actava shall have the right to instead require Roadmaster to satisfy such indemnity payment with Roadmaster Common Stock pursuant to the provisions of Section 6.13 hereof, by notice to the party required to make such payment. As discussed above in clause (iii) in the first sentence of this Section 6.8(c) and in clause (Y) in the second sentence of this Section 6.8(c), respectively, the parties hereto agree that in calculating the amounts that are credited against and thereby reduce the Actava Threshold and the Roadmaster Threshold that must be exhausted before either Actava or Roadmaster, as the case may be, have the obligation to make indemnity payments to each other under the above referenced provisions, each Actava Adjustment Amount and each Roadmaster Adjustment Amount shall be reduced by the dollar amount of any Tax Benefits (as defined and as calculated as set forth below) obtained in connection with such Adjustment by the party seeking to reduce the applicable threshold of the other party (hereinafter the "Indemnitee"). Each Actava Adjustment Amount or Roadmaster Adjustment Amount, as the case may be, as reduced by the applicable Tax Benefits realized by the Indemnitee shall be referred to hereinafter as the "After-Tax Adjustment Amount." If the Tax Benefits are realized by the Indemnitee in the same taxable period in which the Indemnitee seeks the reduction of the other party's threshold as a result of an Adjustment, then the Tax Benefits shall be taken into account by reducing each Actava Adjustment Amount or each Roadmaster Adjustment Amount, as the case may be, by the full dollar amount of the Tax Benefits in arriving at the After-Tax Adjustment Amount. If the Tax Benefits are not realized by the Indemnitee in the same taxable period in which Indemnitee seeks the reduction of the other party's threshold but instead are realized by the Indemnitee in one or more future taxable periods, then the reduction of each Actava Adjustment Amount or each Roadmaster Adjustment Amount, as the case may be, shall be the amount which is the present value of such Tax Benefits over the periods such Tax Benefits will be realized by the Indemnitee using a discount rate equal to the "prime rate" established by The Chase Manhattan Bank (National Association) from time to time in its sole discretion as its prime rate of interest. Further, with respect to the actual indemnity payments that shall be payable by either Actava or Roadmaster to the other party if the Actava Threshold or the Roadmaster Threshold is exceeded by one or more After-Tax Adjustment Amounts, Actava or Roadmaster, as the case may be, shall only make indemnity payments to the other party to the extent that one or more After-Tax Adjustment Amounts exceed the Actava Threshold or the Roadmaster Threshold, as the case may be (before considering any required "gross up" of such indemnity payment as discussed above). For purposes of this Section 6.8(c), the term "Tax Benefits" means any credits, deductions or other tax benefits for federal income tax purposes the Indemnitee is entitled to related to or arising out of an Actava Adjustment Amount or Roadmaster Adjustment Amount, as the case may be. Further, it shall be assumed that: (A) for purposes of calculating the dollar value of Tax Benefits to the Indemnitee, the federal income tax rate applicable to the Indemnitee is equal to 34%; (B) the Indemnitee would be able to utilize any Tax Benefits in the taxable period such Tax Benefits were originally anticipated to be available; and (C) the 23 29 Indemnitee will realize the benefit of any credit, deduction, or other tax benefit in the taxable period in which such credit deduction, or tax benefit could first have been properly reflected on Indemnitee's federal income tax return. For purposes of this Section 6.8(c), the term "Adjustment" means that an item of deduction, credit, income or other item on a consolidated, combined, unitary or separate tax return of the Sports Subsidiaries and their subsidiaries on one hand, and Roadmaster and its subsidiaries on the other hand, with respect to a particular state or local income or franchise tax, is adjusted as a result of or in settlement of any audit, other administrative proceeding or judicial proceeding or as a result of the filing of an amended tax return to reflect the consequences of any determination made in connection with any such audit or proceeding with respect to the applicable taxable periods. Any indemnity payments by Actava pursuant to clause (iii) in the first sentence above and by Roadmaster pursuant to clause (Y) in the second sentence above shall only be made after the procedures for the verification of the documentation and calculations described herein in this Section 6.8(c) have been completed. Each party shall promptly notify the other party of any notice or audit or other proceeding with respect to a potential Adjustment and shall include in such notice the pertinent facts surrounding such potential Adjustment and shall promptly provide the other party with copies of all correspondence with the taxing authority as well as all decision documents executed by the party and the taxing authority with respect to the final determination of any proposed Adjustment. Pursuant to the provisions of Sections 6.8(d) and (e), the party who would bear indemnity responsibility for each such Adjustment shall have the absolute right to control the proceedings relating to such Adjustment but shall share information relevant to the potential indemnity obligation with the other party. Whenever the Indemnitee proposes to reduce the Actava Threshold or the Roadmaster Threshold, as the case may be, as the result of an Adjustment, the Indemnitee shall provide the other party with all the necessary documentation and calculations of the Actava Adjustment Amount or Roadmaster Adjustment Amount, the applicable Tax Benefits and the present value of such Tax Benefits, if applicable, all of which must be determined in arriving at the After-Tax Adjustment Amount which the Indemnitee seeks to apply to reduce or to exceed the Actava Threshold or the Roadmaster Threshold, as the case may be. The parties shall endeavor to mutually agree on the calculations of the After-Tax Adjustment Amounts and the amounts comprising it which determine whether and to what extent either Actava or Roadmaster has an obligation to make indemnity payments to the other party hereunder with respect to Adjustments. All notices and other written communications pursuant to this Section 6.8(c) shall be made in the manner provided for in Section 9.3 hereof. Prior to the Closing Date the parties agree that Actava shall have the right to adjust the liabilities balances with respect to state and local income or franchise taxes to properly reflect such liabilities on the Sports Subsidiaries Interim Financial Statements and Roadmaster shall also have the right to adjust the liabilities balances with respect to state and local income or franchise taxes to properly reflect such liabilities on the Roadmaster Financial Statements. (d) The Sports Subsidiaries (and Roadmaster) shall have the right, in their sole discretion, to direct and control the handling of all tax matters relating to Taxes of the Sports Subsidiaries for the taxable periods ending before and after the Closing Date to the extent the Sports Subsidiaries are liable for such Taxes under this Agreement (and to the extent of Roadmaster's indemnity obligation in favor of Actava under Section 6.8(c)), including but not limited to the right to prosecute all administrative and judicial remedies, to settle all issues, to enter into closing agreements, and to execute consents or waivers extending the statute of limitations; Actava (and any successor or assign) shall grant such powers of attorney to the Sports Subsidiaries (and Roadmaster) and enter into such further documents as the Sports Subsidiaries (and Roadmaster) may in their reasonable judgment consider necessary or appropriate to enable the Sports Subsidiaries (and Roadmaster) to take all actions desired by the Sports Subsidiaries (and Roadmaster) in connection with any of the foregoing matters. Actava agrees that it shall not, nor shall it permit any other person, to waive the provisions of any statute of limitations as such provisions may apply to the assessment of income or franchise taxes for any taxable period ending on or before the Closing Date. If any governmental body or authority shall commence an examination, investigation, audit or other proceeding with respect to any Tax Return covering the operations of Actava (or any predecessor thereof) for taxable periods ending on or before the Closing Date, or shall give the Sports Subsidiaries (and Roadmaster) or Actava a notice of deficiency, or advise either of a proposed adjustment to income or franchise taxes, or assert any other claim or demand concerning a taxable period covered by such Tax Return, then the Sports Subsidiaries (and Roadmaster) or Actava shall promptly notify the other parties of such claim or demand. 