<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1996
REGISTRATION NO. 333-04107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE NORTH FACE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <S> <C>
DELAWARE 5136 94-3204082
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
------------------------
2013 FARALLON DRIVE
SAN LEANDRO, CALIFORNIA 94577
(510) 618-3500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
MARSDEN S. CASON
CHIEF EXECUTIVE OFFICER
THE NORTH FACE, INC.
2013 FARALLON DRIVE
SAN LEANDRO, CALIFORNIA 94577
(510) 618-3500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MITCHELL S. FISHMAN, ESQ. JEFFREY D. SAPER, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & RICHARD C. DEGOLIA, ESQ.
GARRISON WILSON SONSINI GOODRICH & ROSATI, P.C.
1285 AVENUE OF THE AMERICAS 650 PAGE MILL ROAD
NEW YORK, NEW YORK 10019-6064 PALO ALTO, CALIFORNIA 94304-1050
(212) 373-3000 (415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE NORTH FACE, INC.
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED IN RESPONSE TO ITEMS OF FORM S-1)
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Facing Page of Registration Statement and Outside
Front Cover Page of the Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of the Prospectus; Table of
Contents; Available Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Principal Stockholders
8. Plan of Distribution................................. Outside Front Cover Page of the Prospectus;
Underwriting
9. Description of Securities to be Registered........... Description of Capital Stock
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Prospectus Summary; The Company; Risk Factors;
Dividend Policy; Capitalization; Selected
Consolidated Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Management; Principal
Stockholders; Description of Capital Stock; Shares
Eligible for Future Sale; Experts; Financial
Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
SUBJECT TO COMPLETION
JUNE 24, 1996
2,600,000 SHARES
THE NORTH FACE, INC. [LOGO]
COMMON STOCK
----------
All of the 2,600,000 shares of Common Stock offered hereby are being sold by
The North Face, Inc. ("The North Face" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$12.00 and $14.00 per share. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The Common Stock
has been approved for quotation on the Nasdaq National Market under the symbol
"TNFI."
--------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(3)................................. $ $ $
</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting expenses of the offering payable by the Company estimated
at $1.3 million.
(3) The Company and certain of the Company's stockholders (the "Selling
Stockholders") have granted to the Underwriters a 30-day option to purchase
up to 252,000 and 138,000 additional shares of Common Stock, respectively,
solely to cover over-allotments, if any. To the extent the option is
exercised, the Underwriters will offer the additional shares at the Price to
Public shown above. If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting." The Company will not receive
any of the proceeds from the sale of shares by the Selling Stockholders.
--------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
J.P. MORGAN & CO.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
DESCRIPTION OF PICTURES AND CAPTIONS:
FRONT COVER -- Gray screened image of mountain range.
INSIDE FRONT COVER -- Man standing on snow-covered ledge coiling rope.
CAPTION: "The North Face Climbing Team member Conrad Anker coils rope after a
forced bivouac on Torre Egger, Argentina."
INSIDE FRONT GATE-FOLD -- Man standing next to tent on snow-covered outcrop,
packing his backpack.
CAPTION: "Climbing Team member Alex Lowe at high camp on THE BIRD,
Ak-Su Expedition, Kyrgyzstan."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THIS PROSPECTUS INCLUDES TRADEMARKS AND SERVICE MARKS OF THE COMPANY AND CERTAIN
OTHER COMPANIES.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE TERMS "THE NORTH FACE" AND "COMPANY" INCLUDE THE
NORTH FACE, INC. AND ITS SUBSIDIARIES AND THEIR RESPECTIVE OPERATIONS, AND
INCLUDE THE BUSINESS OF THE COMPANY'S PREDECESSOR. UNLESS OTHERWISE INDICATED,
ALL INFORMATION INCLUDED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED, AND HAS BEEN RETROACTIVELY ADJUSTED
TO GIVE EFFECT TO THE FOLLOWING TRANSACTIONS, ALL OF WHICH WILL BE COMPLETED
PRIOR TO OR CONCURRENTLY WITH THE CLOSING OF THE OFFERING: (I) STOCK SPLITS
WHICH WILL RESULT IN EACH SHARE OF COMMON STOCK BEING SPLIT INTO 4.44 SHARES AND
(II) THE CONVERSION OF EACH SHARE OF THE COMPANY'S SERIES A CONVERTIBLE
PREFERRED STOCK (THE "PREFERRED STOCK"), INCLUDING SHARES OF PREFERRED STOCK TO
BE ISSUED AS CUMULATIVE DIVIDENDS ON THE PREFERRED STOCK, INTO APPROXIMATELY
1.7743 SHARES OF COMMON STOCK. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND
THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
The Company believes that The North Face-Registered Trademark- is the
world's premier brand of high-performance outdoor apparel and equipment. The
Company designs and distributes technically sophisticated outerwear, skiwear,
functional sportswear, tents, sleeping bags and backpacks, all under The North
Face-Registered Trademark- name.
The North Face has developed a superior reputation for quality, performance
and authenticity by providing technically advanced products capable of
withstanding the most extreme conditions. For nearly 30 years, the Company's
outdoor apparel and equipment have been the brand of choice for numerous high
altitude and polar expeditions. These products are used extensively by
world-class climbers, explorers and extreme skiers, whose lives depend on the
performance of their apparel and equipment. To maintain and further enhance this
unique legacy, the Company continuously develops and introduces innovative
products that are functional, technically superior and designed to set the
industry standard in each product category. The Company cultivates its extreme
image through its targeted marketing efforts and its teams of world-class
climbers, explorers and skiers.
As a result of its extreme image and technological leadership, The North
Face-Registered Trademark- brand has become increasingly popular among a broad
group of consumers. The Company believes this growing popularity is attributable
not only to its strong brand image but also to a fundamental shift in lifestyle
choices and consumer preferences toward more functional and high-performance
outdoor products. While The North Face expects its traditional market segments
to continue to benefit from these trends, the Company believes that it has an
opportunity to leverage The North Face-Registered Trademark- brand and expand
into new and broader product categories. For example, the Company recently
introduced Tekware-TM-, an innovative line of functional sportswear made from a
new generation of synthetic fabrics, designed both for outdoor activities and
everyday use.
To protect the integrity of The North Face-Registered Trademark- brand and
ensure a high level of customer service and education, the Company limits the
distribution of its products to a select number of specialty retailers. The
Company sells its products to over 1,500 wholesale customers representing more
than 2,000 store fronts in the United States, Europe and Canada. In addition,
the Company owns and operates nine retail and two outlet stores in the United
States.
Beginning in January 1993, a new management team began implementing a
variety of strategic and operational improvements, including hiring experienced
senior executives and initiating new sourcing, product development and marketing
strategies. Primarily as a result of these initiatives, the Company's financial
results improved significantly. During the past two years, the Company has
continued to implement additional operational improvements and began introducing
a wide range of new products. As a result, the Company reported net sales,
operating income and net income of $121.5 million, $10.5 million and $3.5
million, respectively, for 1995, increases of 36%, 43% and 104%, respectively,
over pro forma 1994.
The Company's growth strategy is to continue to build on the strength of
The North Face-Registered Trademark- brand. To maintain future growth, the
Company intends to (i) continue to develop and introduce new products; (ii)
rapidly introduce "Summit Shops," year-round concept shops dedicated to The
North Face-Registered Trademark- products and primarily to be located within
certain of the Company's wholesale customers; (iii) establish Tekware as a
high-performance, functional alternative to traditional sportswear; and (iv)
selectively pursue international opportunities.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 2,600,000 shares
Common Stock to be outstanding after the
offering....................................... 9,581,666 shares (1)
Use of proceeds................................. Repayment of debt. See "Use of Proceeds."
Nasdaq National Market symbol................... TNFI
</TABLE>
- ------------------------------
(1) Excludes 1,170,802 shares of Common Stock issuable upon exercise of stock
options outstanding as of May 17, 1996, at a weighted average exercise price
of $1.63 per share. Also excludes 933,950 shares of Common Stock reserved
for future issuance under the Company's stock incentive plans, employee
stock purchase plan and Directors' stock option plan.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PREDECESSOR (1) THE COMPANY (1)
----------------------------------------------------------------------------
PERIOD
FROM FISCAL YEAR
FISCAL YEAR ENDED MARCH 31, APRIL 1, PERIOD FROM ENDED
TO JUNE 7, TO DECEMBER 31,
------------------------------------ JUNE 6, DEC. 31, ------------
1992 1993 1994 1994 1994 1994 (2)
----------- ----------- ---------- ----------- ----------- ------------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 68,912 $ 86,710 $ 87,411 $ 9,085 $ 60,574 $ 89,187
Gross profit............................... 27,109 29,528 36,604 3,768 29,514 41,439
Operating income (loss).................... (3,454) (6,548) 3,794 (1,522) 9,855 7,334
Interest expense........................... (3,521) (4,209) (2,046) (58) (2,598) (4,390)
Income (loss) before extraordinary item.... $ (6,893) $ (10,508) $ 826 $ (1,673) $ 4,635 $ 1,708
Pro forma net income (loss) per share and
share equivalents (3).....................
Pro forma shares used in computing net
income (loss) per share (3)(4)............
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------------
1995 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 121,534 $ 23,500 $ 31,020
Gross profit............................... 55,064 10,367 12,603
Operating income (loss).................... 10,524 1,057 139
Interest expense........................... (5,530) (1,326) (1,453)
Income (loss) before extraordinary item.... $ 3,485 $ (85) $ (629)
Pro forma net income (loss) per share and
share equivalents (3)..................... $ 0.47 $ (0.09)
Pro forma shares used in computing net
income (loss) per share (3)(4)............ 7,427 7,394
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------------------------
<S> <C> <C> <C>
AS
ACTUAL PRO FORMA (3) ADJUSTED (5)
--------- --------------- -------------
BALANCE SHEET DATA:
Working capital.......................................................... $ 22,133 $ 22,133 $ 31,356
Total assets............................................................. 90,481 90,481 90,481
Short-term debt.......................................................... 9,513 9,513 290
Long-term debt........................................................... 36,179 36,179 15,102
Stockholders' equity..................................................... 19,874 19,874 50,174
</TABLE>
- ------------------------------
(1) The Company purchased substantially all of the assets and certain of the
liabilities of its predecessor, The North Face, a California corporation, on
June 7, 1994 (the "Acquisition"). See "The Company -- Background and
History" and "Management -- Compensation Committee Interlocks and Insider
Participation." In 1994, The North Face changed its fiscal year-end to
December 31. Due to this change and the Acquisition, a comparison of the
financial results of the Company and its predecessor is not meaningful.
(2) The unaudited pro forma information for the year ended December 31, 1994 has
been prepared assuming the Acquisition occurred on January 1, 1994. See
"Unaudited Pro Forma Financial Information." The pro forma results are
provided for comparative purposes only and do not purport to indicate the
results of operations that would have occurred if the Acquisition had taken
place on January 1, 1994 or which may occur in the future.
(3) Pro forma to give effect to the conversion of all shares of Preferred Stock
into shares of Common Stock at the beginning of the respective period.
(4)Supplemental pro forma net income (loss) per share, reflecting the issuance
of up to 2,600,000 shares offered hereby, to fund the repayment of up to
$30.3 million of the Company's long-term debt and a corresponding reduction
in interest expense at the beginning of the respective period, is as follows:
<TABLE>
<S> <C>
Year ended December 31, 1995.......................................................................... $ 0.50
Three months ended March 31, 1996..................................................................... $ (0.02)
</TABLE>
(5) Adjusted to reflect the sale by the Company of the 2,600,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$13.00 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
4
<PAGE>
THE COMPANY
The Company believes that The North Face-Registered Trademark- is the
world's premier brand of high-performance outdoor apparel and equipment. The
Company designs and distributes technically sophisticated outerwear, skiwear,
functional sportswear, tents, sleeping bags and backpacks, all under The North
Face-Registered Trademark-name.
BACKGROUND AND HISTORY
The North Face was founded in 1965 by outdoor enthusiasts as a retailer of
high-performance climbing and backpacking equipment. The North Face name was
selected because, in the Northern Hemisphere, the north face of a mountain is
generally the coldest, iciest and most formidable to climb. In 1968, the Company
began to manufacture and wholesale backpacking equipment. In the early 1970's,
the Company began to offer outerwear and, in the early 1980's, added extreme
skiwear to its product offerings.
For nearly 30 years, the Company has been known as a leading supplier of
technical products to extreme users and serious outdoor athletes. Many of the
Company's innovative product designs have become industry standards. For
example, in 1975 the Company introduced the first geodesic dome tent, a design
which has set the standard for tents used in high altitude and polar
expeditions. In 1979, The North Face invented shingle construction, which has
become a standard among top-of-the-line sleeping bags with synthetic insulation.
In 1988, the Company introduced its Expedition System-Registered Trademark-, a
comprehensive, integrated cold weather clothing system, which has been widely
used by world-class climbers. By the late 1980's, The North Face had become the
only supplier in the United States to offer a comprehensive collection of
high-performance outerwear, skiwear, sleeping bags, backpacks and tents.
In the late 1980's, the Company's financial performance deteriorated for a
variety of reasons. The Company's inefficient product sourcing policies, which
included manufacturing a significant portion of its products, resulted in high
and volatile costs, excessive inventory of obsolete materials and finished goods
and significant delays in product delivery. In addition, the Company had engaged
in a retail expansion strategy that focused on opening outlet stores. The
Company produced lower priced products to sell in these outlets rather than
using them as a vehicle to dispose of excess inventory. This outlet strategy
failed to enhance the Company's brand image, adversely impacted its
relationships with its wholesale customers, and failed to target its traditional
consumers.
Beginning in January 1993, a new management team, including Marsden S.
Cason, the Company's current Chief Executive Officer, was recruited. The new
management team (i) hired a number of experienced senior executives and
mid-level managers; (ii) focused on profitability by establishing and
implementing specific sales and gross margin objectives; (iii) implemented new
sourcing strategies, which included relying principally on contract
manufacturers; (iv) closed eight outlets and one Company-operated retail store;
(v) implemented a more focused advertising strategy; and (vi) discontinued or
redesigned certain marginally profitable and unprofitable product lines and
styles. Primarily as a result of these actions, the Company achieved a
significant increase in sales and profitability.
BANKRUPTCY OF PARENT OF PREDECESSOR. In May 1988, the Company's
predecessor, a California corporation named The North Face, was acquired by
Odyssey Holding, Inc. ("OHI"), a subsidiary of Odyssey Worldwide Holdings B.V.
("Odyssey"). In addition to the Company's predecessor, Odyssey owned, directly
or indirectly, approximately 30 other businesses in the outdoor and brand name
apparel industries. The Chairman and Chief Executive Officer of both OHI and of
Odyssey was William N. Simon, who is currently the President and a director of
the Company and was Chairman of the Board of the Company's predecessor. In
January 1993, Marsden S. Cason, who is currently the Chief Executive Officer and
a director of the Company, became a director and executive officer of Odyssey
and the President and a director of the Company's predecessor. See "Management."
Also in January 1993, OHI, as well as certain other holding companies affiliated
with Odyssey, filed for protection in the United States under Chapter 11 of the
U.S. Bankruptcy Code. Although the Company's predecessor did not file for
bankruptcy protection, its assets came under the supervision of the bankruptcy
court supervising the sale of
5
<PAGE>
the assets of OHI. In June 1994, the Company purchased substantially all of the
assets and certain of the liabilities of the Company's predecessor (the
"Acquisition") for a purchase price of $62.1 million. See Note 1 to the
Consolidated Financial Statements. J.H. Whitney & Co., a New York limited
partnership ("Whitney"), and two of its affiliates provided a significant
portion of the financing for the Acquisition. See "Management -- Compensation
Committee Interlocks and Insider Participation."
The Company's principal executive office is located at 2013 Farallon Drive,
San Leandro, California 94577, and its telephone number is (510) 618-3500. The
Company was incorporated in Delaware in 1994 under the name "TNF Holdings
Company, Inc." and changed its name to "The North Face, Inc." following the
Acquisition.
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS.
CHANGING CONSUMER PREFERENCES. Although the Company believes that it has
benefitted from changing consumer preferences and increasing consumer interest
in outdoor activities and from lifestyle changes that emphasize apparel designed
for such activities, there can be no assurance that this belief is correct or
that these trends will continue. Any change in these developments or reduction
in consumer interest in outdoor sports and physical activities could have a
material adverse effect on the Company's results of operations and financial
condition. In addition, although the Company believes that its products
historically have not been significantly affected by fashion trends, all of the
Company's products are subject to changing consumer preferences. Consumer
preferences could shift rapidly to other types of outdoor equipment or apparel
or away from these types of products altogether. Any such shift could have a
material adverse effect on the Company's results of operations and financial
condition. Furthermore, there can be no assurance that the introduction of new
product categories, such as Tekware-TM-, or new marketing or distribution
strategies, such as the sale of the Company's products in retail formats that
are new to the Company, will not adversely impact The North Face-Registered
Trademark- brand or result in a shift of consumer preferences away from the
Company's product lines. The Company's future success depends in part on its
ability to anticipate and respond to changes in consumer preferences and there
can be no assurance that the Company will respond in a timely manner to such
changes. Failure to anticipate and respond to changing consumer preferences
could lead to, among other things, lower sales, excess inventories and lower
margins, which would have a material adverse effect on the Company's results of
operations and financial condition. See "Business -- Industry Overview."
ABILITY TO ACHIEVE AND MANAGE POTENTIAL FUTURE GROWTH. The Company's future
profitability is critically dependent on its ability to achieve and manage
potential future growth effectively. There can be no assurance that the Company
will be successful in increasing net sales in the future or that the rate of
period-to-period net sales growth, if any, will not decline. Prior to January
1993, the Company's operational, financial and management systems were
relatively weak. Since that date, the Company implemented certain new controls
in operational, financial and management information systems. In addition, in
order to manage currently anticipated levels of future demand, the Company will
be required to (i) improve its management information systems and controls,
including inventory management, (ii) expand its distribution capabilities and
(iii) attract and retain qualified personnel, including middle management. The
Company currently anticipates spending approximately $1.5 to 2.0 million through
the end of 1997 to upgrade its management information systems. There can be no
assurance that any upgrades of its management information systems will be
completed in a timely manner or that any such upgrades will be adequate to meet
the needs of the Company. Any disruption or slowdown in the Company's order
processing or fulfillment systems could cause orders to be shipped late.
Retailers may cancel orders or refuse to receive goods on account of late
shipments which would result in a reduction of net sales and could mean
increased administrative and shipping costs. See "Business -- Management
Information Systems." If the Company's operations were to continue to grow, for
which there can be no assurance, there could be increasing strain on the
Company's management, financial, product design, marketing, distribution and
other resources and the Company may experience serious operating difficulties,
including difficulties in hiring, training and managing an increasing number of
employees, difficulties in obtaining sufficient materials and manufacturing
capacity to produce its products, problems in upgrading its management
information systems and delays in production and shipments. There can be no
assurance that the Company will be able to manage future growth effectively. Any
failure to manage
7
<PAGE>
growth effectively could have a material adverse effect on the Company's results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEPENDENCE ON NEW PRODUCTS. The Company's continued growth and success
depend in large part on its ability to successfully develop and introduce new
products that are perceived to represent an improvement in performance or value
compared to products available in the marketplace. Failure to regularly develop
and introduce new products successfully could materially and adversely impact
the Company's future growth and profitability. In addition, the Company intends
to introduce certain new products, such as its recently introduced Tekware
product line, that may represent a significant shift in concept, design and
intended use from its traditional products. These products, which are targeted
more towards the recreational segment of the market, may have short life cycles,
thereby requiring more frequent product introductions than the Company's
traditional product lines. Furthermore, these products and the introduction of
more moderately priced products may dilute the Company's image as a leading
supplier of technologically superior products and lead to a reduced demand for
its existing products. See "Business -- Products" and "-- Product Design and
Development."