24 30 (e) Actava shall have the right, in its sole discretion, to direct and control the handling of all tax matters relating to: (A) the federal income taxes of the Affiliated Group for all taxable periods whether before or after the Closing Date such Affiliated Group has filed a consolidated federal income tax return, including without limitation the taxable periods one or more of the Sports Subsidiaries were members of such Affiliated Group filing a consolidated return; and (B) for state or local income or franchise taxes of the Sports Subsidiaries, for which Roadmaster and the Sports Subsidiaries may seek indemnity from Actava under Section 6.8(c) hereof (by virtue of clauses (i), (ii) and (iii) of the first sentence of Section 6.8(c) hereof) including but not limited to the right to prosecute all administrative and judicial remedies, to settle all issues, to enter into closing agreements, and to execute consents or waivers extending the statute of limitations. (f) All refunds of Taxes related to or arising out of business conducted by the Sports Subsidiaries and their subsidiaries (together with any interest thereon) received for or relating to any taxable period ending on or before the Closing Date, shall belong to and be kept by or promptly paid to Actava if after the Closing Date, such refund comes into the possession of Roadmaster, the Sports Subsidiaries or any of their subsidiaries. (g) Under Temporary Regulation ("Temp. Reg.") sec.1.197-1T, Actava may make an election to apply the provisions of Section 197 of the Code to all eligible Section 197 intangibles acquired by it and all the members of its Affiliated Group after July 25, 1991, and on or before August 10, 1993 (hereinafter the "Retroactive Election" as such election is defined under Temp. Reg. sec.1.197-1T(a)) with respect to Actava's "election year" which, under Temp. Reg. sec.1.197-1T(b)(5), is Actava's taxable year ended December 31, 1993 ("Actava's Election Year"). Roadmaster acknowledges and agrees that Actava shall only make the Retroactive Election for Actava's Election Year if Actava determines in its sole discretion that making such Retroactive Election would not result, with respect to any of the taxable years impacted by such Retroactive Election, in any material adverse tax consequences to Actava, any of the Sports Subsidiaries (while members of Actava's Affiliated Group), or any of the other members of the Affiliated Group. (h) Actava on the one hand, and the Sports Subsidiaries on the other hand, shall provide each other with such assistance as may reasonably be requested by each of them in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to the Taxes of the Sports Subsidiaries; provided, further, that Actava shall provide the Sports Subsidiaries (and Roadmaster) access to records and information with respect to the federal income taxes of the Affiliated Group to the extent such information (i) is reasonably necessary to the Sports Subsidiaries' preparation of its Tax Returns, and (ii) relates to Taxes of the Sports Subsidiaries for which they are liable under this Agreement (and for which Roadmaster has an indemnity obligation pursuant to Section 6.8(c) hereof). Actava, the Sports Subsidiaries (and their subsidiaries) and Roadmaster agree that they will each file their respective Tax Returns on the basis that each of the Exchanges qualifies as a "reorganization" under Section 368(a)(1)(B) of the Code. (i) Upon consummation of the Exchanges, each of the Sports Subsidiaries will cease to be members of the Actava Affiliated Group. Roadmaster and Actava agree that to the extent that Actava or the Sports Subsidiaries (and their subsidiaries) are eligible to make Tax elections that (A) impact the federal income tax liability of Actava on the Affiliated Group's consolidated federal income tax returns including without limitation, the 1994 Consolidated Return or (B) otherwise affect the Taxes of the Sports Subsidiaries and their subsidiaries for taxable periods ending on or before the Closing Date, Actava shall, except as otherwise provided in this Agreement, have the right in its sole discretion to make or not make all such elections. Section 6.9 INTERCOMPANY ACCOUNTS. (a) Notwithstanding Section 5.1 hereof, the parties hereto agree that prior to the Closing Date, each of the Sports Subsidiaries shall authorize, declare and pay an in-kind dividend to Actava in an amount equal to and the form of the then outstanding intercompany loans made by such Sports Subsidiary to Actava. (b) The parties hereto agree that Actava shall calculate and charge to each Sports Subsidiary an administrative service fee for the period from January 1, 1994 through the Closing Date. Such administrative service fee shall be calculated in a manner consistent with prior years and shall be accrued by each Sports Subsidiary. 25 31 (c) The parties hereto agree that in no event shall Actava pay any cash to the Sports Subsidiaries (or Roadmaster) at any time to compensate the Sports Subsidiaries (or Roadmaster) for Actava's realization of any tax benefit with respect to the Taxes of the Sports Subsidiaries. (d) The parties further agree that other than amounts previously billed the Sports Subsidiaries by Actava prior to the execution of this Agreement, Actava shall not further bill the Sports Subsidiaries for their estimated respective shares of the consolidated federal tax liability of the Affiliated Group for the taxable year beginning January 1, 1994. (e) Actava agrees it shall contribute to the capital of the respective Sports Subsidiaries on or prior to the Closing Date the outstanding intercompany payable amounts previously billed by Actava to the Sports Subsidiaries with respect to consolidated federal income taxes and with respect to administrative service fees. The parties agree that all other outstanding intercompany payable amounts previously billed by Actava to the Sports Subsidiaries (whether billed before or after the date hereof) shall be paid to Actava on the Closing Date or if later, in the normal course of business. Actava and the Sports Subsidiaries agree that such intercompany amounts shall be the result of arms-length transactions. By way of description only, such amounts as of July 1, 1994 are as set forth on Schedule 6.9(e). Section 6.10 EMPLOYEE BENEFITS MATTERS. (a) Certain Post-Retirement Benefits. (i) Provision of Benefits. As of the date of execution of this Agreement, the parties hereto have not reached agreement as to the provision of Post-Retirement Benefits (if any) to employees and former employees (and their dependents) of the Sports Subsidiaries on and after the Closing Date, but the parties intend that such an agreement shall be reached after the date of execution of this Agreement and prior to the Closing Date, and shall continue their negotiations in good faith following the execution of this Agreement. Notwithstanding whether such an agreement is reached by the parties, the parties intend to consummate the Exchanges and agree that Actava and/or the Sports Subsidiaries may amend or terminate the provision of Post-Retirement Benefits provided under their respectively sponsored plans at any time and for any reason, whether prior to, on or after the Closing Date. (ii) Indemnification. Notwithstanding whether the parties agree as provided in paragraph (i) above, Roadmaster and, after the Closing Date, the Sports Subsidiaries, shall, jointly and severally, indemnify and hold harmless Actava, the assigns, employees, agents, representatives, and successors of Actava, each and every Actava Plan, and the agents, employees, servants, independent contractors, attorneys, representatives, actuaries, accountants, fiduciaries, administrators, administrative committee(s) or other committee(s), and trustees of, or associated with, each and every Actava Plan from any and all claims, losses, liabilities, damages, costs (including court costs) and expenses (including reasonable attorneys', actuaries' and accountants' fees) which arise by reason of, or are in any way connected with, or which are or may be based in whole or in part on, (x) the cost and expense of providing former employees of the Sports Subsidiaries (or their dependents) with Post-Retirement Benefits, and (y) the liability to provide employees (or their dependents) of a Sports Subsidiary with Post-Retirement Benefits; provided, however, no such right to indemnification shall exist with respect to Post-Retirement Benefits which are required to be provided to such individuals under Code sec.4980B and/or Part 6 of Title I of ERISA. If Post-Retirement Benefits cease to be provided to employees or former employees (or their dependents) of the Sports Subsidiaries prior to the Closing Date due to actions taken by Actava or the Sports Subsidiaries, or if Roadmaster requests Actava or the Sports Subsidiaries to cease providing Post-Retirement Benefits to employees or former employees (or their dependents) of the Sports Subsidiaries prior to the Closing Date, the indemnification of the preceding sentence shall not, in the aggregate, exceed the sum of the Post-Retirement Benefit Liability of each Sports Subsidiary determined immediately prior to the effective date of such cessation of Post- Retirement Benefits or, in the case of a request for cessation by Roadmaster where cessation is not effectuated, as of the Closing Date. 26 32 (iii) Definitions. For purposes of this subsection (a), the following terms shall have the following meanings: a) "Actava Plan" shall mean an employee welfare benefit plan (as defined in ERISA sec.3(1)) sponsored and maintained by Actava providing medical, dental, vision or death benefits to employees and/or former employees (and/or their dependents). b) "DP Plan" shall mean an employee welfare benefit plan (as defined in ERISA sec.3(1)) sponsored and maintained by Actava providing medical, dental, vision or death benefits to employees and/or former employees (and/or their dependents). c) "Post-Retirement Benefit Liability" shall mean, with respect to a Sports Subsidiary, the liability as shown on the accounting books and records of such Sports Subsidiary for Post-Retirement Benefits in accordance with the requirements of Financial Accounting Standard 106 promulgated by the Financial Accounting Standards Board, with such liability determined for such Sports Subsidiary as of the date which is immediately prior to the date on which the appropriate plan which would have the liability for providing Post-Retirement Benefits for such Sports Subsidiary (the Actava Plan or the DP Plan, as applicable) is amended as described in subparagraph (a) of paragraph (i) above. d) "Post-Retirement Benefits" shall mean medical, dental, vision or life insurance benefits provided to an employee (or his or her dependents) after termination of the employee's employment. (b) Division of COBRA Responsibilities. (i) COBRA Responsibilities Under Actava Health Plan. With respect to any qualified beneficiary covered under the Fuqua Industries, Inc. and Affiliated Companies Health Plan (the "Actava Health Plan"), the Actava Health Plan shall be responsible for the provision of any continuation coverage required under Code sec.4980B and/or Part 6 of Title I of ERISA due to the occurrence of a qualifying event with respect to such qualified beneficiary while such qualified beneficiary was covered under the Actava Health Plan. (ii) COBRA Responsibilities Under DP Plan. With respect to any qualified beneficiary covered under the Diversified Products Corporation Medical Plan (the "DP Health Plan"), the DP Health Plan shall be responsible for the provision of any continuation coverage required under Code sec.4980B and/or Part 6 of Title I of ERISA due to the occurrence of a qualifying event with respect to such qualified beneficiary while such qualified beneficiary was covered under the DP Health Plan. (iii) Definitions. For purposes of this subsection (b), the terms "qualified beneficiary," "qualifying event," and "continuation coverage" shall have the meanings specified in Code sec.4980B and/or Part 6 of Title I of ERISA. (c) Participation in Certain Plans. (i) Actava Sponsored Plans. On or prior to the Closing Date, each of the Sports Subsidiaries shall cease participation in, and shall (after the payment of any contributions due) cease making contributions to, all employee benefit plans (as defined in ERISA sec.3(3)) which are sponsored by Actava or an ERISA Affiliate of Actava other than the Sports Subsidiaries, except for the participation of NWR and Willow in The Actava Group, Inc. Sports Group Profit Sharing Plan Profit Sharing Plan. Employees of the Sports Subsidiaries participating in such employee benefit plans shall cease active participation in, or coverage under, such plans simultaneously with the cessation of participation by their employing Sports Subsidiary; to the extent that such plans do not provide for such cessation of participation or coverage at that time without the necessity of an amendment to such plans, such plans shall be amended to so provide. Any vested accrued or other benefits under such plans shall be paid to such employees in accordance with the terms and provisions of such plans. Roadmaster shall take whatever measures are necessary to ensure that all employees of the Sports Subsidiaries presently participating in any health care plan sponsored, maintained or contributed to by the Sports Subsidiaries shall be able to participate (without preexisting 27 33 condition limitations) as of the Closing date in a group health care plan sponsored by Roadmaster or an affiliate of Roadmaster which is subject to Part 6 of Title I of ERISA. (ii) Sports Subsidiary Plans. On or prior to the Closing Date, Actava and all ERISA Affiliates of Actava other than the Sports Subsidiaries shall cease participation in, and shall (after the payment of any contributions due) cease making contributions to, all employee benefit plans (as defined in ERISA sec.3(3)) which are sponsored by a Sports Subsidiary. Employees of Actava or any ERISA Affiliate of Actava participating in such employee benefit plans shall cease active participation in, or coverage under, such plans simultaneously with the cessation of participation by their employer; to the extent that such plans do not provide for such cessation of participation or coverage at that time without the necessity of an amendment to such plans, such plans shall be amended to so provide. Any vested accrued or other benefits under such plans shall be paid to such employees in accordance with the terms and provisions of such plans. All employees of Actava or any ERISA Affiliate of Actava other than the Sports Subsidiaries shall become fully vested in their accrued benefits under the Diversified Products Corporation Profit Sharing/401(k) Plan as of the Closing Date. (iii) Transfer of Sponsorship. As of the Closing Date, Roadmaster (or an ERISA Affiliate thereof) shall assume the sponsorship of The Actava Group, Inc. Sports Group Profit Sharing Plan, whether or not Roadmaster (or such ERISA Affiliate) participates in such plan, and NWR and Willow shall continue their participation in such plan as of the Closing Date. The parties to this Agreement agree to take all actions necessary to effectuate such transfer of sponsorship. (iv) Definitions. For purposes of this subsection (c), the term ERISA Affiliate shall, with respect to an entity, mean each other employer which would be required to be aggregated with such entity under the provisions of Code sec.414(b), (c), (m) or (o). Section 6.11 FINANCIAL STATEMENTS. Prior to the Closing, Actava shall deliver to Roadmaster (a) an audited income statement for the fiscal year ended December 31, 1991 for each Sport Subsidiary (other than DP) and (b) an audited balance sheet of DP as of June 7, 1993 and the related audited statements of income, retained earnings and cash flows for the year then ended. The financial statements delivered pursuant to this Section 6.11 shall have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto). Section 6.12 PRODUCTS LIABILITY. (a) Actava shall indemnify Roadmaster for: (i) any losses, liabilities, damages, costs (including court costs), and expenses (including reasonable attorneys and accountants' fees) incurred by Hutch, NWR or Willow as a result of any products liability claim against Hutch, NWR or Willow by consumers with respect to injuries caused by alleged defects in products of Hutch, NWR or Willow and which occurred on or prior to the Closing Date; and (ii) any losses, liabilities, damages, costs (including court costs), and expenses (including reasonable attorneys and accountants' fees) in excess of $3,250,000 incurred by DP as a result of any products liability claim against DP by consumers with respect to injuries caused by alleged defects in products manufactured by DP on or prior to the Closing Date. (b) Roadmaster shall notify Actava, in writing and as soon as practicable, of any product liability claim for which it is entitled to indemnity pursuant to Section 6.12(a), specifying in reasonable detail the nature of such claim and, if known, the amount, or an estimate of the amount, of the liability arising therefrom. Roadmaster shall provide to Actava as promptly as practicable thereafter such information and documentation as may be reasonably requested by Actava to support and verify such claim. (c) Actava shall have the absolute right to manage and control the defense, and all communications or proceedings related to such defense, of any products liability claim for which Actava would be liable pursuant to Section 6.12(a), including, without limitation, the right to manage and prosecute all administrative and judicial remedies, settle all issues, enter into settlement agreements, discontinue sales and distribution of, or recall, any such allegedly defective products, and to execute consents or waivers extending the statue of limitation with respect to any such claim. Roadmaster shall, and shall cause its subsidiaries to, fully cooperate 28 34 with Actava in the defense of any such claim and shall, and shall cause its subsidiaries to, furnish such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials and appeals, as may be reasonably requested in connection therewith. Actava shall be subrogated to all rights and remedies of Roadmaster or its subsidiaries with respect to any such claim. (d) Failure by Roadmaster or any of its subsidiaries to comply with any of their obligations set forth in this Section 6.12 with respect to a products liability claim for which Roadmaster is entitled to be indemnified against pursuant to Section 6.12(a) shall release Actava from its obligation to indemnify hereunder to the extent that Actava is prejudiced by any such failure. Section 6.13 SATISFACTION OF INDEMNITY WITH ROADMASTER COMMON STOCK. Notwithstanding anything to the contrary in this Agreement, the parties agree that if Actava shall be entitled to any indemnity payment from Roadmaster pursuant to the terms of this Agreement, including, without limitation, Section 6.8(c) hereof, Actava shall have the right exercisable in its sole discretion to elect, by written notice to Roadmaster, to require Roadmaster to satisfy such indemnity payment with Roadmaster Common Stock in lieu of paying cash. If such election is made by Actava, Roadmaster shall substitute for the cash indemnity payment an equal fair market value amount of consideration in the form of shares of Roadmaster Common Stock. For purposes hereof, the value of the Roadmaster Common Stock to be issued in substitution for the cash indemnity payment shall be the average of the last sale price for the Roadmaster Common Stock as reported on the AMEX or the NYSE, as the case may be, for the five (5) consecutive trading days immediately prior to the date on which it is determined under this Agreement that Actava is entitled to receive a cash indemnity payment. Section 6.14 CERTAIN