INTRODUCTION AND ACCEPTANCE OF TEKWARE-TM-. In 1996, The North Face
introduced a new line of synthetic outdoor apparel, called "Tekware-TM-." The
Company's projected future growth is dependent in large part on consumer
acceptance of its Tekware product line. In addition, the Company has recently
hired several highly experienced executives to support the production,
merchandising and promotion of its Tekware products. The Company's limited
experience with marketing casual apparel could materially and adversely affect
its ability to introduce Tekware successfully or to develop the Tekware product
line. Because the Company selectively distributes its products to specialty
retailers, the availability of Tekware will be significantly limited as compared
to the availability of other casual apparel, thereby causing Tekware to receive
reduced exposure to consumers, which may adversely impact the acceptance of
Tekware in the casual apparel market. In addition, because Tekware is produced
from synthetic materials, it may not appeal to those consumers who prefer to
purchase apparel made from cotton or other natural fabrics, further limiting the
potential consumer acceptance of the Tekware products. See "Business -- Products
- -- Tekware."
IMPLEMENTATION OF SUMMIT SHOP STRATEGY. In August 1996, The North Face
plans to open the first of its "Summit Shops," year-round concept shops
dedicated to The North Face-Registered Trademark- products and primarily to be
located within certain of the Company's wholesale customers. The North Face
currently anticipates that approximately 25 Summit Shops will open by the end of
1996; however, there can be no assurance that this number of Summit Shops will
be opened in a timely manner, if at all, or, if opened, that their performance
will meet the Company's expectations. The Company's ability to implement this
expansion program successfully will depend on a number of factors, including the
Company's ability to identify qualified and interested specialty retailers, to
design and monitor the performance of such shops, to maintain the freshness of
the merchandise in Summit Shops and to successfully implement its core inventory
replenishment program. As part of its Summit Shop program, The North Face has
agreed to replenish its core product inventory in each Summit Shop on a timely
basis. This will require the Company to arrange for the materials and production
for certain products throughout the year in order to meet forecasted and actual
demand, a procedure that is substantially different from the Company's current
primarily two season production cycle. In addition, in order to properly
replenish the Summit Shops, the Company will be required to maintain higher
inventory levels than it has maintained historically. There can be no assurance
that the Company will be able to efficiently source merchandise for the Summit
Shops on a cost-effective basis or that such merchandise will be available on a
timely basis. In addition, the Company believes that the success of its Summit
Shop program is highly dependent on market acceptance of its recently introduced
Tekware-TM- line of products. Failure to successfully implement its Summit Shop
program could result in significant write-offs of inventory and fixtures and
have a material adverse effect on the Company's results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General," "Business -- Selective
Distribution" and "-- Summit Shops."
8
<PAGE>
RELIANCE ON UNAFFILIATED MANUFACTURERS. The Company currently relies on
approximately 50 unaffiliated manufacturers to produce substantially all of its
products, with ten of such manufacturers producing approximately 70% of the
Company's products in 1995. The Company has no long-term contracts with its
manufacturing sources and it competes with other companies for production
facilities and import quota capacity. In the event any of the Company's key
manufacturers were unable or unwilling to continue to manufacture the Company's
products, the Company would have to rely on other current manufacturing sources
or identify and qualify new unaffiliated manufacturers. In such event, there can
be no assurance that the Company would be able to qualify such manufacturers for
existing or new products in a timely manner or that such manufacturers would
allocate sufficient capacity to the Company in order to meet its requirements.
Any significant delay in the Company's ability to obtain adequate supplies of
its products from its current or alternative sources, would materially and
adversely affect the Company's business and results of operations. Although the
Company believes that it has good relationships with its unaffiliated
manufacturers and maintains good control with respect to product specifications
and quality, there can be no assurance that these manufacturers will continue to
produce products that are consistent with the Company's standards. In this
regard, the Company has occasionally received, and may in the future continue to
receive, shipments of product from unaffiliated manufacturers that fail to
conform to the Company's quality control standards. In such event, unless the
Company is able to obtain replacement products in a timely manner, the Company
risks the loss of revenue resulting from the sale of such products and related
increased administrative and shipping costs. The failure of any key unaffiliated
manufacturer to supply products that conform to the Company's standards could
materially and adversely affect the Company's results of operations and its
reputation in the marketplace. Although the Company believes that it has good
relationships with its principal manufacturing sources, the Company's future
success is substantially dependent upon its ability to maintain such
relationships. If the Company experiences significant increased demand, which
cannot be assured, or if an existing unaffiliated manufacturer needs to be
replaced, the Company will need to significantly expand its manufacturing
capacity, both from current and new manufacturing sources. There can be no
assurance that such additional manufacturing capacity will be available when
required on terms that are acceptable to the Company.
In the past, the Company and its wholesale customers have been unable to
maximize sales of the Company's products due to the Company's inability to
accurately forecast reorder demand for certain of its products. Beginning in
Fall 1996, the Company intends to initiate a core inventory replenishment
program in which significantly increased amounts of its finished core products
will be inventoried for more efficient reorder and certain of its unaffiliated
manufacturers will increase their materials inventories in order to manufacture
products more rapidly. There can be no assurance that the Company will be able
to successfully implement this program to meet its future reorder requirements.
Furthermore, the increased inventories resulting from this core inventory
replenishment program may result in increased excess inventory and material,
increased markdowns and lower margins. See "Business -- Sourcing and
Manufacturing."
SEASONALITY AND QUARTERLY FLUCTUATIONS. The Company's business is subject
to significant seasonal and quarterly fluctuations. The Company's results of
operations may fluctuate from quarter to quarter as a result of, among other
things, the amount and timing of shipments to wholesale customers, government
shipments, advertising and marketing expenditures, increases in the number of
employees and overhead to support growth and store opening costs. Historically,
the Company has realized substantially all of its profits in the third quarter
and has recognized losses during the first and second quarters of each year. The
Company anticipates that it will continue to incur net losses during each of the
first and second quarters for the foreseeable future. In addition, during the
second quarter of 1996, the Company expects to significantly increase its
operating expenses due to increased sales commissions as a result of higher
revenues, the hiring of new executive officers, the expansion of its
merchandising department to launch its Summit Shop program and a significant
increase of its product acquisition staff. Due to these factors and as a result
of expenses associated with the operation of the Chicago retail store, which
opened in October 1995, the Company anticipates that it will incur a loss in the
second quarter of 1996
9
<PAGE>
which will be significantly larger than the loss in the second quarter of 1995.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Data and Seasonality."
The Company in the past has shipped tents to the United States Marine Corps
(the "Marine Corps") for housing troops. These shipments have resulted in
significant quarterly fluctuations in net sales, particularly during the first
and second quarters when net sales have historically been lower. For example,
the Company received $2.3 million and $1.7 million from the shipment of tents to
the Marine Corps in the first and second quarters of 1995, respectively, but
shipped no tents to the Marine Corps in the first quarter of 1996 and expects to
ship no tents to the Marine Corps in the second quarter of 1996, resulting in
fluctuations that make period-to-period comparisons for these quarters less
meaningful. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations."
Furthermore, the Company expects its overall gross margins to decline in the
near term because the Company expects its lower margin wholesale business to
continue to expand more rapidly than its higher margin retail business. In the
event that the Company's operating results in any future quarters fall below the
expectations of securities analysts and investors, the trading price of the
Company's Common Stock would likely be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
INTERNATIONAL OPERATIONS. The Company recently expanded its operations in
Europe and Canada. In addition, the Company imports over half of its merchandise
from contract manufacturers located outside of the United States, primarily in
the Far East. As a result, the Company's business is subject to the risks
generally associated with doing business abroad, such as foreign governmental
regulations, foreign consumer preferences, political unrest, disruptions or
delays in shipments and changes in economic conditions in countries in which the
Company's operations and manufacturing sources are located. These factors, among
others, could influence the Company's ability to sell its products in
international markets, as well as its ability to manufacture its products or
procure certain materials. If any such factors were to render the conduct of
business in a particular country undesirable or impractical, there could be a
material and adverse effect on the Company's results of operations and financial
condition. The Company's sales in Europe and Canada are denominated in the local
currencies of the applicable wholesale customer; the Company's inventory
purchases from unaffiliated manufacturers in the Far East are denominated in
United States dollars. The Company does not engage in forward foreign exchange
hedging activities for its Canadian revenues, but, beginning in January 1996, it
enters into certain forward foreign exchange hedging activities with respect to
its European sales revenues. As a result, unanticipated changes in the value of
the United States dollar relative to the value of certain foreign currencies
could have a material adverse effect on the Company's results of operations and
financial condition. In addition, the Company's business is subject to the risks
associated with the imposition of additional United States legislation and
regulations relating to the manufacture and importation of foreign manufactured
apparel products, including quotas, duties, tariffs, taxes and other charges or
restrictions on imported apparel. The Company cannot predict whether additional
United States quotas, duties, tariffs, taxes or other charges or restrictions
will be imposed upon the importation of its products in the future, or what
effect any such actions would have on its business, financial condition and
results of operations. A significant portion of the Company's products is
produced in China. From time to time, the U.S. government has considered
imposing punitive tariffs on certain exports from China, primarily apparel.
There can be no assurance that these sanctions, if implemented, would not have a
material adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Foreign Exchange Fluctuations," "Business --
International Operations" and "-- Sourcing and Manufacturing."
ECONOMIC CYCLICALITY; WEATHER. The sale of outerwear, outdoor equipment and
skiwear products historically have been subject to substantial cyclical
fluctuation, with purchases of these products tending to decline during periods
of recession in the general economy or uncertainty regarding future economic
prospects that affect consumer spending habits, particularly on discretionary
items. This cyclicality and
10
<PAGE>
any related fluctuation in consumer demand could have a material adverse effect
on the Company's results of operations and financial condition. In addition,
various retailers, including some of the Company's customers, have experienced
financial difficulties during the past several years, thereby increasing the
risk that such retailers may not pay for the Company's products in a timely
manner, if at all.
Sales of certain of the Company's products are dependent upon the weather
and such sales may decline in years in which weather conditions, such as the
lack of snow, do not favor the use of the Company's products. Sustained periods
of unseasonable weather conditions could have a material adverse effect on the
Company's results of operations and financial condition.
DEPENDENCE ON KEY PERSONNEL; NEW MANAGEMENT. In recent years, the Company
has made significant changes in its executive officers and management team.
Eight of the Company's nine executive officers have joined the Company or its
predecessor since the beginning of 1993, including the Company's vice presidents
of merchandising, marketing and retail, each of whom joined the Company between
January and April 1996, and the Company's vice president of product development,
who joined the Company in May 1995. These new senior executives, among others,
have extensive national retail and wholesale experience and have effected
certain product development, merchandising, marketing and operational strategy
changes. There can be no assurance that the Company will succesfully assimilate
these new executives and make these strategic modifications to certain of its
past operating policies in a timely and efficient manner. Furthermore, the
continued success of the Company is largely dependent on the personal efforts
and abilities of its senior management and certain other key personnel and on
the Company's ability to retain current management and to attract and retain
qualified personnel in the future. The loss of certain key employees or the
Company's inability to retain other qualified employees could have a material
adverse effect on the Company's results of operations and financial condition.
See "Management." The Company has not obtained and does not expect to obtain key
man life insurance on any of its senior management team.
COMPETITION. The markets for the Company's products are highly competitive,
and the recent growth in these markets has encouraged the entry of many new
competitors as well as increased competition from established companies.
Although the Company believes that it does not compete directly with any single
company with respect to its entire range of products, within each product
category the Company has significant competitors. Many of these competitors are
larger and have significantly greater financial, marketing and other resources
than the Company. While the Company believes that it has been able to compete
successfully because of its brand image and recognition, the broad range and
quality of its products, and its selective distribution and customer service
policies, including the lifetime warranty that its products carry, there can be
no assurance that the Company will be able to maintain or increase its market
share in the future. The failure of the Company to compete successfully would
materially and adversely affect the Company's business and results of
operations. See "Business -- Competition."
DEPENDENCE ON KEY SUPPLIERS OF MATERIALS. Certain of the materials used to
manufacture the Company's products are available from a single or limited number
of independent suppliers and there can be no assurance that there will not be a
significant disruption in the supply of these materials from current sources or,
in the event of such disruption, that the Company would be able to locate
alternative suppliers of materials of comparable quality at an acceptable price.
To the extent that delays in deliveries of materials from suppliers cause delays
in shipments of products manufactured from these materials, the Company's
wholesale customers may request delays in delivery to them of complementary
products. Although the Company believes that there are alternative suppliers of
materials necessary to manufacture its products, these materials may not be of
comparable quality or may not be perceived by consumers to be of comparable
quality. As a result, the use of alternative materials may adversely affect the
Company's reputation for high-quality products. In addition, although certain of
the Company's materials suppliers currently bear a portion of the cost of
research and development of key materials used in the Company's products and
help defray the cost of advertising products that incorporate such materials,
there can be no assurance that such suppliers will continue such arrangements or
that other suppliers will make
11
<PAGE>
similar arrangements in the future. Any significant reduction by the Company's
suppliers of their research and development activities or co-op advertising
arrangements would adversely affect the Company's results of operations. See
"Business -- Product Design and Development."
DEPENDENCE ON TRADEMARKS. The Company uses a number of trademarks, certain
of which the Company has registered with the United States Patent and Trademark
Office and in certain foreign countries. The Company believes that its
registered and common law trademarks have significant value and that some of its
trademarks are instrumental to its ability to create and sustain demand for and
market its products. The Company believes that there are no currently pending
challenges to the use or registration of any of the Company's registered
trademarks. There can be no assurance, however, that the Company's trademarks do
not or will not violate the proprietary rights of others, that they would be
upheld if challenged or that the Company would, in such an event, not be
prevented from using its trademarks, any of which could have a material adverse
effect on the Company and its business. In addition, the Company could incur
substantial costs to defend legal actions taken against it relating to the
Company's use of trademarks, which could have a material adverse effect on the
Company's results of operations and financial condition. See "Business --
International Operations" and "-- Trademarks and Licensing."
The Company uses various trademarks owned by other companies in the
promotion, distribution and sale of its products. It uses these trademarks with
the knowledge and, it believes, the approval of such companies and, in only one
case, pursuant to a licensing agreement. There can be no assurance that the
Company will be able to continue to use these trademarks or that the licensing
agreement will be renewed. In the event that the Company is unable to use the
trademarks of other companies in the future, such an occurrence could adversely
affect the Company's results of operations.
From time to time, the Company discovers products in the marketplace that
are counterfeit reproductions of the Company's products or that otherwise
infringe upon trademark rights held by the Company. If the Company is
unsuccessful in challenging a third party's products on the basis of trademark
infringement, continued sales of such product by that or any other third party
could adversely impact The North Face-Registered Trademark- brand, result in the
shift of consumer preferences away from the Company and generally have a
material adverse effect on the Company's results of operations and financial
condition. See "Business -- Trademarks and Licensing."
PRODUCT LIABILITY RISK; WARRANTY EXPOSURE. The Company's products are used
in mountain climbing, polar exploration and other inherently dangerous outdoor
activities, sometimes in severe or extreme weather conditions. Purchasers of the
Company's products rely on the design, integrity and durability of such
products. However there can be no assurance that the Company's products will not
fail to perform properly. Although it has not experienced any significant losses
as a result of product recalls or product liability claims, there can be no
assurance that the Company will not incur liabilities for product recalls or
product liability claims that could have a material adverse effect on the
Company's results of operations and financial condition.
Substantially all of the Company's products carry a lifetime warranty for
defects in quality and workmanship. The Company maintains a warranty reserve for
future warranty claims, but there can be no assurance that the actual costs of
servicing future warranty claims will not significantly exceed such reserve,
which could materially and adversely affect the Company's results of operations
and financial condition. See Note 2 of Notes to Consolidated Financial
Statements and "Business -- Selective Distribution."
NEED FOR ADDITIONAL CAPITAL. Various elements of the Company's business and
growth strategies, including its plans to broaden existing product lines and
introduce new products, will require additional capital. There can be no
assurance that funds will be available to the Company on terms satisfactory to
the Company when needed. To the extent that the Company raises additional equity
capital, it would have a dilutive effect on existing stockholders.
12
<PAGE>
BENEFITS TO EXISTING STOCKHOLDERS AND AFFILIATES. The consummation of this
offering will involve certain benefits to existing stockholders and affiliates
of the Company. The Company will use a portion of the proceeds from this
offering to repay approximately $10.1 million of indebtedness subject to a
subordinated note which is held by the Whitney Subordinated Debt Fund, L.P. (the
"Debt Fund"), an existing stockholder of the Company. See "Use of Proceeds." The
subordinated note was issued in connection with the Acquisition. See "Management
- -- Compensation Committee Interlocks and Insider Participation."
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER DEVICES. Upon the
consummation of this offering, the Company's current stockholders will
beneficially own approximately 73% of the issued and outstanding shares of
Common Stock. Although there are no agreements among such stockholders, if they
were to act in concert, they would be able to elect all of the Company's
directors, increase the Company's authorized capital stock, dissolve, merge or
sell the assets of the Company, or effect other fundamental corporate
transactions requiring stockholder approval, and generally direct the affairs of
the Company. See "Principal Stockholders."
Certain provisions of the Restated Certificate of Incorporation (the
"Charter") and by-laws (the "By-laws") of the Company that will become operative
upon the closing of this offering may be deemed to have anti-takeover effects
and may delay, deter or prevent a change in control of the Company that a
stockholder might consider in his/her best interest. These provisions (i)
classify the Company's Board of Directors into three classes, each of which will
serve for different three-year periods; (ii) provide that only the Board of
Directors or certain members thereof or officers of the Company may call special
meetings of the stockholders; (iii) eliminate the ability of stockholders to
take any action without a meeting; (iv) establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders meetings and (v)
authorize the issuance of "blank check" preferred stock having such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. See "Description of Capital Stock -- Anti-takeover
Effects of Certain Provisions of the Company's Restated Certificate of
Incorporation and By-laws" and "-- Preferred Stock."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE. Prior
to this offering, there has been no public market for the Common Stock, and
there can be no assurance that a regular trading market for the Common Stock
will develop after this offering or that, if developed, it will be sustained.
The initial public offering price of the Common Stock has been determined by
negotiation between the Company and the Underwriters based on several factors
and does not necessarily reflect the market price of the Common Stock after this
offering or the price at which the Common Stock may be sold in the public market
after this offering. See "Underwriting."
The market price for the Common Stock may be significantly affected by such
factors as the Company's operating results, changes in any earnings estimates
publicly announced by the Company or by analysts, announcements of new products
by the Company or its competitors, seasonal effects on sales and various factors
affecting the economy, in general. In addition, the stock market has experienced
a high level of price and volume volatility and market prices for the stock of
many companies have experienced wide price fluctuations not necessarily related
to the operating performance of such companies.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market after this offering may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital in the future through the sale of its equity securities. Upon the
consummation of this offering, the Company will have 9,581,666 shares of Common
Stock outstanding. Of these shares, the 2,600,000 shares offered hereby will be
freely tradeable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"). The remaining 6,981,666 shares of Common Stock
are "restricted shares" within the meaning of the Securities Act (the
"Restricted Shares"). Approximately 615,668 and 6,365,998 Restricted Shares will
be eligible for sale in the public market beginning 90 days and 180 days,
respectively, after the effective date of the Registration Statement of which
this
13
<PAGE>
Prospectus is a part, pursuant to Rule 144 ("Rule 144") and Rule 701 ("Rule
701") promulgated under the Securities Act and certain lock-up arrangements
entered into between the Underwriters and the holders of such Restricted Shares.
Of such Restricted Shares, approximately 6,797,768 shares will be subject to
certain volume limitations and other resale restrictions pursuant to Rule 144.