ENVIRONMENTAL MATTERS. Prior to the Closing, DP shall (i) form a wholly owned subsidiary ("Newco"), (ii) contribute to Newco title to that certain parcel of real property described on Schedule 6.14 (the "Orbitron Materials Storage Parcel"), along with any permits, licenses and other authorizations held by DP under federal, state and local laws relating to pollution or protection of the environment related to the Orbitron Materials Storage Parcel, and (iii) declare and pay to Actava an in-kind dividend of all the outstanding capital stock of Newco. ARTICLE VII CONDITIONS Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE EXCHANGES. The respective obligations of each party to effect the Exchanges shall be subject to the fulfillment at or prior to the Closing (as provided herein) of the following conditions: (a) This Agreement and the transactions contemplated hereby shall have been approved and adopted by the requisite vote of the shareholders of Roadmaster and, if required, by the shareholders of Actava. (b) The Exchange Shares shall have been approved for listing on the NYSE or AMEX subject to notice of issuance. (c) The waiting period applicable to the consummation of the Exchanges under the HSR Act shall have expired or been terminated. (d) No preliminary or permanent injunction or other order or decree by any federal or state court which prevents the consummation of the Exchanges shall have been issued and remain in effect (each party agreeing to use its reasonable efforts to have any such injunction, order or decree lifted). (e) No action shall have been taken, and no statute, rule or regulation shall have been enacted, by any state or federal government or governmental agency in the United States which would prevent the consummation of the Exchanges. 29 35 (f) All governmental consents, orders and approvals legally required for the consummation of the Exchanges and the transactions contemplated hereby, including, without limitation, approval (if required) by the FTC, the DOJ and the SEC, shall have been obtained and be in effect at the Closing. (g) Actava, the Sports Subsidiaries or Roadmaster, as the case may be, shall have received consents or waivers, or any necessary amendments, from any parties to the agreements listed on Schedules 2.2(b), 3.4(b) and 4.4(b), in each case where the Exchanges, in the absence of or failure in obtaining such consent, waiver or amendment, would result in a material adverse effect on the business, condition (financial or other) or results of operations of Actava, the Sports Subsidiaries or Roadmaster, as the case may be, and their respective subsidiaries, taken as a whole. Section 7.2 CONDITIONS TO OBLIGATION OF ACTAVA TO EFFECT THE EXCHANGES. Unless waived by Actava, the obligation of Actava to effect the Exchanges shall be subject to the fulfillment at or prior to the Closing of the following additional conditions: (a) Roadmaster shall have performed in all material respects its agreements contained in this Agreement required to be performed on or prior to the Closing, and the representations and warranties of Roadmaster contained in this Agreement shall be true and correct in all material respects on and as of (i) the date made and (ii) (except in the case of representations and warranties expressly made solely with reference to a particular date) the Closing Date, and Actava shall have received a certificate of the President or a Vice President of Roadmaster to that effect. (b) Actava shall have received an opinion from Smith, Gambrell & Russell, counsel to Roadmaster, dated the Closing Date, substantially in the form set forth as Exhibit A hereto. (c) Since the date hereof, (i) there shall have been no changes that constitute, and (ii) no event or events shall have occurred which have resulted in or constitute, a material adverse change in the business, condition (financial or other) or results of operations of Roadmaster and its subsidiaries, taken as a whole, including, without limitation, any change or development with respect to matters disclosed to Actava or the Sports Subsidiaries on the schedules to this Agreement or otherwise. (d) Roadmaster shall have executed and delivered a Registration Rights Agreement substantially in the form set forth as Exhibit B hereto. (e) Roadmaster, Henry Fong and Edward E. Shake shall have executed and delivered a Shareholders Agreement substantially in the form of Exhibit C hereto (the "Shareholders Agreement"). (f) Roadmaster shall have executed and delivered to Actava an unconditional guaranty, in form reasonably satisfactory to Actava, of that certain Promissory Note executed by DP as of July 1, 1994, in favor of JCJ, Inc. (the "DP Note"). (g) Four designees of Actava shall have been elected to the Roadmaster Board of Directors. (h) Henry Fong shall have entered into an Employment Agreement with Roadmaster substantially in the form set forth as Exhibit D and Edward E. Shake shall have entered into an Employment Agreement with Roadmaster containing the terms set forth on Exhibit E. (i) Actava shall have been released from any guaranty or assurance of any obligation (payment or performance) of the Sports Subsidiaries and their subsidiaries, including, without limitation, the Support Agreement, the ITT Guaranty, the 1988 First Union Guaranty, and the 1992 First Union Guaranty. (j) Actava shall have received certificates of insurance or other evidence reasonably satisfactory to Actava that Roadmaster has satisfied its obligation to supply the insurance coverage as required in Section 6.6. (k) The Restated Certificate of Incorporation of Roadmaster set forth as Exhibit F and the Amended and Restated By-laws of Roadmaster set forth as Exhibit G shall have been authorized, approved and be in full force and effect. 30 36 (l) Roadmaster shall have executed and delivered an Environmental Indemnity Agreement substantially in the form set forth as Exhibit H (the "Environmental Indemnity Agreement"). Section 7.3 CONDITIONS TO OBLIGATIONS OF ROADMASTER TO EFFECT THE EXCHANGES. Unless waived by Roadmaster, the obligations of Roadmaster to effect the Exchanges shall be subject to the fulfillment at or prior to the Closing of the additional following conditions: (a) Actava and the Sports Subsidiaries shall have performed in all material respects their agreements contained in this Agreement required to be performed on or prior to the Closing and the representations and warranties of Actava and the Sports Subsidiaries contained in this Agreement shall be true and correct in all material respects on and as of (i) the date made and (ii) (except in the case of representations and warranties expressly made solely with reference to a particular date) the Closing Date, and Roadmaster shall have received a Certificate of the President or of a Vice President of Actava and each of the Sports Subsidiaries to that effect. (b) Roadmaster shall have received an opinion from Long, Aldridge & Norman, counsel to Actava, dated the Closing Date, substantially in the form set forth as Exhibit I hereto. (c) Roadmaster shall have received the opinion of Jeffries & Company, Inc. to the effect that the Exchanges are fair from a financial point of view to Roadmaster and its shareholders. (d) Since the date hereof, (i) there shall have been no changes that constitute, and (ii) no event or events shall have occurred which have resulted in or constitute, a material adverse change in the business, condition (financial or other) or results of operations of the Sports Subsidiaries and their subsidiaries, taken as a whole, including, without limitation, any change or development with respect to matters disclosed to Roadmaster on the schedules to this Agreement or otherwise. (e) Actava shall have executed and delivered the Shareholders Agreement. (f) The liens, claims, encumbrances, security interests, equities, charges and options on the Sports Subsidiaries Stock which are set forth on Schedule 2.3 shall have been terminated or released. (g) Roadmaster shall have received a certificate from JCJ, Inc. stating that as of the Closing Date, to JCJ, Inc.'s knowledge, no Event of Default (as defined in the DP Note) exists under the DP Note. (h) Actava and DP shall have executed and delivered the Environmental Indemnity Agreement. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER Section 8.1 TERMINATION. This Agreement may be terminated at any time prior to the Closing, whether before or after approval by the shareholders of Roadmaster and, if required, Actava: (a) by mutual consent of Roadmaster and Actava. (b) by either Roadmaster or Actava, so long as such party has not breached its obligations hereunder (except for such breaches as are clearly immaterial), after December 31, 1994, if the Exchanges shall not have been consummated on or before December 31, 1994 (the "Termination Date"). (c) unilaterally by Roadmaster or Actava (i) if the other fails to perform any covenant in any material respect in this Agreement, and does not cure the failure in all material respects within 30 business days after the terminating party delivers written notice of the alleged failure or (ii) if any condition to the obligations of that party is not satisfied (other than by reason of a breach by that party of its obligations hereunder), and it reasonably appears that the condition cannot be satisfied prior to the Termination Date. Section 8.2 EFFECT OF TERMINATION. (a) In the event of termination of this Agreement by either Roadmaster or Actava, as provided in Section 8.1, this Agreement shall forthwith become void and there shall 31 37 be no further obligation on the part of Actava, the Sports Subsidiaries, Roadmaster or their subsidiaries (except as set forth in this Section 8.2(a) and in Sections 5.4 and 6.3 which shall survive the termination). Nothing in this Section 8.2(a) shall relieve any party from liability for any breach of this Agreement. (b) In the event that (i) either Actava or Roadmaster, in breach of this Agreement, refuses to consummate the Exchanges as provided herein or (ii) either Actava or Roadmaster is unable to consummate the Exchanges as a result of the failure of such party to obtain the approval its shareholders, and in the event such breach or failure to obtain shareholder approval is the result of Actava or Roadmaster's decision to pursue, or recommendation to its shareholders of, an alternative transaction with a third party (an "Alternative Transaction"), then such party that has refused or is unable to consummate the Exchanges as a result of an Alternative Transaction shall pay to the other party a fee of $1,500,000 (the "Break-up Fee"). The payment of the Break-up Fee by either party shall constitute liquidated damages (it being acknowledged and agreed by both parties that the other's damages in such event will be difficult to ascertain and that the Break-up Fee is a reasonable and appropriate estimate of such damages) and upon the payment of the Break-up Fee this Agreement shall terminate and forthwith become void and there shall be no further right, liability or obligation on the part of Actava, the Sport Subsidiaries, Roadmaster or their subsidiaries (except as set forth in this Section 8.2(b) and in Sections 5.4 and 6.3 which shall survive the termination). Section 8.3 AMENDMENT. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Exchanges by the shareholders of Roadmaster or, if required, Actava, but, after any such approval, no amendment shall be made which by law requires further approval by such shareholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 8.4 WAIVER. At any time prior to the Closing, the parties hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant thereto and (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS Section 9.1 SURVIVAL. All representations and warranties in this Agreement shall not survive the Closing. The covenants and agreements in this Agreement shall survive the Closing until such covenants and agreements have been performed. Section 9.2 BROKERS. Actava represents and warrants that no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Actava. Roadmaster represents and warrants that, except for the fees described on Schedule 9.2, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Roadmaster. Section 9.3 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, mailed by registered or certified mail (return receipt requested) or sent 32 38 via overnight courier to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Roadmaster: Roadmaster Industries, Inc. 7315 East Peakview Avenue Englewood, Colorado 80111 Attention: Mr. Henry Fong with copies to: Smith, Gambrell & Russell 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Attention: David J. Harris, Esq. (b) If to Actava or the Sports Subsidiaries, to: The Actava Group Inc. 4900 Georgia-Pacific Center 133 Peachtree Street Atlanta, Georgia 30303 Attention: Walter M. Grant, Esq. with a copy to: Long, Aldridge & Norman One Peachtree Center Suite 5300 303 Peachtree Street Atlanta, Georgia 30308 Attention: Clay C. Long, Esq. Section 9.4 INTERPRETATION. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 9.5 MISCELLANEOUS. This Agreement (including the documents and instruments referred to herein): (a) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof including, without limitation, that certain letter of intent, dated May 31, 1994, between Actava and Roadmaster and the confidentiality agreements, dated May 5, 1994, between Actava and Roadmaster; (b) shall not be assigned by operation of law or otherwise; and (c) shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Georgia (without giving effect to the provisions thereof relating to conflicts of law). Section 9.6 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 9.7 PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Section 9.8 SCHEDULES. The parties acknowledge and agree that the disclosure on certain schedules may be overinclusive, taking into consideration the materiality standard that may be contained in the representation and warranty with respect to such schedule, and the fact that any item or matter is disclosed on a schedule shall not be deemed to set or establish a different standard of materiality than the one set forth in such representation and warranty. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 33 39 IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. ROADMASTER INDUSTRIES, INC. By: -------------------------------------- Its: -------------------------------------- THE ACTAVA GROUP INC. By: -------------------------------------- Its: -------------------------------------- DIVERSIFIED PRODUCTS CORPORATION By: -------------------------------------- Its: -------------------------------------- HUTCH SPORTS USA, INC. By: -------------------------------------- Its: -------------------------------------- NELSON/WEATHER-RITE, INC. By: -------------------------------------- Its: -------------------------------------- WILLOW HOSIERY COMPANY, INC. By: -------------------------------------- Its: -------------------------------------- 34 EX-10 3 EMPLOYMENT AGREEMENT 1 EXHIBIT 10 EMPLOYMENT AGREEMENT THIS AGREEMENT ("Agreement") made and entered into this 19th day of July, 1994, effective as of the 19th day of April, 1994 (the "Effective Date"), by and between THE ACTAVA GROUP INC. (hereinafter referred to as the "Company") and CHARLES R. SCOTT (hereinafter referred to as "Scott"). BACKGROUND Scott has served as President and Chief Executive Officer of the Company since February 1991 and has been a member of the Board of Directors of the Company (the "Board") since 1989. At its meeting on April 19, 1994, the Board elected John D. Phillips ("Phillips") to replace Scott as President and Chief Executive Officer of the Company. Scott resigned as a director of the Company, but was retained as an employee of the Company upon the terms and conditions outlined in this Agreement, which terms and conditions were approved by the Board at meetings held on April 19 and June 10, 1994. The purposes of this Agreement are (i) to document the terms of Scott's continued employment with the Company; (ii) to avoid conflicts between this Agreement and the various other agreements, plans and arrangements between Scott and the Company so as to avoid unintended consequences; and (iii) to supersede and replace the Post-Employment Consulting Agreement between the Company and Scott dated as of July 24, 1991, as amended by the First Amendment thereto dated as of December 14, 1993. NOW, THEREFORE, for and in consideration of the mutual covenants and conditions hereinafter set forth, the parties hereto agree as follows: 1. EMPLOYMENT. The Company hereby employs Scott as an employee of the Company, and Scott hereby accepts employment with the Company on the terms and conditions set forth in this Agreement. Scott shall continue to serve as a Senior Officer of the Company during the period beginning on April 19, 1994 and ending on December 31, 1994 (the "Officer Period"). During the period beginning on January 1, 1995 and ending on December 31, 1996 (the "Transition Period"), Scott shall continue to serve as an employee of the Company, but shall not be an officer of the Company. As a condition to his continued employment during the Transition Period, Scott shall execute and deliver to the Company, effective as of January 1, 1995, an Unconditional Release in the form attached hereto as Exhibit A (the "Release Agreement"). Scott's employment with the Company shall continue in accordance with the terms of this Agreement until midnight on December 31, 1996 at which time his employment will terminate; provided, however, the Company may terminate Scott's employment hereunder prior to midnight on December 31, 1996 for an uncured breach of this Agreement by Scott as more specifically provided in Paragraph 13 hereof. 2. SERVICES. During his employment under this Agreement, Scott shall report to and perform such services as may be reasonably requested by the Chief Executive Officer of the Company. Scott shall not be required to devote his full and exclusive time, energy and skill to the business of the Company, but will be permitted to accept employment with another person or entity or to perform consulting assignments for other persons or entities provided that Scott continues to perform his duties and responsibilities under this Agreement. Scott will not be required to perform services which will require him to reside in a location away from his then principal residence for any extended period of time. 3. COMPENSATION. The Company shall pay Scott an annual base salary of $625,000 (the "Base Salary") during both the Officer Period and the Transition Period. The Base Salary will be paid in accordance with the Company's normal payroll practices. The Base Salary shall be reduced as provided in Section 7 below in the event that Scott earns or receives any Earned Income (as defined in Section 7 below) from any source other than the Company during the Officer Period or the Transition Period. 