In addition, the Company intends to file a Registration Statement on Form S-8
("Form S-8") under the Securities Act approximately 90 days after the effective
date of this offering to register shares of Common Stock issuable upon the
exercise of stock options granted under the Company's stock option plans. As of
May 17, 1996, options to purchase 1,170,802 shares of Common Stock were
outstanding under the Company's stock option plans. Holders of 826,477 stock
options to purchase Common Stock have granted the Underwriters a 180-day lock-up
on shares issuable upon the exercise of such options. Furthermore, pursuant to
the terms of a registration rights agreement, beneficial owners of an aggregate
7,519,011 shares of Common Stock (including shares that can be acquired within
60 days from May 1, 1996 upon the exercise of options) have demand and/or
incidental, or "piggyback," registration rights, permitting such holders, in the
case of demand registration rights, to request on three occasions (subject to
certain limitations) that such shares be registered for resale under the
Securities Act at the Company's expense and, in the case of piggyback rights,
permitting such holders to include their shares, at the Company's expense, in
certain registration statements filed by the Company. No prediction can be made
as to the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices prevailing
from time to time. See "Shares Eligible for Future Sale" and "Underwriting."
DILUTION. The amount by which the initial public offering price per share
of Common Stock exceeds the pro forma net tangible book value per share after
this offering constitutes dilution to investors in this offering. Investors
purchasing shares of Common Stock in this offering will experience an immediate
and substantial dilution in net tangible book value of $11.06 per share
(assuming an initial public offering price of $13.00 per share). See "Dilution."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,600,000 shares of
Common Stock offered hereby are estimated to be approximately $30.1 million
($33.4 million if the Underwriters' over-allotment option is exercised in full)
based on an initial public offering price of $13.00 per share and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company.
The Company intends to use such proceeds to repay certain indebtedness
consisting of (i) $13.0 million under the Company's revolving line of credit,
(ii) $7.0 million under the Company's term note debt and (iii) approximately
$10.1 million principal amount of the Company's Subordinated Note due June 7,
2001 (the "Subordinated Note"), plus accrued interest. The revolving line of
credit and term note debt are a part of a combined credit facility
(collectively, the "Credit Facility"), with Heller Financial, Inc. and two
banks. The revolving line of credit bears interest (8.27% at June 19, 1996) at
prime plus 1.0% or LIBOR plus 2.75% and is due in February 2000, with interim
reductions based on collateral availability. Approximately $19.6 million was
outstanding under the line of credit as of June 19, 1996. The term note debt
bears interest (8.44% at June 19, 1996) at prime plus 1.25% or LIBOR plus 3.0%
and is due in quarterly installments through January 2000. Approximately $6.7
million was outstanding under the term note as of June 19, 1996. Effective as of
the closing of this offering, the Credit Facility is expected to be restructured
and interest under the revolving portion of the Credit Facility is expected to
be reduced by 1.25% and interest under the term note portion of the Credit
Facility is expected to be reduced by 1.5%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Subordinated Note bears interest at the rate of 10.101%
per annum and is held by the Debt Fund, an affiliate of the Company.
Approximately $24.3 million was outstanding under the Subordinated Note as of
June 19, 1996. The proceeds from the issuance of the Subordinated Note were used
to fund the Acquisition. See "Management -- Compensation Committee Interlocks
and Insider Participation." In connection with the restructuring of both the
Credit Facility and the Subordinated Note, the Company expects to record a
non-cash extraordinary charge of approximately $0.8 million, net of tax, as a
write-off of deferred debt issuance cost. The Company intends to use the
remaining net proceeds, if any, for debt repayment or for working capital and
other general corporate purposes. Pending such uses, the Company intends to
invest the net proceeds from this offering in short-term, investment-grade,
interest-bearing instruments.
DIVIDEND POLICY
The Company intends to retain any future earnings for funding growth and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. Further, pursuant to the terms of the Credit Facility, the Company is
and will be restricted in its ability to pay cash dividends on its capital
stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
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<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of March 31, 1996 (i) on an actual basis, (ii) on a pro forma basis
after giving effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock and the filing of an Amended and Restated Certificate of
Incorporation upon the closing of this offering and (iii) as adjusted to reflect
the sale of the 2,600,000 shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $13.00 per share, after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, and the application of the estimated net proceeds
therefrom. The table should be read in conjunction with the Consolidated
Financial Statements of the Company and related Notes thereto included elsewhere
in this Prospectus. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt, including current portion of long-term debt.............. $ 9,513 $ 9,513 $ 290
----------- ----------- ------------
----------- ----------- ------------
Long-term debt, less current portion:
Long-term debt and capital leases, less current portion............... $ 11,846 $ 11,846 $ 1,069
Subordinated debt..................................................... 24,333 24,333 14,233
----------- ----------- ------------
Total long-term debt, less current portion........................ 36,179 36,179 15,302
----------- ----------- ------------
Stockholders' equity:
Series A Preferred Stock, $1.00 par value per share; authorized:
4,000,000 shares; issued and outstanding: actual, 1,935,781 shares;
pro forma and as adjusted, no shares................................. 12,267 -- --
Cumulative preferred dividends accrued (1)............................ 2,407 -- --
Common Stock, $0.0025 par value per share; authorized: actual,
10,000,000 shares; pro forma and as adjusted, 50,000,000 shares;
issued and outstanding: actual, 2,901,571 shares; pro forma,
7,010,303 shares; as adjusted, 9,610,303 shares (2).................. 7 17 24
Additional paid-in capital............................................ 645 15,309 45,602
Subscriptions receivable.............................................. (142) (142) (142)
Retained earnings..................................................... 5,084 5,084 5,084
Cumulative translation adjustments.................................... (394) (394) (394)
----------- ----------- ------------
Total stockholders' equity........................................ 19,874 19,874 50,174
----------- ----------- ------------
Total capitalization.......................................... $ 56,053 $ 56,053 $ 65,476
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
- ------------------------------
(1) Represents 379,956 shares of Preferred Stock to be issued upon declaration
of such dividends.
(2) Excludes 1,133,287 shares of Common Stock issuable upon exercise of stock
options outstanding as of March 31, 1996, at a weighted average exercise
price of $1.04 per share. Also excludes 933,950 shares of Common Stock
reserved for future issuance under the Company's stock option plans,
employee stock purchase plan and Directors' stock option plan. See
"Management -- Stock Incentive Plan," "-- Employee Stock Purchase Plan" and
"-- Directors' Compensation."
16
<PAGE>
DILUTION
The pro forma net tangible deficit of the Company's Common Stock at March
31, 1996 was approximately $11.6 million, or $(1.66) per share. Pro forma net
tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by the number of shares of
Common Stock outstanding as of March 31, 1996, assuming conversion of each
outstanding share of Preferred Stock into approximately 1.7743 shares of Common
Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the offering made hereby and the pro forma net tangible book value per
share of Common Stock immediately after completion of the offering. After giving
effect to the sale of the 2,600,000 shares of Common Stock being offered by the
Company hereby at an assumed initial offering price of $13.00 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company, the pro forma net tangible book value
at March 31, 1996 would have been approximately $18.7 million, or $1.94 per
share. This represents an immediate increase in pro forma net tangible book
value of $3.60 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $11.06 per share to purchasers of Common
Stock in the offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $ 13.00
Pro forma net tangible deficit per share at March 31, 1996............. $ (1.66)
Increase per share attributable to new investors....................... 3.60
---------
Pro forma net tangible book value per share after the offering........... 1.94
---------
Pro forma net tangible book value dilution per share to new investors.... $ 11.06
---------
---------
</TABLE>
The following table sets forth, as of March 31, 1996, the number of shares
of Common Stock purchased from the Company (assuming conversion of each share of
Preferred Stock into approximately 1.7743 shares of Common Stock), the total
consideration paid and the average price per share paid by existing stockholders
and the new investors purchasing shares in the offering at an assumed initial
public offering price of $13.00 per share (before deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------------- --------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------------- ---------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (IN THOUSANDS)
Existing stockholders......................... 7,010 72.9% $ 15,326 31.2% $ 2.19
New investors................................. 2,600 27.1 33,800 68.8 $ 13.00
----- ----- --------------- -----
Total..................................... 9,610 100.0% $ 49,126 100.0%
----- ----- --------------- -----
----- ----- --------------- -----
</TABLE>
The foregoing assumes no exercise of stock options outstanding at March 31,
1996. At March 31, 1996, there were outstanding stock options to purchase an
aggregate of 1,133,287 shares of Common Stock at a weighted average exercise
price of $1.04 per share. To the extent these stock options are exercised, there
will be further dilution to purchasers in this offering. See "Management --
Stock Incentive Plans" and Note 12 of Notes to Consolidated Financial
Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data presented below as of December 31,
1994 and 1995, and for the periods from April 1, 1994 to June 6, 1994, from June
7, 1994 to December 31, 1994, the fiscal year ended March 31, 1994 and the year
ended December 31, 1995 has been derived from the Company's audited financial
statements, which are included elsewhere in this Prospectus. The selected
consolidated financial data presented below as of March 31, 1994 was derived
from audited consolidated financial statements of the Company, which are not
included in this Propectus. The selected consolidated financial data presented
below as of March 31, 1992, 1993 and 1996, for the years ended March 31, 1992
and 1993, and for the three months ended March 31, 1995 and 1996 was derived
from unaudited financial statements but was prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
includes all adjustments which the Company considers necessary for a fair
presentation of the financial information set forth therein. The information
should be read in conjunction with the Consolidated Financial Statements and
related Notes included elsewhere in this Prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Results for the
interim periods are not necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
THE PREDECESSOR (1) THE COMPANY (1)
----------------------------------------------------------------------------------------------
PERIOD THREE
FROM FISCAL YEAR MONTHS
FISCAL YEAR ENDED MARCH 31, APRIL 1, PERIOD FROM ENDED ENDED
TO JUNE 7, TO DECEMBER 31, MARCH 31,
------------------------------- JUNE 6, DEC. 31, ------------------------ ---------
1992 1993 1994 1994 1994 1994 (2) 1995 1995
--------- --------- --------- ----------- ----------- ------------- --------- ---------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 68,912 $ 86,710 $ 87,411 $ 9,085 $ 60,574 $ 89,187 $ 121,534 $ 23,500
Gross profit................. 27,109 29,528 36,604 3,768 29,514 41,439 55,064 10,367
Operating expenses........... 30,563 36,076 32,810 5,290 19,659 34,105 44,540 9,310
--------- --------- --------- ----------- ----------- ------------- --------- ---------
Operating income (loss)...... (3,454) (6,548) 3,794 (1,522) 9,855 7,334 10,524 1,057
Interest expense............. (3,521) (4,209) (2,046) (58) (2,598) (4,390) (5,530) (1,326)
Other income, net............ 82 766 (200) 19 186 (264) 589 85
--------- --------- --------- ----------- ----------- ------------- --------- ---------
Income (loss) before
provision for taxes and
extraordinary item.......... (6,893) (9,991) 1,548 (1,561) 7,443 2,680 5,583 (184)
Provision for income taxes... -- 517 722 112 2,808 972 2,098 (99)
--------- --------- --------- ----------- ----------- ------------- --------- ---------
Income (loss) before
extraordinary item.......... $ (6,893) $ (10,508) $ 826 $ (1,673) $ 4,635 $ 1,708 $ 3,485 $ (85)
--------- --------- --------- ----------- ----------- ------------- --------- ---------
--------- --------- --------- ----------- ----------- ------------- --------- ---------
Pro forma net income (loss)
per share and share
equivalents (3)(4).......... $ 0.47
---------
---------
Pro forma shares used in
computing net income (loss)
per share................... 7,427
---------
---------
<CAPTION>
1996
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 31,020
Gross profit................. 12,603
Operating expenses........... 12,464
---------
Operating income (loss)...... 139
Interest expense............. (1,453)
Other income, net............ 167
---------
Income (loss) before
provision for taxes and
extraordinary item.......... (1,147)
Provision for income taxes... (518)
---------
Income (loss) before
extraordinary item.......... $ (629)
---------
---------
Pro forma net income (loss)
per share and share
equivalents (3)(4).......... $ (0.09)
---------
---------
Pro forma shares used in
computing net income (loss)
per share................... 7,394
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
------------------------------- ----------------------
1992 1993 1994 1994 1995
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................ $ 31,040 $ 23,725 $ 22,987 $ 14,189 $ 22,668
Total assets................... 59,959 53,318 50,363 66,549 84,508
Short-term debt................ 846 782 1,511 1,327 4,838
Long-term debt................. 46,467 48,580 46,895 29,047 36,388
Stockholders' equity........... (2,951) (13,346) (13,130) 17,179 20,568
<CAPTION>
AS OF MARCH 31,
1996
-----------------
<S> <C>
BALANCE SHEET DATA:
Working capital................ $ 22,133
Total assets................... 90,481
Short-term debt................ 9,513
Long-term debt................. 36,179
Stockholders' equity........... 19,874
</TABLE>
- ------------------------------
(1) The Company purchased substantially all of the assets and certain of the
liabilities of its predecessor, The North Face, a California corporation, on
June 7, 1994 (the "Acquisition"). See "The Company -- Background and
History" and "Management -- Compensation Committee Interlocks and Insider
Participation." In 1994, The North Face changed its fiscal year-end to
December 31. Due to this change and the Acquisition, a comparison of the
financial results of the Company and its predecessor is not meaningful.
(2) The unaudited pro forma information for the year ended December 31, 1994 has
been prepared assuming the Acquisition occurred on January 1, 1994. See
"Unaudited Pro Forma Financial Information." The pro forma results are
provided for comparative purposes only and do not purport to indicate the
results of operations that would have occurred if the Acquisition had taken
place on January 1, 1994 or which may occur in the future.
(3) Pro forma to give effect to the conversion of all shares of Preferred Stock
into shares of Common Stock at the beginning of the respective period.
(4)Supplemental pro forma net income (loss) per share, reflecting the issuance
of up to 2,600,000 shares offered hereby, to fund the repayment of up to
$30.3 million of the Company's long-term debt and a corresponding reduction
in interest expense at the beginning of the respective period, is as follows:
<TABLE>
<S> <C>
Year ended December 31, 1995.......................................................................... $ 0.50
Three months ended March 31, 1996..................................................................... $ (0.02)
</TABLE>
18
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
The following unaudited pro forma statement of operations for the year ended
December 31, 1994 is based on the historical financial statements of the Company
and the Company's predecessor included elsewhere in this Prospectus and has been
prepared assuming the Acquisition occurred on January 1, 1994. The unaudited pro
forma statement of operations and accompanying notes are based upon and should
be read in conjunction with the financial statements and the notes thereto of
the Company included elsewhere in this Prospectus. Such information is not
necessarily indicative of either future results of operations or the results
that might have occurred if the Acquisition had occurred on January 1, 1994.
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------
THE PREDECESSOR PRO FORMA
------------------------------- THE COMPANY --------------
PERIOD FROM ------------------- PRO FORMA YEAR
THREE MONTHS APRIL 1, 1994 PERIOD FROM JUNE 7, ADJUSTMENTS ENDED
ENDED MARCH 31, TO 1994 TO DECEMBER INCREASE DECEMBER 31,
(IN THOUSANDS) 1994 JUNE 6, 1994 31, 1994 (DECREASE) 1994
--------------- -------------- ------------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 20,530 $ 9,085 $ 60,574 $ (1,002)(1) $ $89,187
--------------- ------- -------- ------------ --------------
Gross profit............ 9,159 3,768 29,514 (1,002)(1) 41,439
Operating expenses...... 8,826 5,290 19,659 330(2) 34,105
--------------- ------- -------- ------------ --------------
Operating income
(loss)................. 333 (1,522) 9,855 (1,332) 7,334
Interest expense........ (429) (58) (2,598) 1,305(3) (4,390)
Other income, net....... (469) 19 186 (264)
--------------- ------- -------- ------------ --------------
Income (loss) before
income taxes and
extraordinary item..... (565) (1,561) 7,443 (2,637) 2,680
Provision (benefit) for
income taxes........... (136) 112 2,808 (1,812)(4) 972
--------------- ------- -------- ------------ --------------
Income (loss) before
extraordinary item..... $ (429) $ (1,673) $ 4,635 $ (825) $ 1,708
--------------- ------- -------- ------------ --------------
--------------- ------- -------- ------------ --------------
</TABLE>
- ------------------------
(1) Represents royalties earned on sales made by the Company's previous licensee
in Japan. In connection with the Acquisition, the Company sold the right to
use its trademarks in Japan and no longer earns such royalties.
(2) Represents increases in operating expenses for the period from January 1,
1994 to June 6, 1994 of $221,000 in increased goodwill amortization related
to the Acquisition and $109,000 of management fees payable to Whitney
related to the Acquisition (see Note 13 to the Consolidated Financial
Statements).
(3) Represents interest expense on debt incurred in connection with the
acquisition less $280,000 of interest incurred by the Company's predecessor
on debt which was not assumed by the Company. Interest rates on the revolver
and term loan were based on prime plus 2% and prime plus 2.5%, respectively.
The prime rate was approximately 6.25% during the year.
(4) Represents estimated tax effect of adjustments as well as tax benefits for
losses not previously benefitable by predecessor from January 1, 1994
through June 6, 1994.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
GENERAL
BACKGROUND/TURNAROUND. The North Face was founded in 1965 by outdoor
enthusiasts as a retailer of high-performance climbing and backpacking
equipment. While the Company had developed a reputation for technical excellence
among extreme users of its products, in the late 1980s its financial performance
deteriorated for a variety of reasons. The Company's inefficient product
sourcing policies, which included manufacturing a significant portion of
products itself, resulted in high and volatile costs, excessive inventory of
obsolete materials and finished goods and significant delays in product
delivery. In addition, the Company had engaged in a retail expansion strategy
that focused on opening discount outlets and producing lower priced products to
sell in those outlets. This outlet strategy failed to enhance the Company's
brand image, adversely impacted its relationships with its wholesale customers
and failed to target its traditional consumers.
Beginning in January 1993, a new executive management team, including
Marsden S. Cason, the Company's current Chief Executive Officer, was recruited.
The new management team (i) hired a number of experienced senior executives and
mid-level managers; (ii) focused on profitability by establishing and
implementing specific sales and gross margin objectives; (iii) implemented new
sourcing strategies, which included relying principally on contract
manufacturers; (iv) closed eight outlets and one Company-operated retail store;
(v) implemented a more focused advertising strategy; and (vi) discontinued or
redesigned certain unprofitable and marginally profitable product lines and
styles. Primarily as a result of these initiatives, the Company achieved
profitability in the year ended March 31, 1994. The assets and certain of the
liabilities of the Company's predecessor were acquired in June 1994 by the
Company, which had been formed for this purpose. See "Management -- Compensation
Committee Interlocks and Insider Participation."
ORDER CYCLE. The North Face currently is engaged primarily in a two-season
wholesale business, Spring (January to June) and Fall (July to December).
Wholesale customers place preseason orders, which generally are noncancellable,
with the Company from two to five months prior to the beginning of the season.
Reorders are placed throughout the season and products are shipped based on
availability. Preseason orders typically account for 75 to 85% of total sales to
wholesale customers and historically have been an accurate indicator of actual
product shipments; however, there can be no assurance that preseason orders will
be an accurate indicator of actual product shipments in the future. With the
introduction of Tekware and Summit Shops, the Company expects that it
increasingly will be supplying its products to its wholesale customers on a
year-round basis, which is expected to decrease preseason orders as a percentage
of total sales to wholesale customers. Preseason orders for the 1996 Spring
season were $32.1 million compared to $22.5 million preseason orders for the
1995 Spring season. Preseason orders for the 1996 Fall season are $66.8 million
(as of May 2, 1996) compared to $51.4 million total preseason orders for the
1995 Fall season.
PRODUCTION CYCLE. Based on preseason orders and expected reorders, the
Company places production orders with its contract manufacturers for an entire
season three to five months before the beginning of the season. Fixed production
prices are agreed upon approximately three months prior to placement of such
production orders. As a result, the Company's production costs are relatively
predictable one season in advance of the delivery of products. In the past, the
Company and its wholesale customers were unable to maximize sales of the
Company's most popular products due to the Company's strategy of determining
production quantities based primarily on preseason orders. As a result, the
Company frequently was unable to meet strong reorder demand for its most popular
items. Beginning in Fall 1996, the Company intends to initiate a core inventory
replenishment program in which its core products and
20
<PAGE>
materials will be inventoried for rapid reorder or manufacturing. As a result of
this new program, the Company will maintain higher levels of inventories. See
"Risk Factors -- Reliance on Contract Manufacturing."