2 4. BENEFITS DURING OFFICER PERIOD. Scott will continue to have the right to participate in the following plans or arrangements based on his employment by the Company hereunder as a Senior Officer through December 31, 1994: (a) the Company's retirement plans; (b) the Company's Employee Stock Purchase Plan; (c) the right to payment of expenses under the Company's medical, dental and vision plans, including the executive reimbursement plan; (d) the right to payment of expenses under the Company's executive financial and tax planning program; (e) reimbursement of business expenses incurred by Scott in connection with the business of the Company if such expenses are approved by the Company's President and Chief Executive Officer; and (f) other fringe benefits provided to Senior Officers of the Company except those provided under any bonus plan or arrangement or under the Days-Off Policy. After the Officer Period, Scott shall receive the benefits and reimbursements provided in Section 5 below during the Transition Period. 5. BENEFITS DURING TRANSITION PERIOD. During the Transition Period, Scott agrees that he shall not be entitled to participate in and shall not participate in any compensation or benefit plans or arrangements provided by the Company to its employees, except as follows: (a) Subject to the provisions of Section 7 hereof, during the Transition Period the Company shall make available to Scott such medical, dental and vision insurance coverage as may be provided to Scott and his dependents by the Company immediately prior to January 1, 1995 (or such Company medical insurance coverage which is consistent with the coverage in place from time to time for executives of the Company). Scott will be charged a premium equal to fifty percent (50%) of the Company's cost for the medical insurance so provided. Upon expiration of the Transition Period, to the fullest extent available pursuant to the continuation provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), Scott shall be eligible for continuation coverage under COBRA, and the Company may charge the maximum premium permitted under COBRA for any remaining continuation coverage to which Scott is entitled. (b) Subject to the provisions of Section 7 hereof, during the Transition Period the Company shall also make available to Scott such life insurance coverage, if any, as may be provided to Scott by the Company immediately prior to January 1, 1995, provided, however, that Scott agrees to pay fifty percent (50%) of the Company's cost of such coverage. 6. OTHER AGREEMENTS AND BENEFIT PLANS. Scott is a party to or beneficiary of certain contracts and Company benefit plans, policies or arrangements which shall be dealt with as follows: (a) Post-Employment Consulting Agreement. The Post-Employment Consulting Agreement between the Company and Scott, dated July 24, 1991, as amended December 14, 1993, is replaced and superseded by this Agreement and shall no longer have any force or effect. (b) Indemnity Agreements. Scott is a party to an indemnity agreement with the Company dated January 18, 1993 (the "Indemnity Agreement") and is also entitled to indemnity and the benefit of exculpation of liability under the provisions of the Company's Certificate of Incorporation and Bylaws (collectively the "Corporate Documents"). The Indemnity Agreement remains in full force and effect in accordance with its terms. Scott will also continue to be provided all the indemnity benefits and coverage afforded him as a director and officer (as the case may be) of the Company including, but not limited to, coverage for any services Scott performs under this Agreement. In addition, the Company agrees to indemnify and hold Scott harmless under the provisions of the Corporate Documents against any loss as 2 3 defined in the Corporate Documents arising in connection with or related to any services rendered by Scott under this Agreement. (c) Retirement Plans. Scott is entitled to receive certain retirement benefits under The Actava Group Inc. Retirement Plan (the "Pension Plan") and The Actava Group Inc. Supplemental Retirement Plan (the "Supplemental Plan") (collectively "Retirement Plans"). The Supplemental Plan shall be amended to terminate Scott's participation in the Supplemental Plan after December 31, 1994, and to reduce his retirement benefit thereunder in an amount equal to the increase in his retirement benefits under the Pension Plan resulting from his employment during the Transition Period. For the purposes of the Retirement Plans, Scott's retirement date shall be the date upon which Scott ceases to be an employee of the Company. Payment of his retirement benefits shall commence as provided by the terms of the Retirement Plans. To the extent permitted by law, the salary payable to Scott pursuant to this Agreement shall constitute Compensation to Scott for purposes of the Retirement Plans. The Company acknowledges that Scott's benefits under the Retirement Plans are one hundred (100%) percent vested. The intent of this Paragraph is to cause Scott's total retirement benefits under the Retirement Plans to be equal to, but not to exceed, the retirement benefits to which Scott would be entitled if he ceased to be an employee of the Company on December 31, 1994. (d) Stock Options. Scott is a party to four (4) option agreements (the "Option Agreements"), whereby Scott has been granted the right to acquire 135,500 shares of the Company's Common Stock (the "Options") as follows:
DATE OF OPTIONS AGREEMENT GRANTED TYPE OF GRANT OPTION PRICE - --------- -------- -------------- ------------ 2/18/92 40,000 Non-Qualified $ 14.50 3/31/93 45,500 Non-Qualified $ 13.75 1/18/94 48,120 ISO $ 8.3125 1/18/94 1,880 Non-Qualified $ 8.3125 -------- Total 135,500
The Option Agreements shall remain in full force and effect in accordance with their terms during the term of this Agreement, except that the Option Agreements are hereby amended to provide that (i) all of the Options will be fully vested and exercisable as of December 31, 1994; (ii) the period during which Scott can exercise the Options shall extend through the earlier of December 31, 1996, or ninety (90) days after the date Scott ceases to be employed by the Company, provided that if Scott's employment is terminated by death, his personal representative shall be entitled to exercise the Options for twelve months after his death but not later than December 31, 1996 and (iii) all of the Options shall expire at midnight on December 31, 1996. (e) 1994 Senior Officer Bonus Plan. Scott hereby waives and releases any right he may have to receive a bonus from the Company for 1994 under the 1994 Senior Officer Bonus Plan or any other bonus plan or arrangement the Company may hereafter adopt for officers or senior officers of the Company. (f) Days Off. Scott and the Company agree that the Company shall have no obligation to Scott under the Company's Days-Off Policy unless Scott dies during the Officer Period. If Scott dies during the Officer Period, the Company shall pay to Scott's estate an amount equal to the amount, if any, to which Scott would have been entitled under the Days-Off Policy if Scott had retired on the date of his death. Except as provided in this paragraph, Scott shall not be entitled to receive any payments whatsoever under the Company's Days-Off Policy, nor shall Scott continue to participate in the Days-Off Policy. Notwithstanding the provisions of this paragraph, the Company agrees that Scott is not required to devote his full and exclusive time to the business of the Company during the term of his employment under this Agreement and that Scott's Base Salary will not be reduced as a result of his absence from the office (including, without limitation, absence resulting from the sickness or disability of Scott). (g) Retiree Medical Benefits. Following the termination of his employment with the Company, Scott shall be entitled to receive retiree medical benefits under the Company's health plan (the "Health 3 4 Plan") if and to the extent that Scott is then eligible to receive such benefits under the terms of the Health Plan as then in effect. Nothing contained in this Agreement shall prevent the Company from amending the Health Plan or eliminating or curtailing the eligibility requirements for or the benefits available under the Health Plan. 7. EFFECT OF RE-EMPLOYMENT OR RECEIPT OF EARNED INCOME. (a) If at any time during the Officer Period or the Transition Period Scott enters into "Re-Employment" (as hereafter defined) or earns or receives any "Earned Income" (as hereafter defined) from any source other than pursuant to this Agreement, Scott shall immediately notify the Company in writing of such occurrence, together with the amount of Earned Income received or earned and any insurance coverage provided to Scott, and the following provisions shall apply: (1) If Scott notifies the Company that he will earn Earned Income from Re-Employment on a monthly basis equal to or in excess of the Base Salary, then, within ten (10) days after receipt of such notification from Scott, the Company shall pay Scott, in full satisfaction of all obligations under Sections 3, 4 and 5 of this Agreement, an amount equal to fifty percent (50%) of the remainder of: (A) the total Base Salary that Scott would have received under this Agreement from the Effective Date through December 31, 1996, less (B) the Base Salary actually paid to Scott prior to Re-Employment. Notwithstanding anything herein to the contrary, upon payment by the Company of the amounts set forth in this Section 7(a)(1), the Company shall cease to have any obligations under Sections 3, 4 and 5 of this Agreement. (2) If Scott receives Earned Income but the provisions of Section 7(a)(1) above are not applicable, then Scott agrees to make a complete and accurate report to the Company on or before the tenth day of each month showing the amount of Earned Income received by Scott during the previous month. Scott shall report such Earned Income on a Certificate Regarding Earned Income in the form attached hereto as Exhibit B and incorporated herein by reference. The Base Salary payable to Scott in each month in which the Company receives such a report shall be reduced by the amount of Earned Income received by Scott during the previous calendar month. At the end of the Transition Period and only after Scott has reported to the Company all Earned Income theretofore received for services rendered during the Officer Period and the Transition Period, the Company shall pay Scott an amount equal to fifty percent (50%) of the remainder of: (A) the total Base Salary payable hereunder from the Effective Date through December 31, 1996, less (B) the sum of (i) the actual Base Salary paid to Scott during the Officer Period and the Transition Period and (ii) any Earned Income received by Scott during the Officer Period and the Transition Period and not subtracted from the Base Salary pursuant to the previous sentence. Scott shall immediately notify the Company of any change in the level of Earned Income from Re-Employment that Scott is entitled to receive during the Officer Period and the Transition Period. The provisions of Section 7(a)(1) above shall apply if the Earned Income from Re-Employment increases to a level equal to or in excess of the Base Salary. (b) If Scott at any time receives any Earned Income that has not previously been reported to the Company pursuant to Section 7(a) hereof, then Scott shall reimburse the Company within ten (10) days after receipt of such Earned Income, for the amount by which the Base Salary previously paid by the Company to Scott exceeds the Base Salary that would have been paid if the amount of such Earned Income had been known and had been applied to reduce the Base Salary paid by the Company to Scott for the period for which such Earned Income was paid as required by Section 7(a) hereof. In connection with such reimbursement, Scott shall provide the Company with a written notice setting forth the amount of such Earned Income and the period for which such Earned Income was paid, and Scott thereafter shall provide the Company with any other documentation relating to such Earned Income that the Company may reasonably request. (c) Provided COBRA requirements have been met, the Company's obligation to provide insurance coverage to Scott and his dependents under Section 5(a) hereof shall terminate as to any specific coverage if and when comparable coverage is made available to Scott in connection with Re-Employment. (d) As used herein, the term "Re-Employment" shall mean any engagement of Scott's personal services by any one or more individuals or entities on a full-time or substantially similar basis which Scott 4 5 expects to continue on an ongoing basis. The term "Earned Income" as used herein shall mean all compensation for personal services rendered by Scott during the Officer Period or the Transition Period (other than pursuant to this Agreement), whether in the form of currently received or deferred salaries, wages, fees, commissions, bonuses, contingent compensation, any amounts deferred from income, or similar items, but shall not include any stock, stock options or any other fringe benefits. Notwithstanding the foregoing, Earned Income shall not include any director's fees received by Scott from Pier 1 Imports, Inc. or the Bank of California and shall not include fees from Scott's speaking engagements which are paid to or donated to The Red Scott Family Foundation. Whenever this Agreement refers to the receipt by Scott of any Earned Income, such reference shall mean and include the payment of Earned Income to Scott, or Scott's spouse, or other members of Scott's family or household, or an "Entity" (as defined below), to the extent such Earned Income represents compensation for personal services rendered by Scott during the Transition Period. As used in this paragraph (d), the term "Entity" shall mean any corporation, partnership or other legal entity in which Scott, Scott's spouse or other members of Scott's family or household collectively own or possess more than fifty percent (50%) of the equity or rights to profits or voting rights. Any Earned Income paid to an Entity and subsequently paid to Scott, or Scott's spouse, or another member of his family or household shall be counted only once for the purposes of Sections 7(a), 7(b), and 8 hereof. (e) Within ten (10) days after receipt of written notice from the Company, Scott shall provide the Company with (i) a copy of Scott's filed tax return for any period included in the Officer Period or the Transition Period and (ii) any other documentation relating to Scott's Earned Income reasonably requested by the Company. (f) The obligation of Scott to the Company to notify the Company of the receipt of any Earned Income and pay any amount owed to the Company or submit any information requested by the Company under Section 7 hereof shall remain in full force and effect notwithstanding any termination or expiration of this Agreement. 8. DEATH OR RETIREMENT. If Scott dies at any time during the Transition Period and if the Company at the time of his death remains obligated to pay the Base Salary to Scott, the Company shall pay Scott's estate in full satisfaction of all obligations to Scott hereunder, an amount equal to one hundred percent (100%) of the remainder of: (A) the total Base Salary that would have been paid to Scott from January 1, 1995 if he had survived to December 31, 1996, less (B) the actual Base Salary paid to Scott between January 1, 1995 and the date of Scott's death and less (C) any Earned Income received by Scott during the Transition Period. 9. FURTHER ASSURANCES. The Company agrees that it will, upon the request of Scott, do, execute, acknowledge, deliver and perform at the Company's expense all such further acts, amendments, meetings, documentation, agreements and authorizations as may be reasonably required to effectuate and accomplish the provisions of this Agreement. 10. REPRESENTATIONS AND WARRANTIES. The Company warrants and represents to Scott that the execution and delivery by the Company of this Agreement, the performance by the Company of its obligations thereunder, and the consummation of the transactions contemplated thereby, have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company. 11. STATUS OF THE PARTIES. Scott, in performance of any Services hereunder, shall be acting as an employee of the Company. Except as specifically detailed above, Scott does not desire to benefit from or participate in any compensation or benefit plans, programs, or arrangements, given to or provided by the Company for the benefit of other employees of the Company, including, without limitation, the right to participate in or receive credit for service under any "employee welfare benefit plan" or "employee pension benefit plan" (as such terms are defined in the Employee Retirement Income Security Act of 1974) notwithstanding the terms of such plan. Scott agrees that he will not contribute to the Company's Employee Stock Purchase Plan during the Transition Period. 12. NONDISCLOSURE; OWNERSHIP OF PROPRIETARY PROPERTY. Scott shall regard and treat each item constituting all or any portion of the Company trade secrets and all confidential information as strictly 5 6 confidential and wholly owned by the Company and will not, for any reason in any fashion, either directly or indirectly, use, sell, disclose or distribute any such item or information to any third party for any purpose other than in accordance with Scott's performance of the services hereunder. 13. BREACH OR DEFAULT. Upon the occurrence of any breach or default in the performance of any of Scott's duties or responsibilities hereunder, and Scott's failure to cure such breach or default within thirty (30) days of receipt of written notice thereof, all obligations of the Company hereunder to compensate Scott or to provide benefits thereto shall immediately be terminated and rendered null, void and of no further effect, after which the Company shall be entitled to pursue any and all remedies available, at law or in equity, to address Scott's breach or default hereunder. Upon the occurrence of any breach or default in the performance of any of the Company's obligations hereunder and the Company's failure to cure such breach or default within thirty (30) days after receipt of written notice thereof, all of the Company's obligations hereunder shall be immediately accelerated without any right of set off by the Company for any Earned Income received by Scott subsequent to such breach or default by the Company, and Scott shall be entitled to pursue any and all remedies available, at law or in equity, to address the Company's breach or default hereunder. 14. GOODWILL COVENANT. During the term of this Agreement, Scott covenants and agrees to refrain from making detrimental statements or taking any action detrimental to the business or goodwill of the Company. 