SUMMIT SHOPS. The North Face recently developed Summit Shops that are
designed to increase sales to wholesale customers. See "Business -- Selective
Distribution -- Summit Shops." The Company expects that Summit Shops will
showcase the Company's products using modern merchandising techniques, enhance
the Company's brand and increase sales, while minimizing investment. An average
650 square foot Summit Shop will require a total investment for furniture and
fixtures of approximately $40,000, 70% of which will be provided by the Company.
The Company will incur certain additional marketing and monitoring expenses. The
Company's wholesale customers will operate the Summit Shops, own the inventory
and provide the remaining 30% of the initial investment for furniture and
fixtures (which the Company may finance for certain wholesale customers). The
Company will retain ownership of the furniture and fixtures used in the Summit
Shops. See "Risk Factors -- Implementation of Summit Shop Strategy."
COMPANY-OPERATED RETAIL SALES. The North Face currently operates nine
retail stores and two outlets. New stores and outlets are included in comparable
store sales commencing in their thirteenth month of operation. The Company
currently does not plan to open any additional retail stores in the near future
because the Company believes that Summit Shops will provide comparable
merchandising and marketing benefits to those that are received from
Company-operated retail stores, with a lower commitment of financial and
operational resources and a higher return on investment. The North Face's gross
margins for its Company-operated retail stores are higher than for sales to its
wholesale customers. Consequently, due to the expected growing revenue
contribution from the Company's wholesale customers, the Company's overall gross
margins are expected to decline in the near term. The Company intends to open
one outlet store within the next 12 months.
GOVERNMENT SALES. The North Face historically has produced tents for the
Marine Corps. The timing of these sales has fluctuated historically and is
dependent on the Company's obtaining contracts from the Marine Corps. The timing
of the sales under these contracts can significantly affect the Company's
quarterly results. For example, the Company received $2.3 million and $1.7
million from the sale of tents to the Marine Corps in the first and second
quarters of 1995, respectively, but sold no tents to the Marine Corps in the
first quarter and expects to sell no tents to the Marine Corps in the second
quarter of 1996, resulting in fluctuations that make period-to-period
comparisons for these quarters less meaningful. The Company does not expect to
ship any tents to the Marine Corps during 1996, but currently is working with
the Marine Corps to obtain a contract for future shipments. There can be no
assurance, however, that the Company will obtain any contracts to produce tents
for the Marine Corps in the future. While the gross margin on government sales
typically are lower than on the Company's wholesale business, such sales incur
minimal additional operating expenses. As a result, the Company's profitability
can be impacted significantly by government sales, particularly in the
historically lower revenue first and second quarters. See "Risk Factors --
Seasonality and Quarterly Fluctuations."
CHANGE IN YEAR-END. In 1994, The North Face changed its fiscal year-end to
December 31. Due to this change and the Acquisition, comparison of the nine
month period ended December 31, 1994 to the fiscal year ended March 31, 1994 is
not meaningful. Therefore, the following discussion of results of operations is
based on the year ended December 31, 1995 compared to the pro forma results for
the year ended December 31, 1994, assuming the Acquisition had taken place on
January 1, 1994, and on the year ended March 31, 1994 compared to the year ended
March 31, 1993.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
The North Face's consolidated statements of operations as a percentage of net
sales (except for income taxes which are shown as a percentage of pre-tax
income). As a result of recent strategic and operational changes,
period-to-period comparisons of financial results may not be meaningful and the
results of operations for historical periods may not be indicative of future
results.
<TABLE>
<CAPTION>
FISCAL YEAR YEAR ENDED THREE MONTHS ENDED
ENDED MARCH 31, DECEMBER 31, MARCH 31,
-------------------------- ---------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ 1994 -------------- ------------ ------------
------------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit...................... 34.1 41.9 46.5 45.3 44.1 40.6
Operating expenses................ 41.6 37.5 38.3 36.6 39.6 40.2
------------ ------------ ------------ -------------- ------------ ------------
Operating income (loss)........... (7.5 ) 4.4 8.2 8.7 4.5 0.4
Interest expense.................. 4.9 2.3 4.9 4.6 5.6 4.7
------------ ------------ ------------ -------------- ------------ ------------
Income (loss) before provision for
taxes and extraordinary item..... (11.3 ) 1.8 3.0 4.6 (0.8 ) (3.7 )
Provision for income taxes........ (5.2 ) 46.6 36.3 37.6 53.8 45.2
------------ ------------ ------------ -------------- ------------ ------------
Net income (loss)................. (12.1 )% 0.9 % 1.9 % 2.9 % (0.4 )% (2.0 )%
------------ ------------ ------------ -------------- ------------ ------------
------------ ------------ ------------ -------------- ------------ ------------
</TABLE>
The following table sets forth, for the periods indicated, the Company's net
sales by distribution channel and for domestic compared to international net
sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH YEAR ENDED THREE MONTHS ENDED
31, DECEMBER 31, MARCH 31,
-------------------------- ---------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ 1994 -------------- ------------ ------------
------------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
Wholesale customers............... $52,673 $51,720 $61,391 $ 87,386 $14,804 $22,839
Company-operated retail........... 33,681 31,225 26,877 29,968 6,412 8,038
Government........................ 356 4,466 919 4,180 2,284 143
------------ ------------ ------------ -------------- ------------ ------------
Total net sales............... $86,710 $87,411 $89,187 $121,534 $23,500 $31,020
------------ ------------ ------------ -------------- ------------ ------------
------------ ------------ ------------ -------------- ------------ ------------
United States..................... $71,658 $71,994 $70,822 $ 96,069 $17,551 $22,265
International..................... 15,052 15,417 18,365 25,465 5,949 8,755
------------ ------------ ------------ -------------- ------------ ------------
Total net sales............... $86,710 $87,411 $89,187 $121,534 $23,500 $31,020
------------ ------------ ------------ -------------- ------------ ------------
------------ ------------ ------------ -------------- ------------ ------------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
NET SALES. Net sales increased by 32.0% to $31.0 million from $23.5 million
for the three months ended March 31, 1996 (the "First Quarter 1996") compared to
the three months ended March 31, 1995 (the "First Quarter 1995").
Net sales to wholesale customers increased by 54.3% to $22.8 million from
$14.8 million for First Quarter 1996 compared to First Quarter 1995. This
increase related primarily to increased unit shipments to the Company's existing
wholesale customers resulting from (i) the introduction of new products,
including the initial shipments of Tekware, (ii) continued strong sales of
existing products, (iii) better service to its wholesale customers and (iv) a
more targeted advertising and marketing campaign. In addition, the Company
believes that its improvement in on-time deliveries to its wholesale
22
<PAGE>
customers has resulted in a shift of sales from the second quarter into the
first quarter 1996. Accordingly, the Company expects net sales in the second
quarter of 1996 to increase at a lower rate than in the first quarter 1996.
Company-operated retail sales increased by 25.4% to $8.0 million from $6.4
million for First Quarter 1996 compared to First Quarter 1995. This increase was
attributable to strong comparable store sales which grew by 23.7% due primarily
to higher levels of sales of discontinued skiwear and sportswear and new product
introductions. In addition, the Company opened one new retail store in October
1995 and closed two outlets in mid-1995.
Government sales decreased by 93.7% to $0.1 million from $2.3 million for
First Quarter 1996 compared to the First Quarter 1995. This decrease is due to
the timing of government tent shipments under a contract which was completed in
1995.
GROSS PROFIT. Gross profit as a percentage of net sales for First Quarter
1996 was 40.6% compared to 44.1% for First Quarter 1995. Gross profit for net
sales to wholesale customers for First Quarter 1996 was 37.7% compared to 41.7%
for First Quarter 1995. Company-operated retail gross profit was 49.2% for the
First Quarter 1996 compared to 54.3% for the First Quarter 1995. The lower
margin for sales to wholesale customers relates primarily to lower initial
margin on the introduction of the Company's new Tekware line and additional air
freight costs related to on-time deliveries. The lower retail margin relates
primarily to higher volumes in First Quarter 1996 of liquidations of
discontinued skiwear and sportswear.
OPERATING EXPENSES. Operating expenses include selling, marketing and
general and administrative expenses. Operating expenses increased by 33.9% to
$12.5 million from $9.3 million for First Quarter 1996 compared to First Quarter
1995, and increased slightly as a percentage of net sales to 40.2% for First
Quarter 1996 from 39.6% for First Quarter 1995. This increase relates primarily
to the increased headcount and other overhead costs related to the growth of the
business, higher advertising and marketing expenses related to earlier spending
of advertising dollars, and operating expenses associated with the Company's new
Chicago store which opened in October 1995.
INTEREST EXPENSE. Interest expense increased to $1.5 million from $1.3
million for First Quarter 1996 compared to First Quarter 1995 primarily as a
result of higher levels of debt incurred to finance working capital growth.
PROVISION FOR INCOME TAXES. Benefit for income taxes as a percent of
pre-tax loss was approximately 45.2% for First Quarter 1996 compared to 53.8%
for First Quarter 1995. This decrease relates to the mix of the Company's
pre-tax earnings/losses between the U.S. and the United Kingdom which have
different tax rates.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales increased by 36.3% to $121.5 million from $89.2
million for the year ended December 31, 1995 compared to the pro forma year
ended December 31, 1994.
Net sales to wholesale customers increased by 42.3% to $87.4 million from
$61.4 million for 1995 compared to 1994. This increase related primarily to
increased unit shipments to the Company's existing wholesale customers resulting
from (i) the introduction of new products, such as day packs and Nuptse
down-filled jackets, (ii) continued strong sales of existing products, such as
the Mountain Light family, and (iii) better service to wholesale customers. In
addition, the Company's sales in Canada increased substantially to $5.1 million
due to the termination of the Company's licensing agreement with a third party
and the opening of the Company's new Canadian operations in January 1995.
Company-operated retail sales increased by 11.5% to $30.0 million from $26.9
million for 1995 compared to 1994. This increase related to an increase in
comparable store sales of 13.4% primarily due to the higher level of
liquidations in 1995 at two outlet stores closed in 1995. In addition, the
Company opened one new retail store in October 1995.
23
<PAGE>
Government (Marine Corps) sales increased to $4.2 million from $0.9 million
for 1995 compared to 1994. This increase was due to the timing of tent shipments
under a U.S. government contract. The Acquisition in June 1994 delayed the
timing of shipments under the government contract until January 1995. This
contract was completed in 1995.
GROSS PROFIT. Gross profit as a percentage of net sales for 1995 was 45.3%
compared to 46.5% for 1994. Gross profit for net sales to wholesale customers
was 43.2% in 1995 compared to 43.9% in 1994. Company-operated retail gross
profit in 1995 was 53.6% compared to 52.7% in 1994. While retail gross margins
were slightly higher, the Company's overall gross margin decreased due to the
higher relative portion of sales to wholesale customers. The lower margins for
sales to wholesale customers result primarily from lower margins on the
Company's new Canadian business which carries higher duty costs as well as lower
margins on sales to European customers. The increase in Company-operated retail
gross margin for 1995 resulted principally from the lower percentage of outlet
store sales to total retail sales because of the closure of two Company-operated
outlets in mid-1995.
OPERATING EXPENSES. Operating expenses increased by 30.6% to $44.5 million
from $34.1 million for 1995 compared to 1994 due to increases in variable and
fixed costs to support the growth of the Company's business as well as operating
and start-up costs of a new retail store that opened in October 1995. These
expenses decreased, however, as a percentage of net sales from 38.3% for 1994 to
36.6% for 1995 as a result of a lower growth rate in operating expenses than in
sales.
INTEREST EXPENSE. Interest expense increased to $5.5 million from $4.4
million for 1995 compared to 1994, as a result of higher levels of debt incurred
to finance working capital growth.
PROVISION FOR INCOME TAXES. Provision for income taxes as a percent of
pre-tax income was approximately 37.6% for 1995 compared to 36.3% for 1994. This
increase in effective rate relates to the mix of the Company's earnings, with
higher pre-tax earnings growth in the United States where the tax rate is higher
than in the United Kingdom.
YEAR ENDED MARCH 31, 1994 COMPARED TO YEAR ENDED MARCH 31, 1993
NET SALES. Net sales increased slightly to $87.4 million from $86.7 million
for the year ended March 31, 1994 ("March 1994 Fiscal Year") compared to the
year ended March 31, 1993 ("March 1993 Fiscal Year").
Sales to wholesale customers decreased by 1.8% to $51.7 million from $52.7
million for March 1994 Fiscal Year compared to March 1993 Fiscal Year. The
Company's March 1994 Fiscal Year results were adversely impacted by the
Company's limited ability to finance the production of inventories. In addition,
net sales to wholesale customers for the March 1993 Fiscal Year were bolstered
by high levels of sales of discontinued merchandise and excess inventories.
Company-operated retail sales decreased by 7.3% to $31.2 million from $33.7
million for March 1994 Fiscal Year compared to March 1993 Fiscal Year. This
decrease related primarily to the closing of one Company-operated retail store
and six outlets in March 1994 Fiscal Year. On a comparable store basis, retail
sales increased 3.7%.
Government (Marine Corps) sales increased to $4.5 million from $0.4 million
for March 1994 Fiscal Year compared to March 1993 Fiscal Year. This increase
related to shipments under a new government tent contract.
GROSS PROFIT. Gross profit as a percentage of net sales for March 1994
Fiscal Year was 41.9% compared to 34.1% for March 1993 Fiscal Year. This
increase related to lower costs for sourced products in March 1994 Fiscal Year
and substantial write-downs of excess and obsolete inventory for March 1993
Fiscal Year.
OPERATING EXPENSES. Operating expenses decreased by 9.1% to $32.8 million
from $36.1 million for March 1994 Fiscal Year compared to March 1993 Fiscal
Year, primarily due to (i) write-
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offs taken in the March 1993 Fiscal Year by new management in connection with
store closure expenses, bad debt expense and employee termination costs and (ii)
the reduction in payroll and related employee costs related to store closures
and other headcount reductions.
INTEREST EXPENSE. Interest expense decreased by 51% to $2.0 million from
$4.2 million for March 1994 Fiscal Year compared to March 1993 Fiscal Year. This
decrease relates to the significant amounts of borrowings from related parties
which ceased to carry interest charges as a result of the bankruptcy of the
Odyssey Group.
PROVISION FOR INCOME TAXES. The effective income tax rate was approximately
46.6% for March 1994 Fiscal Year compared to 5.2% of the pre-tax loss for March
1993 Fiscal Year. The tax expense for the 1993 Fiscal Year, despite the
Company's pre-tax losses, related to foreign taxable income and the
unavailability of U.S. tax benefits for U.S. losses due to cumulative net
operating loss carryforwards. All cumulative tax net operating loss
carryforwards were eliminated as of the Acquisition. See Note 6 to the
Consolidated Financial Statements included elsewhere in this Prospectus for a
reconciliation of the effective tax rate to the U.S. federal tax rate.
QUARTERLY DATA AND SEASONALITY
The following table sets forth certain unaudited financial data for each of
the Company's last nine fiscal quarters. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------------
(PRO FORMA)(1)
--------------------------------
Q1 Q2 Q3 Q4
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales.................................. $ 19,958 $ 12,552 $ 33,046 $ 23,631
Gross profit............................... 8,587 5,346 15,628 11,878
Operating income (loss).................... (427) (1,719) 6,254 3,226
Net income (loss).......................... (1,227) (1,631) 3,288 1,278
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
Q1 Q2 Q3 Q4
--------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................. $ 23,500 $ 19,342 $ 50,061 $ 28,631
Gross profit............................... 10,367 7,852 22,735 14,110
Operating income (loss).................... 1,057 (1,055) 8,456 2,066
Net income (loss).......................... (85) (1,331) 4,565 336
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, 1996
---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................. $ 31,020
Gross profit............................... 12,603
Operating income (loss).................... 139
Net income (loss).......................... (629)
</TABLE>
- ------------------------------
(1) See footnote (1) to "Selected Consolidated Financial Data."
The Company's business is subject to seasonal and quarterly fluctuations.
Historically, the Company has realized substantially all of its profits in the
third quarter and has recognized losses during the first and second quarters.
The Company's results of operations may fluctuate from quarter to quarter as a
result of, among other things, the amount and timing of shipments to wholesale
customers, government (Marine Corps) shipments, advertising and marketing
expenditures, increases in the number of employees and overhead to support
growth and store opening costs. For example, the Company received $2.3 million
and $1.7 million from the sale of tents to the Marine Corps in the first and
second quarters of
25
<PAGE>
1995, respectively, but sold no tents to the Marine Corps in the first quarter
and expects to sell no tents to the Marine Corps in the second quarter of 1996,
resulting in fluctuations that make period-to-period comparisons for these
quarters less meaningful. In addition, during the second quarter of 1996, the
Company expects to significantly increase its operating expenses due to
increased sales commissions related to higher net sales, the hiring of new
executive officers, the expansion of its merchandising department to launch its
Summit Shop program and a significant increase of its product acquisition staff.
Accordingly, primarily as a result of the foregoing factors and expenses
associated with the operation of the new Chicago retail store, the Company
anticipates that it will incur a loss in the second quarter of 1996 which will
be significantly larger than the loss incurred in the second quarter of 1995.
See "Risk Factors -- Ability to Achieve and Manage Potential Future Growth." The
Company anticipates that it will continue to incur net losses during the first
and second calendar quarters for the foreseeable future. In addition, the
Company expects to report a non-cash extraordinary charge related to debt
extinguishment of approximately $0.8 million, net of taxes, in the quarter
ending September 30, 1996 as a result of restructuring both the Credit Facility
and the Subordinated Note in connection with this offering. Additionally, the
Company's effective tax rate can vary significantly from quarter to quarter due
to the relative mix of earnings from the Company's domestic and international
operations which are taxed at different rates.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Acquisition, the Company issued 1,935,781 shares of
Preferred Stock and 2,271,064 shares of Common Stock in exchange for
approximately $12.3 million and borrowed $24.3 million pursuant to the
Subordinated Note. The proceeds from the issuance of the Preferred Stock, Common
Stock and Subordinated Note, together with borrowings under the Credit Facility,
were used to fund the Acquisition. See "Management -- Compensation Committee
Interlocks and Insider Participation."
Since June 7, 1994 (the date of the closing of the Acquisition), the Company
has satisfied its cash requirements through borrowings under the Credit
Facility. Its primary uses of cash have been to purchase merchandise
inventories, finance growth of the Company's accounts receivable, upgrade the
Company's management information systems and open one retail store. During the
year ended December 31, 1995, the Company used approximately $2.8 million for
operations, primarily due to increased inventory. These funds were provided by
borrowings under the Credit Facility. Historically, the Company's ability to
maintain adequate levels of inventory was constrained by its capital resources.
In March 1995, the Company obtained an increase in its Credit Facility. As a
result, the Company increased its levels of inventory in order to better enable
it to meet reorder demand in key products. The Company anticipates that
inventory levels will continue to increase as the Company expands its business
and implements its core inventory replenishment program. Such inventory
increases will be financed by borrowings under the Credit Facility.