15. GENERAL PROVISIONS. (a) Binding Effect and Assignability. The rights and obligations under this Agreement shall inure to the benefit of and be binding upon Scott, the Company and their successors and assigns. Neither this Agreement, nor any rights or obligations of Scott herein shall be transferable or assignable by Scott without the Company's prior written consent, and any attempted transfer or assignment hereof by Scott not in accordance herewith shall be void. (b) Notices. Any notices or other communications required or permitted hereunder shall be deemed to have been duly given on the date of service if personally served or three (3) days after mailing if mailed by first class mail, registered or certified, postage prepaid and addressed to the parties at their addresses as set forth in the most current records of the Company or to such other address as shall be designated by written notice issued pursuant hereto. (c) Entire Agreement. This Agreement, together with the Release Agreement, contains the entire agreement of the parties relating to the subject matter hereof and supersedes any prior agreements or understandings, oral or written, to the contrary. (d) Waiver. The waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other or subsequent breach of the same or any other term or condition. (e) Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Georgia. (f) Severability. The unenforceability or invalidity of any term, provision or Section of this Agreement shall not affect the validity or enforceability of the remaining terms, provisions, or Sections hereof, but such remaining terms, provisions or Sections shall be construed and interpreted in such a manner as to carry out fully the intent of the parties hereto. (g) Modification. This Agreement shall not be modified or amended except by a written instrument signed by an authorized representative of all parties executing this Agreement. 6 7 IN WITNESS WHEREOF, Scott has executed this Agreement, and the Company has caused its duly authorized corporate officer to execute this Agreement and affix its seal hereto, all as of the Effective Date. "Company" THE ACTAVA GROUP INC. JOHN D. PHILLIPS ------------------------------------- John D. Phillips President and Chief Executive Officer "Scott" CHARLES R. SCOTT [SEAL] -------------------------------- Charles R. Scott 7 8 EXHIBIT A UNCONDITIONAL RELEASE THIS UNCONDITIONAL RELEASE (the "Release") is made and entered into as of this day of December, 1994, by CHARLES R. SCOTT ("Scott") in favor of THE ACTAVA GROUP, INC., a Delaware corporation (the "Company"). W I T N E S S E T H: WHEREAS, Scott is currently employed by the Company under the Employment Agreement dated July , 1994 (effective as of April 19, 1994) between the Company and Scott (the "Employment Agreement"); and WHEREAS, the Company has required, as a condition to the continued employment of Scott beyond December 31, 1994, under the Employment Agreement that Scott execute and deliver this Release in favor of the Company; NOW, THEREFORE, for and in consideration of the premises, the agreement of the Company to continue to employ Scott under the Employment Agreement and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, Scott hereby agrees as follows: 1. RELEASE. Except with respect to the Company's obligations pursuant to, reflected in or contained in the Employment Agreement, any vested retirement benefits applicable to Scott, those benefits, payments or other rights which Scott is entitled to receive under any plan, agreement or arrangement as indicated in the Employment Agreement, and any benefits earned by Scott after the date of the Employment Agreement, Scott hereby unconditionally remises, releases and forever discharges, to the fullest extent permitted by law, the Company, its employees, officers, directors, agents, affiliates, subsidiaries and each of them from all manner of actions, proceedings, causes of action, claims, counterclaims, suits, debts, sums, monies, accounts, covenants, agreements, promises, damages, losses or demands of whatever kind or nature from the beginning of time to the present, whether known or unknown, in law or in equity, which in the past, now or in the future arise, may arise or allegedly arise or are in any way resulting from or in any manner connected with Scott's employment by the Company and the termination of such employment by the Company. In consideration of the additional benefits and consideration provided to Scott under the Employment Agreement, Scott waives all claims and causes of action against the Company and all damages, if any, that may be recoverable. This release and waiver of all claims and damages includes, but is not limited to, any tort or claim of contractual restriction relating to Scott's employment or termination thereof, any claim of wrongful discharge, and all rights under federal, state or local law prohibiting race, sex, age, religion, national origin, handicap, disability or other forms of discrimination, including but not limited to, Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, any state or local human rights laws, Workers' Compensation laws, and the National Labor Relations Act, as amended. Notwithstanding anything herein to the contrary, Scott does not release any claims under the Age Discrimination in Employment Act that may arise as a result of conduct occurring after the execution of this Release. 2. MISCELLANEOUS. This Release and the Employment Agreement embody the entire agreement of the parties and supersede all prior agreements between the parties hereto relating to the subject matter hereof. The unenforceability or invalidity of any of the terms or provisions of this agreement shall not affect the validity or enforceability of the remaining terms or provisions which shall be interpreted and construed in such manner as to carry out fully the intention of the parties hereto. This Release shall be construed and enforced in accordance with the laws of the State of Georgia. Scott represents and warrants that he has been encouraged to seek advice from anyone his choosing regarding this Release, including his attorney, accountant, or tax advisor, prior to his execution of this Release, that Scott has been given the opportunity and sufficient time to seek such advice, and that Scott fully understands the meaning and contents of this Release. SCOTT UNDERSTANDS THAT HE MAY TAKE UP TO TWENTY-ONE (21) DAYS TO CONSIDER WHETHER OR NOT HE DESIRES TO ENTER 9 INTO THIS RELEASE. Scott further represents and warrants that he was not coerced, threatened or otherwise forced to sign this Release, and that each signature appearing hereinafter is genuine. SCOTT UNDERSTANDS THAT HE MAY REVOKE THIS AGREEMENT BY NOTIFYING THE COMPANY IN WRITING OF SUCH REVOCATION, WITHIN SEVEN (7) DAYS OF HIS EXECUTION OF THIS AGREEMENT AND THAT THIS AGREEMENT IS NOT EFFECTIVE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD OR JANUARY 1, 1995, WHICHEVER IS LATER. SCOTT UNDERSTANDS THAT UPON THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD THIS RELEASE WILL BE BINDING UPON SCOTT AND WILL BE IRREVOCABLE. SCOTT UNDERSTANDS THAT BY EXECUTING THIS RELEASE SCOTT IS GIVING UP POSSIBLE RIGHTS THAT HE MAY HAVE, AND THAT SCOTT DOES NOT HAVE TO SIGN THIS RELEASE. THIS RELEASE HAS BEEN VOLUNTARILY AND KNOWINGLY EXECUTED BY SCOTT WITH THE EXPRESS INTENTION OF EFFECTING THE EXTINGUISHMENT OF ANY AND ALL OBLIGATIONS AND DAMAGES THAT THE COMPANY MAY OWE TO SCOTT AS PROVIDED HEREIN. IN WITNESS WHEREOF, Scott has duly executed this Release in favor of the Company under seal as of the day and year first above written. "Scott": -------------------------------------- Charles R. Scott 2 10 EXHIBIT B CERTIFICATE REGARDING EARNED INCOME I, Charles R. Scott ("Scott"), hereby certify to The Actava Group Inc. (the "Company") that the following constitutes all "Earned Income:" (as such term is defined in the Employment Agreement dated as of , 1994, between Scott and the Company) received by me whether directly or indirectly from any source during the period from to : Amount of Earned Income: $ ------------ Source: ----------------------------------------- ----------------------------------------- ----------------------------------------- -----------------------------------------
IN WITNESS WHEREOF, the undersigned has set his hand as of this day of , 199 . "Scott" -------------------------------------- Charles R. Scott EX-11 4 COMPUTATION OF EARNINGS 1 EXHIBIT 11 THE ACTAVA GROUP INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 1994 1993 1994 1993 -------- ------- -------- ------- Income (loss) per share -- primary Net (loss) available for common stock and common stock equivalents............................... $(46,283) $ 43 $(58,956) $(7,561) ======== ======= ======== ======= Common stock and common stock equivalents Weighted average Actava common shares outstanding during the period, less stock in treasury....... 18,197 16,820 17,918 16,683 ======== ======= ======== ======= (Loss) per share -- primary........................ $ (2.54) $ -- $ (3.29) $ (.45) ======== ======= ======== ======= Income (loss) per share -- assuming full dilution (a) Net (loss) available for common stock and common stock equivalents............................... $(46,283) $ 43 $(58,956) $(7,561) Interest savings on assumed conversion of 6 1/2% Convertible Debentures, net of income tax....... 827 827 1,654 1,654 -------- ------- -------- ------- Net income (loss) available for common stock and common stock equivalents assuming full dilution................... $(45,456) $ 870 $(57,302) $(5,907) ======== ======= ======== ======= Common stock and common stock equivalents............ 18,197 16,820 17,918 16,683 Shares issuable upon assumed conversion of 6 1/2% Convertible Debentures............................. 1,802 1,802 1,802 1,802 -------- ------- -------- ------- Common stock and common stock equivalents assuming full dilution...................................... 19,999 18,622 19,720 18,485 ======== ======= ======== ======= Income (loss) per share -- assuming full dilution.... $ (2.27) $ .05 $ (2.91) $ (.32) ======== ======= ======== =======
- --------------- (a) Fully diluted income (loss) per share is not used in 1994 and 1993 because it exceeds primary earnings (loss) per share. -----END PRIVACY-ENHANCED MESSAGE-----