The Company's Credit Facility provides for borrowings up to $58.0 million
under its revolving line of credit with actual borrowings limited to available
collateral (approximately $32.1 million of gross availability as of June 19,
1996) and for up to $7.0 million under a term note for capital expenditures
(approximately $0 of remaining availability as of June 19, 1996) from Heller
Financial, Inc. and two banks. The Credit Facility provides a sub-limit for
letters of credit of up to $10.0 million to finance the Company's foreign
purchases of merchandise inventories. As of June 19, 1996, the Company had
approximately $9.2 million of letters of credit outstanding under the Credit
Facility. The Credit Facility contains certain financial covenants that require
the Company to maintain a specified minimum tangible net worth and interest
coverage and leverage ratios, limit capital expenditures and restrict the
Company's ability to incur additional indebtedness and pay cash dividends on its
capital stock. The Company was in compliance with these covenants as of June 19,
1996 and expects to remain in its compliance with such covenants.
The Company intends to use the net proceeds of this offering to repay
approximately $13.0 million outstanding under the revolving line of credit, $7.0
million outstanding under the term note debt of the
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Credit Facility and $10.1 million of the Subordinated Note. Upon consummation of
the offering, the Company expects to restructure its $65.0 million Credit
Facility to (i) increase the maximum available under the revolving line of
credit to the lesser of $60.0 million or available collateral, (ii) provide for
a new capital expenditure term note of up to $5.0 million and (iii) reduce the
rate of interest to prime less 0.25% or LIBOR plus 1.50%, at the Company's
option, with the possibility of a further reduction of 0.25% based on the
Company achieving certain levels of earnings before interest, taxes,
depreciation and amortization for the year ended December 31, 1996. In addition,
the Company expects its restructured Credit Facility will increase the letter of
credit sub-limit to $15.0 million, which amount will reduce availability under
the revolving portion of the Credit Facility. The Company expects its
restructured Credit Facility will continue to be secured by a first priority
security interest in all of the Company's real and personal property.
The Company estimates that its capital expenditures during 1996 will be
approximately $4.0 million. This amount will be used principally for investment
in Summit Shops, the upgrade of management information systems and the expansion
of the Company's distribution facilities.
The Company anticipates that cash generated from this offering, from
operations and from funds available under the Credit Facility will be sufficient
to satisfy its cash requirements for at least the next 12 months.
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<PAGE>
FOREIGN EXCHANGE FLUCTUATIONS
The Company's inventory purchases from contract manufacturers in the Far
East are denominated in United States dollars; however, purchase prices for the
Company's products may be impacted by fluctuations in the exchange rate between
the United States dollar and the local currencies of the contract manufacturers,
which may have the effect of increasing the Company's cost of goods in the
future. In addition, the Company's sales in Europe and Canada are denominated in
the local currencies of the applicable specialty retailer, which may have a
negative impact on profit margins or the rate of growth of sales in those
countries if the U.S. dollar were to strengthen significantly. During the last
two years, exchange rate fluctuations have not had a material impact on the
Company's inventory costs or consolidated profit margins in Europe or Canada.
However, due to the number of foreign currencies involved and the fact that not
all of these foreign currencies fluctuate in the same manner against the United
States dollar, the Company cannot quantify in any meaningful way the potential
effect of such fluctuations on future income. Beginning in 1996, the Company
engages in certain forward foreign exchange hedging activities with respect to
its European sales revenues. The Company does not engage in forward foreign
exchange hedging activities for its Canadian revenues. See "Risk Factors --
International Operations."
INFLATION
The Company believes that the relatively moderate rates of inflation over
the last two years in the United States, where it primarily competes, have not
had a significant effect on its net sales or results of operations. Higher rates
of inflation have been experienced in a number of foreign countries in which the
Company's products are manufactured but also have not had a material effect on
the Company's net sales or results of operations. In the past, the Company has
been able to offset its cost increases by increasing selling prices or changing
suppliers.
IMPACT OF NEW ACCOUNTING STANDARDS
See Note 2 to the Consolidated Financial Statements for a discussion of the
impact of new accounting standards.
28
<PAGE>
BUSINESS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
The Company believes The North Face-Registered Trademark- is the world's
premier brand of high-performance outdoor apparel and equipment. The Company
designs and distributes technically sophisticated outerwear, skiwear, functional
sportswear, tents, sleeping bags and backpacks, all under The North
Face-Registered Trademark- name.
The North Face has developed a superior reputation for quality, performance
and authenticity by providing technically advanced products capable of
withstanding the most extreme conditions. For nearly 30 years, the Company's
outdoor apparel and equipment have been the brand of choice for numerous high
altitude and polar expeditions. These products are used extensively by
world-class climbers, explorers and extreme skiers, whose lives depend on the
performance of their apparel and equipment. To maintain and further enhance this
unique legacy, the Company continuously develops and introduces innovative
products that are functional, technically superior and designed to set the
industry standard in each product category. The Company cultivates its extreme
image through its targeted marketing efforts and its teams of world-class
climbers, explorers and skiers.
To protect the integrity of The North Face-Registered Trademark- brand and
ensure a high level of customer service and education, the Company limits the
distribution of its products to a select number of specialty retailers. The
Company sells its products to over 1,500 wholesale customers representing more
than 2,000 store fronts throughout the United States, Europe and Canada. The
Company also owns and operates nine retail and two outlet stores in the United
States.
INDUSTRY OVERVIEW
Technical outdoor apparel and equipment historically have been used
primarily by professional climbers and serious outdoor enthusiasts. In recent
years, these products have become increasingly popular among a broader group of
consumers. The Company believes that this growth has been the result primarily
of (i) an increase in outdoor recreational activities by the general population,
(ii) a growing demand for highly functional products, (iii) a growing acceptance
of outdoor apparel as casual wear and (iv) an increase in the technical
sophistication of products in this field.
The trend towards more active outdoor lifestyles is demonstrated by
increased participation in a variety of outdoor activities such as camping,
hiking and backpacking. According to The Outdoor Recreation Coalition of
America, from 1993 to 1994 the number of people who participated in rock
climbing increased 32%, while participation in mountain biking increased 20% and
backpacking increased 11%. In addition, outdoor or rugged apparel has been
increasingly worn as casual clothing even by individuals who do not participate
in outdoor activities or require the functionality of a high-performance
product. Casual wear in general also has become increasingly popular,
particularly in the workplace as evidenced by the dramatic increase in "casual
days."
The Company believes that consumers recently have demonstrated an increasing
preference for functional, performance-oriented products. Purchase decisions
often are driven as much by a desire to create a particular perception of
themselves as healthy and active as by an actual need for these products. An
example of this trend is the growing popularity of sport utility vehicles which
have become one of the fastest growing segments of the automotive industry
despite the fact that most owners of such vehicles never venture off paved
streets. Finally, over the last decade, there have been significant
technological advances in materials and features that have increased product
functionality and performance. The number of products and product segments has
increased dramatically as marketers target specific
28
<PAGE>
functions and uses to particular user groups. For example, in the footwear
industry, there has been a proliferation of new products designed to suit a
greater variety of activities and conditions. See "Risk Factors -- Changing
Consumer Preferences."
BUSINESS STRATEGY
The North Face's goal is to design and market the most recognized and
respected brand of high-performance, technically-oriented outerwear, skiwear,
outdoor equipment and functional sportswear in the world. Each element of the
Company's strategy is intended to enhance and reinforce the global brand image
of The North Face-Registered Trademark- among both consumers and retailers. Key
elements of the strategy are to:
OFFER TECHNICALLY SUPERIOR PRODUCTS. The North Face is committed to
offering technically superior products that are functional, reliable and durable
and that set the industry standard in each product category. Many of the
Company's existing product lines feature technically superior, high-performance
products designed to be used in remote, mountainous or polar environments and to
withstand the harshest conditions. To reinforce The North Face-Registered
Trademark- image of quality and reliability, the Company's products carry a
lifetime warranty. The Company believes that this standard of excellence
cultivates, for the entire range of The North Face-Registered Trademark-
products, a technical, extreme and authentic image that also appeals to the more
casual outdoor enthusiast seeking functional, high-performance products.
DESIGN INNOVATIVE PRODUCTS. The North Face is committed to maintaining a
premier position in the outdoor apparel and equipment industries by remaining on
the leading edge of product design and materials technology. More than 85% of
the products currently offered by The North Face are new products or have been
updated since 1993. In designing and developing new product styles and features,
the Company's teams of world-class climbers, explorers and extreme skiers
contribute design ideas and test new products. The Company also works closely
with suppliers to develop high-performance materials that result in lighter,
stronger and more efficient products, and frequently obtains from these
suppliers first and/or exclusive rights to use the new materials for a certain
period of time.
PROMOTE ITS EXTREME BRAND IMAGE. The Company devotes significant resources
to strengthening The North Face-Registered Trademark- brand by projecting a
technical, extreme and authentic image that appeals to professionals and serious
outdoor athletes as well as to broader segments of the population. The North
Face believes that the product choices of professionals and serious outdoor
athletes create greater product visibility and influence general consumer
preferences. The Company provides equipment and outerwear for expeditions and
other high profile outdoor activities and promotes The North Face's products
through its teams of world-class climbers, explorers and extreme skiers.
FOCUS ON SELECTIVE DISTRIBUTION. To protect the integrity of The North
Face-Registered Trademark- brand and promote a high level of customer service,
the Company limits the distribution of its products to a select group of
specialty mountaineering, backpacking and ski retailers, large specialty outdoor
retail chain stores and selected general sporting goods retailers. The Company's
wholesale customers typically sell high quality, technically-oriented products
that are consistent with the Company's standards and have well trained sales
personnel capable of providing superior customer service and technical guidance.
Through selective distribution, The North Face believes it increases brand
loyalty and encourages its wholesale customers to carry a broader array of its
products.
INTRODUCE SUMMIT SHOPS. The North Face recently developed Summit Shops,
year-round concept shops dedicated to The North Face-Registered Trademark-
products and to be primarily located within certain of the Company's wholesale
customers. Summit Shops are designed to increase the Company's sales in
specialty retailers by broadening The North Face-Registered Trademark- product
offerings, improving merchandising and building brand awareness. The North Face
will design and install Summit Shops and provide its specialty retailers with
merchandising and training support. The Company believes that Summit Shops will
provide specialty retailers with an opportunity to increase sales of The North
Face-Registered Trademark- products without devoting substantial additional
resources. By establishing operating guidelines for the Summit Shops, the
Company will promote high levels of service and a broad product selection, while
minimizing its investment and operational commitment.
29
<PAGE>
SELECTIVELY OPERATE RETAIL STORES. To complement its wholesale distribution
strategy and to increase brand awareness in selected markets, The North Face
currently operates nine retail stores. These stores enable the Company to
display the full line of The North Face-Registered Trademark- products, obtain
feedback from customers, closely monitor the retail sell-through of its products
and obtain consumer information. The North Face does not plan to open additional
retail stores due to the recent development of its Summit Shops, which it
expects will provide many of the advantages of Company-operated retail stores,
with a higher return on investment.
GROWTH STRATEGY
The Company's growth strategy is to continue to build on the strong consumer
awareness and technical reputation of The North Face-Registered Trademark-
brand. While professionals and serious outdoor enthusiasts will remain a
critical part of the Company's consumer base, The North Face believes that it
will continue to benefit from increasingly active consumer lifestyles and what
it identifies as a growing preference for functional, high-performance outdoor
apparel and equipment. Key elements of the Company's growth strategy are to:
INTRODUCE NEW PRODUCTS AND COMPLEMENTARY PRODUCT CATEGORIES. The Company
intends to take advantage of the strength of The North Face-Registered
Trademark- brand by continuing to introduce new products within existing product
categories and by adding complementary product categories. The Company
introduces innovative new products within existing categories and extends core
product lines by creating new "families" of products around existing products, a
strategy which has been effective both in launching the new products and
increasing the sales of the core products. In addition, although the Company's
products historically have been concentrated primarily in premium price product
categories, the Company intends to continue to introduce products in more
moderate price-point segments, so as to access a broader consumer base.
Consistent with The North Face-Registered Trademark- image, however, the Company
ensures that these products offer the highest performance and function in their
category. Finally, the Company intends to introduce additional new product
categories, such as its recently introduced lines of windwear, day packs, gloves
and underwear.
ROLL OUT SUMMIT SHOPS. The Company recently developed the concept of
"Summit Shops" to promote The North Face-Registered Trademark- brand and
increase sales at specialty retailers. The Company intends to open Summit Shops
in a controlled manner, selecting specialty retailers willing to make a
substantial commitment to the concept by dedicating sufficient selling space and
financial and operating resources. The Company anticipates initially opening
Summit Shops primarily in large specialty outdoor retail chains and in selected
larger, outdoor specialty stores, and may consider other high-end retail
formats. The Company expects to open its first Summit Shop in late Summer 1996
and anticipates that approximately 25 Summit Shops will open throughout the
United States by the end of 1996.
PROMOTE TEKWARE AS A HIGH-PERFORMANCE ALTERNATIVE TO SPORTSWEAR. The
Company intends to broaden the distribution and increase its product offerings
of Tekware, an innovative new line of high-performance, functional clothing made
from a new generation of synthetic fabrics. Tekware generally maintains the look
and feel of cotton, while offering significant functional and performance
advantages over cotton, such as its quick-drying, abrasion- and shrink-resistant
properties. Management expects Tekware to change the way consumers think about
casual clothing for active outdoor use and to provide the Company with a
competitive advantage in the sportswear market. The Company believes that the
initial response from its wholesale customers to Tekware, which was introduced
for Spring 1996, has been positive.
PURSUE INTERNATIONAL OPPORTUNITIES. The North Face intends to pursue sales
in international markets while selectively increasing its distribution in the
United States. The Company believes that many of the same lifestyle and consumer
trends that have benefited the Company in the U.S. are increasingly affecting
international markets, particularly in Europe and Canada. The North Face has
established regional headquarters in Europe and Canada, and recently combined
its domestic and international
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product development, sourcing and marketing functions to improve efficiencies
and develop an integrated effort designed to increase its global focus. The
Company anticipates that its international sales will benefit both from
expanding the distribution of its products and the increased awareness of The
North Face-Registered Trademark- brand. The Company anticipates that Europe and
Canada will provide the most significant near-term opportunities but also will
selectively pursue new markets in Asia.
PRODUCTS
The North Face offers a broad range of high-performance,
technically-oriented outerwear, skiwear, outdoor equipment and Tekware designed
for extreme applications, such as high altitude mountaineering, ice climbing,
rock climbing, backpacking, skiing and snowboarding. The Company characterizes
its apparel-related products as "equipment for the body." As a result of the
experience gained through nearly 30 years as the brand of choice for many of the
world's most challenging high altitude and polar expeditions, The North
Face-Registered Trademark- has achieved a unique level of authenticity. The
North Face-Registered Trademark- products are original designs and carry a
lifetime warranty for the original owner against defects in materials and
workmanship. In 1995, sales of outerwear, equipment, skiwear and other products
represented approximately 50%, 25%, 14% and 11%, respectively, of net sales.
The Company's goal is to offer the most technically advanced products in its
field and to establish the industry standard in each product category. The
Company designs its premium products for extreme applications, such as high
altitude mountaineering, ice climbing and polar expeditions, which it believes
represents only a small fraction of its potential customers. These premium
products serve to reinforce The North Face-Registered Trademark- brand image
while appealing to non-extreme users. The Company also strives to offer products
at more moderate price-points that remain "best of class" by incorporating many
of the features, materials and technology used in its leading edge designs. The
Company believes that this product design philosophy enhances The North
Face-Registered Trademark- brand while appealing to the broader consumer market.
See "Risk Factors -- Dependence on New Products."
OUTERWEAR
The Company's outerwear is engineered to provide protection in cold, wet and
windy conditions and to accommodate the range of motion required for the most
extreme activities. It is designed to adapt to varying conditions and
situations, taking into account the unpredictability of the weather and the fact
that some outdoor activities alternate between periods of extreme exertion and
total rest, requiring a proper balance between ventilation and insulation. Each
year, the Company enhances its outerwear lines by adding new products and design
innovations. Overall, the Company has introduced 65 new outerwear products in
1996, including two entirely new collections, "Search and Rescue-TM-" and
"Remote Terrain Gear." Among the exclusive features being introduced this year
are ergonomic swivel hoods, ten-piece articulated sleeves and multi-position
double slider underarm zippers. The Company now offers four principal lines of
outerwear and a line of Technical Apparel Accessories.
EXPEDITION SYSTEM-REGISTERED TRADEMARK- is an advanced, integrated cold
weather clothing system in which several pieces (including full body suits,
pants, jackets, vests, anoraks and accessories) work together in layers to
create warmth, protection and safety. Since 1994, the Company has significantly
expanded the Expedition System-Registered Trademark- product line by creating
new families of products around existing products, such as the Mountain Light
and Denali fleece families, adding new product segments, such as the Himalayan
and Kichatna Series, significantly upgrading and restyling existing products,
such as the Nuptse Series, and adding products specifically designed for women.
WEATHER SYSTEMS is a collection of four distinct series of outerwear
designed to provide protection in wet and windy conditions, while maintaining
comfort throughout variations of season, temperature, moisture and wind, and
over a wide range of activities. For example, the Hydrenaline-TM- Series,
introduced in 1994, is a technically advanced line of shell outerwear based on a
proprietary microfiber fabric, Hydrenaline-TM-, that combines features of
breathability and water resistance and is ideal for hiking, running, mountain
biking, cross country skiing and other aerobic outdoor activities.
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SEARCH AND RESCUE-TM- introduced a new concept to the outdoor industry. This
collection of one piece suits, shells and fleece is designed to support and
protect mountain search and rescue teams in extreme weather conditions. Although
intended for search and rescue experts, several pieces within the collection are
expected to appeal to consumers who desire its protective attributes for less
extreme outdoor activities.
REMOTE TERRAIN GEAR ("RTG") was created for backcountry snowboarding and
combines elements of the Company's Expedition System with unique snowboarding
features to create products such as pants that are cut in the seated
snowboarding position. Unlike most snowboarding clothing which caters to the
fashion tastes of snowboarders, the highly functional RTG is expected to appeal
to a performance-oriented snowboarding market.
TECHNICAL APPAREL ACCESSORIES includes a wide range of high-performance
thermal underwear, head wear, gloves and mittens which have been tested
extensively throughout the world in extreme conditions. This collection has been
expanded significantly in 1996 with the introduction of nine new products.
TEKWARE-TM-
In 1996, The North Face entered the broader casual apparel market with its
introduction of Tekware-TM-, an innovative line of high-performance outdoor
apparel made from a new generation of synthetic fabrics and developed in
collaboration with E.I. DuPont de Nemours & Co. ("DuPont") and other companies.
Tekware is offered in three lines, Climbing, Training and Trekking, each with
versions for men and women. Each line features a broad collection of pants,
shorts, shirts, pullovers, vests, tank tops and tights, each in several styles.
Tekware is designed for serious outdoor pursuits and is especially functional
for everyday use. Overall, the Company introduced 67 Tekware products for Spring
1996 and an additional 44 Tekware products for Fall 1996.
ADVANTAGES OF TEKWARE-TM- OVER COTTON CLOTHING
<TABLE>
<CAPTION>
FEATURES TEKWARE COTTON
- ----------------------------------------- --------- ---------
<S> <C> <C>
Quick Drying............................. X
Abrasion Resistant....................... X
Shrink Resistant......................... X
Tear Resistant........................... X
Fade Resistant........................... X
</TABLE>
Tekware has garnered positive publicity from the press. Explaining why they
selected Tekware for their prestigious "Editors' Choice" award, the editors of
BACKPACKER magazine wrote in the April 1996 issue: "We're not big fans of cotton
clothes for backcountry duty. Once wet, cotton takes forever to dry and in the
process it sucks away precious body warmth. Hypothermia is a real concern when
you wear jeans or a cotton T-shirt in the wilderness, and that's why some wise
woodsperson coined the phrase, 'cotton kills.' Naturally, when The North Face
touted its new Tekware clothing line as '100% Not Cotton,' it grabbed our
attention. During our field tests we found that when nasty weather or hard
hiking soaks you, these non-absorbent, synthetic shirts and pants keep you warm
while your body heat quickly dries the fabric. . . . These sensible clothes are
built for the backcountry but won't make you look or feel like a trail bum when
you hit town."
Tekware provides an effective complement to the Company's other product
offerings and will be prominently featured in the Summit Shops. The Company
believes Tekware will be very appealing to wholesale customers and will increase
the amount of selling space devoted to The North Face-Registered Trademark-
products. The Company believes Tekware's broad, year-round product line and
consistent new product introductions will help create sustained consumer
interest in The North Face-Registered Trademark- brand. In addition, unlike some
of
32
<PAGE>
the Company's other product categories, Tekware has the potential to become a
repeat or "replenishment" business as consumers purchase new sportswear to
complement or replenish their existing wardrobes. See "Risk Factors --
Introduction and Acceptance of Tekware-TM-."
EQUIPMENT
Equipment is critical to The North Face-Registered Trademark- image and
reputation and plays an extremely important role in its research and
development, field testing and marketing activities. The Company offers three
comprehensive lines of technical outdoor equipment: tents, sleeping bags and
backpacks. The Company has increased its equipment sales over the last two years
by introducing new products and refining existing products. The Company
introduced 65 new equipment products in 1996.
TENTS. The North Face is regarded as the premier supplier of expedition
tents built to withstand extreme weather conditions. The North Face currently
offers an extensive line of 23 tent models, designed to suit a wide variety of
weather conditions and applications. The North Face offers 12 expedition-quality
tents, including models such as the VE-25, long renowned as the world's finest
base camp tent, and the Mountain-24, rated by CLIMBING MAGAZINE in 1995 as the
best two-person expedition tent. The Company's best selling tents are its
three-season and recreational tents that also offer superior features and are
used by a wide range of consumers for backpacking and camping.
SLEEPING BAGS. The Company offers 27 models of sleeping bags for
mountaineering and backpacking that differ in insulations, shell fabrics and
linings. The Company offers 13 models in the goose down line and 14 models in
its synthetic insulated line of sleeping bags to provide comfort in temperatures
ranging from -40 DEG.F to 30 DEG.F. During the last two years, the Company
introduced several innovations in fabrics, insulation and construction of both
its goose down and synthetic insulated lines. For Fall 1996, the Company
introduced synthetic sleeping bags made from Polarguard 3D, a high-performance
product developed by Hoechst Corporation ("Hoechst"), in close collaboration
with The North Face.
BACKPACKS. The North Face offers a comprehensive line of backpacks grouped
into three categories: (i) large volume, internal frame packs for extended
backcountry trips; (ii) "tech packs" for sport specific activities and (iii) day
packs. The large volume, internal frame pack category consists of three
different lines based on differing load carrying efficiencies. These packs are
made in a range of torso lengths and in sizes to fit both men and women. The
"tech pack" line consists of 11 models of sport specific packs designed by The
North Face teams of climbers, explorers and extreme skiers for specific
activities, such as high altitude climbing, ice climbing, rock climbing,
backcountry skiing and snowboarding. During the last year, the Company has
introduced new lines of daypacks, lumbar packs and cargo bags providing an
opportunity for a wide audience of hikers, students and the general public to
own a The North Face-Registered Trademark- product at a more moderate price. In
1996, the Company introduced 33 new products in the categories of backpacks,
"tech packs," day packs, cargo bags and pack accessories.
SKIWEAR
The Company offers skiwear designed for extreme skiing in remote areas.
While the Company's skiwear is designed for extreme users, it has become
increasingly popular among recreational skiers. The North Face-Registered
Trademark- skiwear products include parkas, jackets, anoraks, ski pants, ski
suits, gloves and other accessories. The Company's six skiwear collections --
Heli, Steep Tech-Registered Trademark-, Men's Extreme-Registered Trademark-
Gear, Women's Extreme-Registered Trademark- Gear, Men's Extreme-Registered
Trademark- Light and Women's Extreme-Registered Trademark- Light -- have been
designed for specific applications, including helicopter skiing and backcountry
skiing. The Company's skiwear offers highly technical features for optimal
weather protection, maximum freedom of movement and appropriate ventilation,
including the use of tough, abrasion-resistant fabrics, such as Kevlar, that are
strategically overlaid or inset for added protection in areas of excessive wear
and tear, such as shoulders and elbows. The Company's skiwear collections are
reviewed annually and are redesigned, as appropriate, to add innovative
features. In 1996, the Company introduced 56 new skiwear garment products and 15
new skiwear accessory products.
33
<PAGE>
PRODUCT DESIGN AND DEVELOPMENT
The Company's goal is to offer the most technically advanced products in the
world that establish the industry standard in each of the Company's product
categories. To remain on the leading edge of product design and materials
technology, the Company continually evaluates trends, monitors the needs and
desires of its consumers and works with its materials suppliers to develop new
materials and products and enhance product designs. See "Risk Factors --
Dependence on Key Suppliers of Materials" and "-- Dependence on New Products."
The Company regularly reviews its product lines and actively seeks input from a
variety of sources. At the forefront of the product development effort is a
15-member product development team, which includes experts in textiles and
design engineering. This team, which is responsible for overseeing testing of
designs and introducing new outerwear, outdoor equipment, skiwear and Tekware,
is organized along major product lines, each with a product manager. The product
development team works with staff designers and also with outside contract
designers. The Company's teams of climbers, explorers and extreme skiers also
are important components of the Company's product design and development effort.
The product development cycle, from initial design to introduction, can take
from 12 to 18 months, with tents and backpacks requiring more time than other
products. A new product may be produced in several prototypes before being
submitted for testing. New designs are tested by the Company's teams of
climbers, explorers and extreme skiers and by in-house and independent
laboratories, as well as by The North Face personnel. The Company maintains a
materials testing laboratory with equipment to execute a variety of tests,
including water resistance, air permeability, tear strength and abrasion
resistance.
The Company's products are designed with materials that are essential to
their technical performance. Most of these materials are developed in
collaboration with major suppliers, such as W.L. Gore & Associates, Inc.,
DuPont, Hoechst, Burlington Industries, Inc. and Mitsui Textiles. The Company
works closely with these suppliers to develop high-performance materials that
result in lighter, stronger and more efficient products. With an innovative
material, the Company generally seeks an exclusivity period, usually one to two
years, after which the supplier is free to make the material generally
available. These suppliers frequently provide much of the funding for research
and development of the materials they are developing for the Company, and often
contribute to the costs of promoting products incorporating their material. See
"Risk Factors -- Dependence on Key Suppliers of Materials."
MARKETING AND PROMOTION
The Company's goal is to increase brand awareness by projecting a technical,
extreme and authentic image that appeals to professionals and serious outdoor
enthusiasts as well as to broader segments of the population. The Company
conveys an extreme and highly technical image by featuring world-class climbers,
explorers, skiers and snowboarders using the Company's products on high
altitude, polar or backcountry expeditions. The North Face's marketing materials
utilize language and images that, while directed to the extreme athlete, also
create an emotional connection with broader segments of the population.
Management believes that The North Face has obtained a high level of brand
awareness and loyalty from the extreme users of its products. In order to
bolster the loyalty of these individuals and to further enhance its extreme
image, the Company is increasing its support of selected high altitude and polar
expeditions and its teams of climbers, explorers and skiers. The North
Face-Registered Trademark- products have been the brand choice of many of the
world's most challenging expeditions for nearly 30 years. A small sampling of
these expeditions includes the 1969 Arctic Institute of North America Altitude
Expedition; 1978 American Woman's Himalayan Expedition; 1987 International K-2
Expedition; 1989 Trans-Antarctica Expedition; 1992 American Gasherbrum IV
Expedition; 1994 Sagmartha Environmental Expedition; and the 1995
Ak-Su Kyrgyzstan Expeditions.
Recognizing that the product choices of professional athletes influence
consumer preferences, The North Face employs and/or has entered into contracts
with several world-class professional climbers, including Conrad Anker, Kitty
Calhoun-Grissom, Greg Child, Lynn Hill, Alex Lowe and Jay Smith; extreme
34
<PAGE>
skiers Scot Schmidt and Rob and Eric DesLauriers; and backcountry snowboarders
Jim and Bonnie Zellers. These athletes are essential to the Company's product
design and testing. In addition, they participate in promotional activities on
behalf of the Company, including demonstrations and appearances at exhibitions,
trade shows, retailer clinics and promotional events, and appear in photos to
promote the Company in catalogs, advertisements, posters and videos. The Company
has entered into relationships with the Professional Ski Instructors of America
and with the National Ski Patrol pursuant to which each of these organizations
endorses the Company's skiwear.
In 1994, The North Face began an ongoing comprehensive consumer advertising
campaign in outdoor and ski publications. The Company's advertisements appear in
magazines such as OUTSIDE, CLIMBING MAGAZINE, BACKPACKER and POWDER. The Company
also has received editorial coverage in a wide range of general interest
publications, including VOGUE, ELLE, ESQUIRE, GQ and THE NEW YORK TIMES. The
Company provides a wide assortment of point of purchase advertising support to
retailers, including catalogs, descriptive product hang tags and visual aids.
Many of these point of purchase marketing tools will be integrated into the
Company's newly developed Summit Shops. The Company also promotes sales by
operating sizable product displays at three industry trade shows, two of which
are held in the Spring and one in the Fall of each year. In the year ended
December 31, 1995, the Company incurred expenditures for advertising and
promotional activities which were approximately 4% of net sales.
SELECTIVE DISTRIBUTION
To preserve the integrity of The North Face-Registered Trademark- image and
reputation, the Company currently limits its distribution to retailers that
market products that are consistent with the Company's technical standards and
that provide a high level of customer service and technical expertise. The
Company currently sells its products to a select group of specialty
mountaineering, backpacking and skiing retailers, premium sporting goods
retailers and major outdoor specialty retail chains. The Company does not sell
its products to national general sporting goods chains or to discount stores.
The Company sells its products in the United States to approximately 840
wholesale customers, representing an estimated 1,100 store fronts. In Canada,
the Company sells its products to approximately 200 wholesale customers,
representing an estimated 240 store fronts, and in Europe, it sells to
approximately 460 wholesale customers, representing an estimated 700 store
fronts. Major customers of the Company include Recreational Equipment Inc.
("REI") and Eastern Mountain Sports, Inc. ("EMS"). No single customer accounted
for more than 6% of net sales in 1995.
While The North Face will continue to add selected wholesale customers, it
anticipates focusing primarily on increasing sales at existing wholesale
customers. To accomplish this, the Company recently developed Summit Shops and
established a new core inventory replenishment program. The Company believes
that Summit Shops will increase sales by increasing selling space devoted to,
and improving the merchandising of, The North Face-Registered Trademark-
products. See "Risk Factors -- Implementation of Summit Shop Strategy." The
Company believes the new core inventory replenishment program, which inventories
certain popular core products for quick reorder delivery, will enable it to
provide consistent product flow to both the Summit Shops and its other wholesale
customers. The North Face expects the new core inventory replenishment program
to increase the sales of its strongest selling items by increasing the Company's
ability to meet strong reorder demand.
The Company's products are sold in the United States, Canada and Europe to
wholesale customers by independent sales representatives. Sales representatives
conduct in-store clinics to educate sales personnel on the technical qualities
and uses of the Company's products, provide customer support, review each retail
account on a periodic basis and assist the Company in forecasting levels of
product needs. Sales representatives in the United States, Canada and Europe are
paid on a commission basis. Sales representatives in the United States sell The
North Face-Registered Trademark- products exclusively.
The Company maintains a specialty retailer and customer service department
to handle orders and consumer inquiries, as well as a warranty department to
handle the repair or replacement of defective or damaged merchandise. All of the
Company's products (other than those sold through the Company's
35
<PAGE>
outlet stores) are covered by a lifetime warranty. Defective or damaged products
returned to the Company generally are replaced or repaired within 10 to 14 days
of receipt. Warranty expenses in 1995 were approximately 0.8% of net sales.
Although the Company does not expect warranty expenses to increase as a
percentage of net sales, there can be no assurance that such expenses will not
increase significantly in the future as a percentage of net sales. See "Risk
Factors -- Product Liability Risk; Warranty Exposure."
In June 1995, the Company opened a new 146,500 square foot distribution
facility in San Leandro, California. This facility, which also houses the
Company's executive and administrative headquarters, handles a majority of the
U.S. distribution of the Company's products, with the Company's secondary
distribution center in Richmond, California handling the excess during peak
periods. The Company's distribution centers are highly automated. The majority
of the Company's products are shipped by UPS and common carriers.
SUMMIT SHOPS
The Company recently developed Summit Shops, year-round concept shops
dedicated to The North Face-Registered Trademark- products and primarily to be
located within certain of its wholesale customers. Summit Shops are intended to
increase sales at existing specialty retailers and to attract new specialty
retailers by offering an attractively designed, professionally merchandised,
dedicated selling space featuring a broad array of The North Face-Registered
Trademark- products. The objectives of the Summit Shops are to (i) have
dedicated year-round selling floor space within selected specialty retailers'
stores; (ii) help the Company's specialty retailers compete against mainstream
apparel retailers; (iii) create a repeat customer base; (iv) modernize the
specialty retailers' approach to merchandising The North Face-Registered
Trademark- products; (v) provide the ability to closely monitor retail
sell-through at specialty retailers; and (vi) maintain a consistent product
assortment at the specialty retail level. The Company has designed the
appearance of each Summit Shop, including its fixtures, merchandise displays,
descriptive placards and graphic images, to increase consumer awareness of The
North Face-Registered Trademark- brand and image. The Company will provide
merchandising support for the Summit Shops, while the specialty retailer will
provide the customer service and sales personnel. The Company will also provide
sales and product training for the specialty retailers' personnel who work in
the Summit Shops. Each Summit Shop is expected to follow certain operational
guidelines and maintain minimum inventory levels.
Beginning in March 1996, EMS, a major outdoor retail chain, opened The North
Face-Registered Trademark- concept shops, the precursors to Summit Shops, in 14
of its stores. These concept shops carry only The North Face-Registered
Trademark- products. Unlike Summit Shops, however, the fixtures and
merchandising displays of the concept shops were designed primarily by EMS. EMS
has informed the Company that, based on the initial performance of the 14
concept shops, it intends to open four additional shops, two of which will be
Summit Shops, by the end of 1996.
The Company expects to open its first Summit Shop in late Summer 1996 and
anticipates that approximately 25 Summit Shops, averaging approximately 650
square feet in size, will open by the end of 1996. The North Face intends to
substantially increase the number of Summit Shops within its existing specialty
retailers in 1997. See "Risk Factors -- Implementation of Summit Shop Strategy."
RETAIL OPERATIONS
RETAIL STORES. The Company's retail operations are an important component
of its marketing and product development strategies and provide a distinctive
environment in which to merchandise and sell the complete The North
Face-Registered Trademark- product line. Located primarily in high-end retail
shopping districts and regional shopping malls, these stores carry the full
range of The North Face-Registered Trademark- outerwear, equipment, skiwear and
Tekware as well as complementary products such as footwear and accessories from
other manufacturers. As a result of the Company's ability to control the visual
presentation and product assortment in its retail stores, the stores help build
brand awareness and introduce consumers to the full range of The North
Face-Registered Trademark- products. These stores also provide a means for the
Company to test the appeal
36
<PAGE>
of new products and merchandising techniques. By working closely with store
personnel, many of whom are outdoor enthusiasts, the Company also obtains
customer feedback that influences product design and development.
The following table shows the approximate retail selling space at each of
the Company's nine retail stores:
<TABLE>
<CAPTION>
APPROXIMATE
SELLING
LOCATION SQUARE FOOTAGE YEAR OPENED
- ---------------------------------------------- --------------- -----------
<S> <C> <C>
Denver, CO.................................... 8,500 1973
Boulder, CO................................... 3,400 1982
Seattle, WA................................... 4,600 1985
Oakbrook, IL.................................. 3,000 1991
San Francisco, CA............................. 8,100 1991
Schaumberg, IL................................ 3,400 1991
Costa Mesa, CA................................ 5,500 1993(1)
Palo Alto, CA................................. 7,800 1994(2)
Chicago, IL................................... 12,000 1995
</TABLE>
- ------------------------
(1) Replaced a store in a nearby location initially opened in 1986.
(2) Replaced a store in a nearby location initially opened in 1979.
Although the Company considers its retail stores to be an important aspect
of its business strategy, the Company currently has no plans to open additional
retail stores, particularly given its focus on the introduction of additional
Summit Shops in 1996 and 1997. The Company believes that Summit Shops will
provide many of the same benefits as its Company-operated retail stores and that
the substantially reduced operational and financial commitments associated with
Summit Shops will result in a higher return on investment.
OUTLET STORES. The Company also operates two outlet stores, located in
Berkeley and San Francisco, California. The outlets serve primarily as an
effective means to liquidate discontinued merchandise. The Company intends to
open one additional outlet store during the next 12 months.
INTERNATIONAL OPERATIONS
Sales to customers outside the United States accounted for approximately 23%
and 30% of the Company's net sales in 1995 and the first three months of 1996,
respectively. The Company recently implemented an integrated world-wide approach
to product development, sourcing and marketing in order to reduce costs, ensure
consistent worldwide operations and create a unified global brand. By offering
the same product lines and promoting the same extreme image in catalogs,
advertising and point of purchase materials, the Company has positioned The
North Face-Registered Trademark- brand in Europe consistently with the brand
image in the United States and Canada. Outside the United States, The North Face
products are sold to wholesale customers in Europe and Canada through the
Company's wholly-owned subsidiaries and by a licensee in Hong Kong and Macao. In
Japan and Korea, substantially all of the Company's trademarks are owned by
Kabushiki Kaisha Goldwin ("Goldwin").
EUROPE. The North Face believes that it is currently well positioned in
Europe to take advantage of the same industry trends that are occurring in the
United States. Although the Company has operated in Europe for more than 12
years and believes it is recognized as a leader in the design, marketing and
distribution of highly technical outdoor apparel and equipment, only recently
has it begun to devote additional resources in Europe to increase sales. The
Company's European operations are headquartered in Port Glasgow, Scotland, where
it maintains a small factory and distribution center. The Company distributes
its products directly to approximately 460 wholesale customers representing an
estimated 700 store fronts throughout Europe. Its primary markets are the United
Kingdom, Germany, Italy, France, Spain, Sweden, Denmark and The Netherlands.
Independent sales agents reporting to the Company's sales director are
responsible for sales in each country.
37
<PAGE>
CANADA. The Company's Canadian operations are headquartered in Toronto and
include a distribution center and a customer and warranty service center. Since
early 1995, the Company has sold its products in Canada through independent
sales representatives to approximately 200 wholesale customers representing an
estimated 240 store fronts in Canada, primarily in British Columbia, Ontario and
Quebec. Prior to 1995, the Company's products were sold in Canada through a
licensee. During 1995, The North Face undertook the following initiatives in
Canada: (i) established a sales, sales support, finance and distribution
facility in Toronto; (ii) hired a general manager to head the Canadian
operations; (iii) significantly expanded the available product categories; and
(iv) integrated the marketing and sourcing efforts with those of the U.S.
operations. The Company believes significant additional growth opportunities
exist in the Canadian market.
ASIA. In Japan and Korea, substantially all of the Company's trademarks are
owned by Goldwin, a leading manufacturer and distributor of high-end sports and
outdoor apparel and equipment. The North Face-Registered Trademark-
is the leading high-performance outdoor brand in Japan. The North Face and
Goldwin work closely together in the areas of product design, sourcing and brand
imaging. The Company believes that Goldwin shares the Company's strategy of
building a unified global brand. The Company benefits from this relationship by
selling products made in the United States to Goldwin and by charging an
administration fee for orders which Goldwin adds to the Company's production in
China and Southeast Asia. In Hong Kong and Macao, the Company's products are
sold through a licensee, Mitsui & Co., Ltd. ("Mitsui"). Management plans to
capitalize on the Company's growing worldwide strength by exploring sales
opportunities in other Asian and Pacific Rim countries.
SOURCING AND MANUFACTURING
The Company sources virtually all of its products through approximately 50
unaffiliated manufacturers in North America and Asia, including Hong Kong,
China, Taiwan, Korea, Indonesia, Thailand and the Philippines. The Company's
European subsidiary operates a small manufacturing factory in Port Glasgow,
Scotland which accounts for a minor portion of the Company's total production.
The Company has implemented a global sourcing strategy that will enable it to
achieve greater economies of scale, improve gross margins and maintain uniform
quality standards for its products. The Company believes that it enjoys good
relationships with its suppliers and manufacturers and has the ability to secure
the necessary capacity to meet increased demand for its products. See "Risk
Factors -- Reliance on Contract Manufacturing."
To ensure that products manufactured by others are consistent with its
standards, the Company manages all key aspects of the production process,
including establishing product specifications, selecting the materials to be
used to produce its products and the suppliers of such materials, and
negotiating the prices for such materials. The Company maintains a staff of
quality control specialists which conducts on-site inspections throughout the
production process, including at the mills before the fabrics are shipped, at
the factories as the products are made and, finally, before the finished
products are shipped.
The Company currently is engaged primarily in a two season, wholesale
business, Spring (January to June) and Fall (July to December). Wholesale
customers place preseason orders from two to five months prior to the beginning
of the season for deliveries throughout the season. Reorders are taken
throughout the season and are based on availability. With the introduction of
the Company's new Tekware line and Summit Shops, the Company anticipates that it
increasingly will be supplying its products on a year-round basis. The Company
is in the process of implementing a new core inventory replenishment program,
under which it intends to maintain stocks of key products at all times. The
Company has established linked production flow arrangements with its suppliers
in which key raw material vendors and contract manufacturers will be able to
respond quickly to the Company's production needs. As the Company implements its
new core inventory replenishment program, reorder sales are expected to
increase.
38
<PAGE>
The Company's Merchandise Forecasting and Planning Department analyzes
information which it receives from the Company's various sales arms and develops
forecasts for the Company's products. These forecasts are continually updated to
reflect advance orders and reorders and are turned into production quantities.
The Company's Product Acquisition Department, in turn, issues purchase orders to
the Company's unaffiliated manufacturers. Unaffiliated manufacturers purchase
the materials specified by the Company and manufacture and ship the products to
the Company. The Company's unaffiliated manufacturers sell finished products to
the Company on an FOB basis and are at risk for the quality and timely delivery
of the products. Approximately 35 to 40% of the Company's total production
requirements are financed with letters of credit; the balance is purchased under
open terms ranging from 14 to 60 days.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that a high level of computerization is essential to
maintain and improve its competitive position. The Company's management
information and electronic data processing systems consist of a full range of
retail, financial, distribution and merchandizing systems. The Company
anticipates spending a total of approximately $1.5 to $2.0 million through the
end of 1997 to upgrade its systems, with particular emphasis in sourcing, core
inventory replacement and forecasting, and believes that once in place, the
upgraded systems, along with routine upgrades, will be sufficient to accommodate
the Company's anticipated growth in sales and planned expansion for the
foreseeable future. See "Risk Factors -- Ability to Achieve and Manage Potential
Future Growth."
COMPETITION
The markets for the Company's products are highly competitive, and the
recent growth in these markets has encouraged the entry of many new competitors
as well as increased competition from established companies. While the Company
believes that it has been able to compete successfully because of its brand
image and recognition, its broad range and the quality of its products, and its
selective distribution and customer service policies, including the lifetime
warranty that its products carry, there can be no assurance that the Company in
the future will be able to maintain or increase its market share. Although the
Company believes that it does not compete directly with any one single company
with respect to its entire product range, within each product category the
Company has significant competitors. Many of these competitors are larger and
have significantly greater financial, marketing and other resources than the
Company. See "Risk Factors -- Competition."
TRADEMARKS AND LICENSING
The Company considers its trademarks to be among its most valuable assets
and has numerous trademark registrations in the United States, Europe and other
foreign countries. Among the Company's trademarks are The North Face-Registered
Trademark-, Extreme-Registered Trademark-, Tekware-TM-, Steep Tech-Registered
Trademark-, Quick Pitch-TM-, Hydrenaline-TM-, Search and Rescue-TM- and
VaporWick-TM-. Because of the popularity of many of the Company's products and
their strong brand identity and distinctive design, The North Face-Registered
Trademark- brand in recent years has frequently been subject to unauthorized
copying and mislabeling of imitation goods. The Company maintains an aggressive
program of trademark enforcement and cooperation with domestic and foreign
customs officials and other authorities, and will continue to vigorously defend
its trademarks against infringement. See "Risk Factors -- Dependence on
Trademarks."
Currently, the Company has licensed its trademarks to Mitsui which markets
Company-designed products under The North Face-Registered Trademark- name in
Hong Kong and Macao.
In June 1994, Goldwin purchased from the Company substantially all of the
trademarks and trademark applications owned by the Company in Japan and Korea
and obtained the exclusive right to sell and distribute products under the
Company's trademarks in Japan and Korea. At the same time, the Company
39
<PAGE>
entered into a marketing arrangement with Goldwin that ensures that brand,
product image and distribution strategies are synchronized. The Company benefits
from this relationship by selling products made in the U.S. to Goldwin and by
charging an administrative fee for orders which Goldwin adds to the Company's
production in China and Southeast Asia.
EMPLOYEES
As of December 31, 1995, the Company had 504 employees, of which 350 were
employed in the United States, 143 in Scotland and 11 in Canada. None of these
employees is currently covered by collective bargaining agreements. The Company
believes that its relations with its employees are good.
PROPERTIES
The principal executive and administrative offices of the Company are
located at 2013 Farallon Drive, San Leandro, California. The general location,
use and approximate size of the Company's principal properties, all of which,
other than the facility in Scotland, are leased, are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE GROSS
LOCATION USE SQUARE FEET
- -------------------------- -------------------------------------------- -------------------
<S> <C> <C>
San Leandro, CA Executive and administrative offices and 146,500
distribution center
Richmond, CA Distribution center 106,000
San Francisco, CA Retail store 12,300
Palo Alto, CA Retail store 10,700
Costa Mesa, CA Retail store 7,100
Seattle, WA Retail store 6,000
Denver, CO Retail store 17,000
Boulder, CO Retail store 4,300
Chicago, IL Retail store 15,200
Oakbrook, IL Retail store 4,000
Schaumberg, IL Retail store 5,000
Berkeley, CA Outlet 14,200
San Francisco, CA Outlet 10,000
Port Glasgow, Scotland European headquarters, distribution center 77,200
and manufacturing facility
Brampton, Ontario Canadian headquarters and distribution 22,200
center
</TABLE>
LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit alleging wrongful termination of a
sales representative based on age discrimination that was filed in September
1993. The plaintiff seeks approximately $7 million in damages for future wages
and unspecified damages for emotional distress and punitive damages. The claim
was tried in the Superior Court of Alameda County, California and the jury was
unable to return a verdict. Scheduling of a new trial date is currently pending.
The Company believes it has meritorious defenses to the claim, including that
the plaintiff was an independent contractor and not an employee to whom the
relevant age discrimination statute applied, that his contract expired by its
terms and that the Company was justified in not renewing his contract for an
additional term. Based on previous settlement discussions, the Company believes
that it will be able to settle this matter for less than $500,000. However, if
the Company is unable to settle this matter, it intends to continue to
vigorously defend against the claim. While the final outcome of this lawsuit
cannot be determined with certainty, management believes that the final outcome
will not have a material adverse effect on the Company's results of operations
or financial condition.
40
<PAGE>
In addition, the Company is party to other claims and litigation that arise
in the normal course of business. Management believes that the ultimate outcome
of these claims and litigation will not have a material adverse effect on the
Company's results of operations or financial condition.
41
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers, directors and certain key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Marsden S. Cason (1)................ 53 Chief Executive Officer and Director
William N. Simon.................... 48 President and Director
Roxanna Prahser..................... 37 Chief Financial Officer
Roger Kase.......................... 48 Vice President of Product Development
Carlo Armenise...................... 47 Vice President of Retail
Maria DiGrande...................... 33 Vice President of Merchandising
Jack A. Boys........................ 38 Vice President of Marketing
Tucker Hacking...................... 40 Vice President of Product Acquisitions
Barton L. Jackson................... 54 Vice President of Management Information Systems & Distribution
Ray E. Newton, III (1)(2)........... 32 Chairman and Director
Peter M. Castleman (2).............. 39 Director
William Laverack, Jr................ 39 Director
KEY EMPLOYEES
Conrad Anker........................ 33 Director of Alpine and Environmental Programs
Rick Fowler......................... 47 Director of Quality Assurance
George Docherty..................... 62 Managing Director of The North Face (Europe), Limited
Jean Pascal Papin................... 45 Sales Director of The North Face (Europe), Limited
Conrad Tappert...................... 32 General Manager of The North Face (Canada), Inc.
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
The Company's Restated Certificate of Incorporation will be amended and
restated prior to or concurrent with the closing of this offering to provide,
among other things, that the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Commencing with the 1997 Annual Meeting of Stockholders, one class of directors
will be elected each year for a three-year term.
The Company expects that, within 90 days following the closing of this
offering, two additional directors who are not otherwise affiliated with the
Company will be elected to the Board of Directors.
Certain additional information concerning the above persons is set forth
below.
MARSDEN S. CASON, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr. Cason has been
Chief Executive Officer of the Company and a director since June 1994. Mr. Cason
joined the Company's predecessor in January 1993 as President and director and
served as a director and executive officer of several other Odyssey affiliates.
See "The Company -- Background and History." Prior to joining the Company's
predecessor, from May 1991 through January 1993, Mr. Cason was the Chief
Executive Officer of Carol Management Company and Doral Resort Hotels, an owner
and manager of condominiums, hotels and conference centers. Prior to May 1991,
Mr. Cason was involved in various business ventures as a chief executive
officer.
WILLIAM N. SIMON, PRESIDENT AND DIRECTOR. Mr. Simon has been President of
the Company since December 1995 and a director of the Company since June 1995.
From May 1988 through June 1994,
41
<PAGE>
Mr. Simon served as the Chairman of the Board of the Company's predecessor and
was Vice Chairman of the Company from June 1994 to December 1995. From November
1978 through June 1994, Mr. Simon was Chairman and Chief Executive Officer of
Odyssey, a designer and manufacturer of high-end sports and outdoor apparel, and
an executive officer and director of several other Odyssey affiliates. Mr. Simon
has been involved in the design and manufacture of mountaineering and outdoor
clothing and equipment for over 26 years. In September 1994, Mr. Simon filed a
petition under Chapter 7 of the U.S. Bankruptcy Code and in January 1995 was
granted a discharge and the proceeding was dismissed. Mr. Simon personally had
guaranteed substantially all of the indebtedness of Odyssey and its affiliated
companies and his bankruptcy filing was made in order to terminate his personal
liability for these corporate obligations.
ROXANNA PRAHSER, CHIEF FINANCIAL OFFICER. Ms. Prahser has been Chief
Financial Officer of the Company since January 1996. Ms. Prahser served as the
Vice President of Finance for the Company from May 1995 through January 1996 and
as Director of Finance for the Company and its predecessor from March 1993
through May 1995. Prior to joining the Company's predecessor, Ms. Prahser spent
12 years at Arthur Andersen & Co., where she was an audit manager.
ROGER KASE, VICE PRESIDENT OF PRODUCT DEVELOPMENT. Mr. Kase joined the
Company as Vice President of Product Development in May 1995. From September
1993 through May 1995, he was Chief
Operating Officer for Cary Children's Clothing and from April 1991 through July
1993, Vice President -- Apparel Division for Sam & Libby Inc., a manufacturer of
footwear. Mr. Kase has over 20 years of experience in the apparel industry in
both design and operations, including 10 years as an executive with Esprit de
Corp., a manufacturer of women's clothing.
CARLO ARMENISE, VICE PRESIDENT OF RETAIL. Mr. Armenise joined the Company
as Vice President of Retail in April 1996. Prior to joining the Company, Mr.
Armenise was with Coach Leatherware Inc., a manufacturer, wholesaler and
retailer of leather goods and apparel, from September 1992 through April 1996.
His last position with Coach was as Director of Full Price Stores from June 1994
through April 1996. Prior to that, Mr. Armenise was with Gucci America Inc. from
June 1977 through September 1992 and served as its West Coast Assistant Regional
Manager from January 1990 through September 1992. Mr. Armenise has its 19 years
of experience in the specialty retail leather goods accessories and apparel
industries.
MARIA DIGRANDE, VICE PRESIDENT OF MERCHANDISING. Ms. DiGrande joined the
Company as Vice President of Merchandising in January 1996. From January 1995
through January 1996, Ms. DiGrande operated her own retail market consulting
company, MarketQuest, and, from July 1992 through December 1994, she was
President of SIMINT Fashion Corp., a distributor of leading branded Italian
apparel. From June 1989 through July 1992, she was Director of Sales & Marketing
of SIMINT (U.S.A.) Inc. which owned and operated the Armani Exchange Stores. Ms.
DiGrande has over 14 years of experience in the apparel industries, including as
a sales and marketing executive for both Donna Karan International, Inc. and
Calvin Klein Ltd., manufacturers of apparel and accessories.
JACK A. BOYS, VICE PRESIDENT OF MARKETING. Mr. Boys joined the Company as
Vice President of Marketing in March 1996. From December 1993 to March 1996, Mr.
Boys was Vice President of Marketing for Avia Group International, Inc., a
manufacturer of athletic footwear, and from August 1992 to December 1993 he was
Vice President of Marketing for Le Coq Sportif International, an athletic
footwear and apparel manufacturer. Prior to August 1992, Mr. Boys spent over 10
years with Converse Inc., an athletic footwear company, where he was a senior
category manager.
TUCKER HACKING, VICE PRESIDENT OF PRODUCT ACQUISITIONS. Mr. Hacking has
been Vice President of Product Acquisitions for the Company since April 1996 and
Director of Product Acquisitions for the Company and its predecessor from April
1993 through April 1996. From January 1990 to April 1993, Mr. Hacking owned and
operated TTH Enterprises, Inc., a company specializing in the sports apparel
industry. From 1986 to 1988, Mr. Hacking served as the General Manager of
operations and sourcing for Adidas America, Inc., an athletic footwear and
apparel company. Mr. Hacking has 18 years of experience in the apparel industry.
42
<PAGE>
BARTON L. JACKSON, VICE PRESIDENT OF MANAGEMENT INFORMATION SYSTEMS &
DISTRIBUTION. Mr. Jackson has been Vice President of Management Information
Systems & Distribution for the Company since May 1995 and served as Director of
Management Information Systems & Distribution from October 1994 through May
1995. From July 1990 through October 1994, Mr. Jackson owned and operated
Integrated Management Resources, a consulting company specializing in management
information systems. Mr. Jackson has resigned from the Company, effective July
8, 1996.
RAY E. NEWTON, III, CHAIRMAN AND DIRECTOR. Mr. Newton has been a director
of the Company since June 1994 and has served as the Chairman of the Company's
Board of Directors since January 1996. Mr. Newton joined Whitney in 1989 and has
been a General Partner since May 1992. Prior to joining Whitney, he was employed
by Morgan Stanley & Co. Incorporated, an investment banking firm, where he was
in the Merchant Banking Group. Mr. Newton is also a director of Brothers Gourmet
Coffees, Inc.
PETER M. CASTLEMAN, DIRECTOR. Mr. Castleman has been a director of the
Company since June 1994. Mr. Castleman has been a General Partner of J.H.
Whitney & Co. since January 1989 and has served as the Managing Partner of J.H.
Whitney & Co. since December 1992. He is also a director of Advance ParadigM,
Inc., UtiliMed, Inc., Brothers Gourmet Coffees, Inc. and a number of private
companies.
WILLIAM LAVERACK, JR., DIRECTOR. Mr. Laverack has been a director of the
Company since June 1995. Mr. Laverack joined Whitney in 1993, and has been a
General Partner of Whitney since 1993. Prior to joining Whitney, he was with
Gleacher & Co., a mergers and acquisitions advisory firm, from 1991 to 1993 and
employed by Morgan Stanley & Co. Incorporated, where he was in the Merchant
Banking Group from 1985 to 1991. Mr. Laverack is also a director of CRA Managed
Care, Inc.
CONRAD ANKER, DIRECTOR OF ALPINE AND ENVIRONMENTAL PROGRAMS. Mr. Anker has
been the Director of Alpine and Environmental Programs of the Company since
November 1995. Since 1987, Mr. Anker has been a member of the Company's climbing
team and served as a technical consultant to The North Face. Mr. Anker is one of
the most respected rock climbers and mountaineers in the United States. He has
made first ascents of peaks in Baffin Island, Canada, Argentina and the
Himalayas, as well as numerous "big wall" routes in Yosemite Valley.
RICK FOWLER, DIRECTOR OF QUALITY ASSURANCE. Mr. Fowler has been the
Director of Quality Assurance of the Company since March 1996. Prior to joining
the Company, Mr. Fowler spent over 23 years with Eddie Bauer Inc., where he
directed the first employee training program in 1979, started the quality
assurance program in 1981 and was the Director of Quality Assurance from 1986 to
March 1996.
GEORGE DOCHERTY, MANAGING DIRECTOR OF THE NORTH FACE (EUROPE), LIMITED. Mr.
Docherty has been the Managing Director of the Company's European operations
since September 1993. From December 1989 to August 1993, Mr. Docherty was Deputy
Managing Director of the Company's European operations and from April 1983 to
November 1989, was the Director of Manufacturing of the Company's predecessor.
JEAN PASCAL PAPIN, SALES DIRECTOR OF THE NORTH FACE (EUROPE), LIMITED. Mr.
Papin has been the Sales Director of the Company's European operations since
April 1995. From January 1989 to March 1995, Mr. Papin was a Managing Director
with Time Sport International, a manufacturer of bicycle equipment, and, from
May 1984 to December 1988, he was Director of the Golf and Racket Division of
Browning International, a manufacturer and distributor of sporting goods.
CONRAD TAPPERT, GENERAL MANAGER OF THE NORTH FACE (CANADA), INC. Mr.
Tappert has been General Manager of the Company's Canadian subsidiary since
March 1995. Mr. Tappert was Vice President of Benetton Sportsystem Canada Inc.
from April 1994 through February 1995 and was Director of Sales and Marketing
from November 1990 to March 1994. Mr. Tappert has 11 years of experience in the
sporting goods industry.
43
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers as well as the Company's former President
(collectively, the "Named Executive Officers") for the fiscal year ended
December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS
-----------
ANNUAL COMPENSATION NUMBER OF
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
- --------------------------------------- ----------- --------- ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Marsden S. Cason....................... $ 360,000 -- $ 1,200 -- --
Chief Executive Officer
William N. Simon....................... 360,000 -- 1,200 701,707 $ 20,500(2)
President
Roxanna Prahser........................ 133,500 $ 17,250 600 -- --
Chief Financial Officer
Roger Kase............................. 91,400 -- 400 16,650 --
Vice President of Product Development
Barton L. Jackson...................... 153,500 20,250 800 -- --
Vice President of Management
Information Systems & Distribution
William A. McFarlane................... 360,000 -- 1,200 -- --
Former President
</TABLE>
- ------------------------------
(1) Life insurance premiums.
(2) Payment for unused vacation time.
44
<PAGE>
OPTION GRANTS. The following table provides information with respect to the
stock option grants made to each Named Executive Officer during 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
NUMBER OF --------------------------------- STOCK PRICE APPRECIATION
SECURITIES % OF TOTAL FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(2)
OPTIONS TO EMPLOYEES IN EXERCISE OR EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR BASE PRICE (1) DATE 5% 10%
- ------------------------- ------------- ---------------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marsden S. Cason......... -- -- -- -- -- --
William N. Simon......... 701,707(3) 87.8% $ 1.13 6/7/2004 $ 437,163 $ 1,076,768
Roxanna Prahser.......... -- -- -- -- -- --
Roger Kase............... 16,650(4) 2.1 1.13 6/7/2004 10,373 25,549
Barton L. Jackson........ -- -- -- -- -- --
William A. McFarlane..... -- -- -- -- -- --
</TABLE>
- ------------------------------
(1) All options were granted at the fair market value of the Common Stock on the
date of grant, as determined by an independent valuation.
(2) The potential realizable value through the expiration date of the options
has been determined on the basis of the fair market value of the shares at
the time the options were granted, compounded annually over the term of the
option, net of exercise price. These values have been determined based upon
assumed rates of appreciation and are not intended to forecast the possible
future appreciation, if any, of the price or value of the Company's Common
Stock.
(3) Options for 519,063 shares are fully vested and immediately exercisable as
of the date of this Prospectus. The remaining options for 182,639 shares
become exercisable on June 7, 2004 unless certain targets are met as
determined by the Company's Board of Directors, in which case the remaining
option shares vest 50% on June 7, 1997 and 50% on June 7, 1998, with
accelerated vesting on the date of an initial public offering with gross
proceeds of at least $30.0 million. The Company expects that these remaining
options will vest and become exercisable as a result of this offering.
(4) Options for 4,162 shares are fully vested and immediately exercisable as of
the date of this Prospectus. The remaining options for 12,488 shares become
exercisable on June 7, 2004 unless certain targets are met as determined by
the Company's Board of Directors, in which case the options vest one-third
each on each of June 7, 1997, 1998 and 1999.
OPTION EXERCISES AND VALUE. None of the Named Executive Officers exercised
options during fiscal 1995. The following table summarizes the number of
securities underlying unexercised options and the value of such options on an
aggregated basis held by the Named Executive Officers at December 31, 1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------ ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Marsden S. Cason...................................... 25,643 76,928 $ 80,904 $ 242,708
William N. Simon...................................... 375,203 326,504 844,205 734,634
Roxanna Prahser....................................... 5,550 16,650 17,510 52,531
Roger Kase............................................ -- 16,650 -- 37,463
Barton L. Jackson..................................... 5,550 16,650 17,510 52,531
William A. McFarlane.................................. 12,821 38,464(3) 40,450 121,354
</TABLE>
- ------------------------------
(1) No options were exercised during the year ended December 31, 1995.
(2) Based upon a fair market value of $3.38 at December 31, 1995, as determined
by an independent valuation.
(3) Excludes 51,285 option shares which will be forfeited by Mr. McFarlane
effective July 1, 1996, due to his resignation from the Company.
45
<PAGE>
EMPLOYMENT AGREEMENTS
Each of Ms. Prahser, Mr. Kase and Mr. Jackson received letters from the
Company that offered employment and set forth compensation levels, eligibility
for merit increases and benefits, including eligibility to participate in the
Company's stock incentive plans. Each letter agreement specifies that employment
with the Company is voluntary and can be terminated at any time by either party,
in one case subject to 30 days notice by either party.
OTHER AGREEMENTS
The Management Stock Purchase and Non-Competition Agreement, dated as of
June 7, 1994, among the Company and each of the stockholders party thereto, as
amended (the "Management Purchase Agreement"), provides for the purchase of
Common Stock by certain Named Executive Officers. The Management Purchase
Agreement also contains provisions requiring the individuals party thereto to
retain in confidence any confidential or proprietary information belonging to
the Company and restricts the ability of those individuals, while employed by
the Company and for a specified period thereafter, to own, manage or invest in,
or engage in certain other business relationships with, any competitor of the
Company. The Company retains the right to repurchase Common Stock sold pursuant
to the Management Purchase Agreement in the event of a breach of the
non-competition provisions of the agreement by individual party thereto. Mr.
Cason holds 283,883 shares of Common Stock purchased pursuant to the Management
Purchase Agreement.
Mr. McFarlane resigned as a director and officer of the Company effective
December 19, 1995, but remains an employee of the Company with limited duties
through July 1, 1996. Mr. McFarlane advised the Company that he resigned to
pursue other interests. Pursuant to an agreement between Mr. McFarlane and the
Company, Mr. McFarlane is expected to receive $340,000 throughout 1996 as
consideration for his resignation and $20,000 as consideration for his continued
limited duties, including assistance with the transition of his duties and with
personnel, corporate legal and trademark matters. Mr. McFarlane holds 283,883
shares of Common Stock purchased pursuant to the Management Purchase Agreement.
STOCK INCENTIVE PLANS
1994 STOCK INCENTIVE PLAN. In 1994, the Company adopted the 1994 Stock
Incentive Plan (the "1994 Plan"), pursuant to which as of March 31, 1996 the
Named Executive Officers held nonqualified stock options ("NQSOs") to purchase
an aggregate of 951,247 shares of Common Stock with a weighted-average exercise
price of $0.89 per share. All NQSOs were granted at an exercise price that was,
at the time of grant, an amount equal to the fair market value of a share of
Common Stock, as determined by the Board of Directors. Mr. Cason holds 315,253
restricted shares of Common Stock under the 1994 Plan pursuant to the payment of
cash and delivery of a promissory note due June 7, 2004, bearing interest at a
rate of 9.0% per annum. As of March 31, 1996, $81,092 of principal and interest
was unpaid on the note. Options and restricted shares under the 1994 Plan become
fully vested on June 7, 2004, with accelerated vesting over the four years
following the date of grant based upon specified performance goals and, in the
case of Mr. Cason, with accelerated vesting on the date of an initial public
offering with gross proceeds of at least $30 million. The Company expects Mr.
Cason's options and restricted shares under the 1994 Plan to vest and become
exercisable as a result of this offering. The Company currently does not
anticipate making additional grants under the 1994 Plan.
Mr. McFarlane holds 315,253 shares of Common Stock under the 1994 Plan
pursuant to the payment of cash and delivery of a promissory note due June 7,
2004, bearing interest at a rate of 9.0% per annum. As of March 31, 1996,
$81,092 of principal and interest was unpaid on the note. In addition, as a
result of Mr. McFarlane's resignation from the Company, the Company has the
right to repurchase on or about July 1, 1996, at the original purchase price of
$0.22523 per share, 131,355 of such shares held by Mr. McFarlane. The Company
intends to repurchase these shares by canceling the promissary note held by Mr.
McFarlane. NQSOs to purchase 51,285 shares of Common Stock are expected to
expire as of July 1, 1996 as a result of Mr. McFarlane's resignation from the
Company.
46
<PAGE>
1995 AND 1996 STOCK INCENTIVE PLANS. The Company's 1995 Stock Incentive
Plan (the "1995 Plan") was adopted by the Company in April 1995 and the
Company's 1996 Stock Incentive Plan (the "1996 Plan") was adopted by the Company
in May 1996. The terms of the 1995 Plan and the 1996 Plan (together, the "Option
Plans") are substantially the same, except where noted below.
A maximum of 313,020 and 683,950 shares of Common Stock (subject to
adjustment in the case of certain stock splits, stock dividends, and
reorganizations) have been reserved for issuance pursuant to options granted
under the 1995 Plan and the 1996 Plan, respectively. NQSOs granted to Mr. Kase
and Ms. Prahser under the 1995 Plan become fully vested on June 7, 2004, with
accelerated vesting through May 2000 based upon specified performance goals and
remain exercisable through June 7, 2004.
Under the terms of the Option Plans, NQSOs may be granted to officers,
directors, other employees and consultants of the Company and, in the case of
the 1996 Plan, to officers, directors and other employees of any majority-owned
subsidiary. Under the 1996 Plan, options with respect to no more than 400,000
shares may be granted to any individual in any year and no options may be
granted to a person who, at the time of grant, owns shares possessing 10% or
more of the total combined voting power of all classes of stock of the Company
or its parent or subsidiary corporations. All of the Company's officers,
directors and other salaried employees (approximately 155 persons) are eligible
to receive options under the 1995 Plan and the 1996 Plan. The Company currently
does not anticipate making additional grants under the 1995 Plan.
Under the terms of the 1996 Plan, "incentive stock options" ("ISOs") within
the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") also may be granted to employees of the Company and of any majority
owned subsidiary. To the extent that the aggregate fair value (as defined in the
1996 Plan) of Common Stock with respect to which ISOs granted under the 1996
Plan and all other option plans of the Company (determined as of the date of
grant) or its subsidiaries exercisable for the first time by an individual
during any calendar year exceeds $100,000, such options shall be treated as
NQSOs.
The Option Plans are administered by a committee of the Company's Board of
Directors (the "Compensation Committee") unless the Company's Board of Directors
determines to administer the Option Plans itself. The Compensation Committee
under the 1996 Plan is intended to satisfy the provisions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended, and Code
section 162(m), in each case to the extent applicable. The Compensation
Committee has authority, subject to the terms of the Option Plans, to exercise
all powers granted to it under the Option Plans; to construe, interpret and
implement the Option Plans and any agreements executed pursuant thereto; to
prescribe, amend and rescind rules and regulations relating to the Option Plans;
to make all necessary or advisable administrative determinations; to correct any
defect, supply any omission and reconcile any inconsistency in the Option Plans;
and to amend the Option Plans to reflect changes in law.
Subject to the provisions of the Option Plans, the Compensation Committee
has the authority to determine the terms of options granted thereunder, provided
that the per share exercise price of an option shall be no less than 100% of the
fair market value of a share of Common Stock at the date of grant and no options
may be exercisable more than ten years following the date of grant. Under the
1996 Plan, at least 20% of the shares subject to each option granted thereunder
will become exercisable per year over the five years following the date of
grant, unless otherwise permitted by applicable law. The Compensation Committee
may, with the grantee's consent, cancel any award and issue a new award in
substitution therefor, provided that the substituted award satisfies all
applicable Option Plan requirements as of the date made. The Compensation
Committee may accelerate the exercisability of any option.
Common Stock purchased upon the exercise of an option must be paid for (i)
by cash or certified or official check, (ii) by delivery of certain previously
acquired shares of Common Stock with a fair market value (as of the exercise
date) equal to the option exercise price, (iii) under the 1995 Plan, by
conversion of such exercisable option and/or (iv) by such other method as may be
determined by the Compensation Committee (including, under the 1996 Plan, by
delivery of the optionee's promissory note or by delivery of an exercise notice
along with instructions to a broker to deliver to the Company, from proceeds of
the
47
<PAGE>
sale of Common Stock received on such exercise, the exercise price). Upon
exercise of an option, the Company may require a grantee to remit an amount
sufficient to satisfy applicable tax withholding requirements; with the
Compensation Committee's approval, the grantee may elect to satisfy such
obligation by directing the Company to withhold shares valued at the amount of
the withholding obligation from the number purchased.
Options may be transferred by a grantee only by will or by the laws of
descent and distribution, and may be exercised during the grantee's lifetime
only by the grantee. Generally, unless an option agreement otherwise provides
options that are exercisable immediately prior to the termination of the
optionee's employment remain exercisable for three months following such
termination (one year in the case of termination on account of death or, in the
case of the 1996 Plan, disability), but in no event beyond the stated term of
such option. In addition, options granted under the 1995 Plan terminate in full
on dismissal for cause (as defined in the 1995 Plan).
The Company's Board of Directors may amend, suspend or discontinue the
Option Plans at any time except that no amendment may materially impair an
optionee's rights under any option, without the optionee's consent. In the case
of the 1996 Plan, unless an amendment is approved (at a meeting held within 12
months before or after the date of such amendment) by the holders of a majority
of the issued and outstanding shares of Common Stock entitled to vote, no such
amendment may (i) materially increase the maximum number of shares as to which
awards may be granted under the Option Plans (except for certain adjustments to
reflect stock dividends or other recapitalization), (ii) materially increase the
benefits accruing to participants, (iii) materially change the requirements as
to eligibility for participation in the Option Plans, (iv) provide for the grant
of options having an exercise price less than the fair market value of Common
Stock on the date of grant, (v) permit an award to be exercisable more than 10
years after grant or (vi) extend the term of the Option Plans beyond 10 years.
Since the adoption of the 1994 Plan, the 1995 Plan and the 1996 Plan,
options to purchase an aggregate of 973,448, 248,640 and 72,150 shares,
respectively, of Common Stock have been granted to the following participants:
<TABLE>
<CAPTION>
1994 PLAN 1995 PLAN 1996 PLAN
----------------------------- ---------------------------- -----------------------------
NUMBER OF EXERCISE NUMBER OF OPTIONS EXERCISE NUMBER OF OPTIONS EXERCISE
NAME/GROUP OF OPTIONEE(S) OPTIONS GRANTED PRICE(S) GRANTED PRICE(S) GRANTED PRICE(S)
- ------------------------------------ ----------------- ---------- ----------------- --------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Marsden S. Cason.................... 102,571 $ 0.23 -- -- -- --
Chief Executive Officer
William N. Simon (1)................ 701,707 1.13 -- -- -- --
President
Roxanna Prahser..................... 22,200 0.23 5,550 $ 9.60 -- --
Chief Financial Officer
Roger Kase.......................... -- -- 27,750 1.13-9.60 -- --
Vice President of Product
Development
Barton L. Jackson................... 22,200 0.23 -- -- -- --
Vice President of Management
Information Systems & Distribution
William A. McFarlane................ 102,571 0.23 -- -- -- --
Former President
All current executive officers as a
group.............................. 870,877 0.23-1.13 138,750 1.13-9.60 -- --
Each other person who has received
5% of the options granted:
Conrad Tappert.................... -- -- 16,650 1.13 -- --
General Manager of
The North Face (Canada), Inc.
All other employees as a group...... -- -- 65,490 1.13 72,150 9.60
</TABLE>
- ------------------------
(1) Stock options were granted to William N. Simon under the 1994 Plan on June
22, 1995.
48
<PAGE>
Options granted under the 1996 Plan may be canceled or may be replaced by
substitute options in connection with a change in control, and shares acquired
on exercise of such options may be subject to certain transfer restrictions, as
described in option agreements with the Named Executive Officers.
Generally, under applicable provisions of the Code, optionees do not
recognize income, and the Company is not entitled to a tax deduction, when an
option is granted.
An optionee who holds the stock received on exercise of an ISO for at least
two years from the date the option was granted and at least one year from the
date of purchase generally pays no tax until the stock is sold, at which time
any profit or loss realized is long-term capital gain or loss, as the case may
be; the Company gets no tax deduction with respect to the issuance or sale of
such shares. The spread at exercise of an ISO is effectively treated as a tax
preference item in the year of exercise for purposes of calculating an
optionee's alternative minimum tax.
An optionee who sells the stock received on exercise of an ISO within two
years after the option was granted or within one year of the date of purchase is
taxed on the profit up to the date of exercise (which is ordinary income) and
the Company is entitled to a corresponding tax deduction; the income and
deduction items are recognized by the grantee and the Company, respectively, in
the year the stock is sold. Appreciation or depreciation after the date of
exercise is taxable to the grantee as capital gain or loss, respectively, and is
not deductible for federal income tax purposes by the Company.
Generally, on exercise of an NQSO, the amount by which the fair market value
of the shares of the Common Stock on the date of exercise exceeds the purchase
price of such shares will be taxable to the optionee as ordinary income, and
will be deductible for tax purposes by the Company in the year in which the
optionee recognizes income. If, in any year after 1993, an affected
participant's total compensation (including compensation related to options)
from the Company and its affiliates exceeds $1 million, such compensation in
excess of $1 million may not be tax deductible by the Company under Code section
162(m). Affected participants are generally the Company's chief executive
officer and the four most highly compensated employees of the Company (other
than the chief executive officer) at the end of the Company's taxable year.
Compensation that is "performance-based" within the meaning of Code section
162(m) is excluded from the calculation of total compensation for this purpose.
It is expected that compensation realized upon the exercise of 1996 Plan options
will be "performance-based" and, therefore, that such compensation will be
deductible without regard to the limits of Code section 162(m).
EMPLOYEE STOCK PURCHASE PLAN
The 1996 Employee Stock Purchase Plan (the "Employee Plan"), adopted in May
1996 and effective upon completion of this offering, subject to stockholder
approval which will be obtained prior to the completion of this offering,
reserves a total of 150,000 shares of Common Stock for issuance. The Employee
Plan, which is intended to qualify under section 423 of the Code, will be
administered by the Compensation Committee.
Generally, Company employees are eligible to participate in the Employee
Plan if they have been employed by the Company for at least 90 days and are
currently working at least 20 hours per week. The Employee Plan permits eligible
employees to purchase Common Stock through payroll deductions, which may not
exceed 10% of the employee's compensation. The price at which stock is purchased
under the Employee Plan is equal to 85% of the fair market value of the Common
Stock on the first day of the applicable offering period or the last day of the
applicable offering period, whichever is lower. Unless terminated earlier, the
Employee Plan will terminate ten years from its effective date. Subject to
certain exceptions and limitations, the Board of Directors has the authority to
amend or terminate the Employee Plan.
DIRECTORS' COMPENSATION
Each member of the Company's Board of Directors is reimbursed by the Company
for out-of-pocket expenses incurred in connection with attending Board meetings.
No member of the Company's Board of
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<PAGE>
Directors currently receives any additional cash compensation for such service;
provided, however, during 1995 Whitney, which has three nominees on the
Company's Board of Directors, received a management fee in the amount of
$250,000. See "-- Compensation Committee Interlocks and Insider Participation."
The Company anticipates changing the compensation of directors at such time as
it elects independent directors. The terms of any such compensation have not yet
been determined by the Company.
1996 DIRECTORS' STOCK OPTION PLAN. The 1996 Directors' Stock Option Plan
(the "Directors' Plan") was adopted by the Board of Directors in May 1996 and
will be submitted to the stockholders for approval prior to the closing of this
offering. A total of 100,000 shares of Common Stock has been reserved for
issuance under the Directors' Plan. The Directors' Plan provides for the grant
of nonqualified stock options to purchase 25,000 shares to each non-employee
director of the Company initially elected to the Board after the effective date
of the Directors' Plan. If the disinterested administration requirement of Rule
16b-3 promulgated under the Securities Exchange Act of 1934 ceases to be
applicable to awards made under all equity-based plans of the Company, no
further grants will be made as described in the preceding sentence and in lieu
thereof awards may be made under the Directors' Plan on a discretionary basis to
non-employee directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Three members of the Company's Board of Directors, Messrs. Newton, Castleman
and Laverack, are general partners of Whitney.
On June 7, 1994, the Company (then known as TNF Holdings Company, Inc.)
which had been organized by Whitney, Marsden S. Cason and William A. McFarlane,
acquired substantially all of the assets and certain of the liabilities of the
Company's predecessor, then a subsidiary of the Parent, for a purchase price of
$62.1 million, pursuant to a Purchase and Sale Agreement, dated as of May 25,
1994, by and among Odyssey Holding Inc. and The North Face and TNF Holdings
Company, Inc., the terms and conditions of which were approved by the U.S.
Bankruptcy Court for the Northern District of California (the "Bankruptcy
Court"), which had jurisdiction over the Chapter 11 proceeding involving Odyssey
and its affiliated companies.
In September 1994, three of Odyssey's principal secured creditors (the
"Banks") commenced an action against Mr. Cason alleging, in substance, that he
had breached his fiduciary duties and violated Bankruptcy Court orders by
causing various fund transfers between certain Odyssey entities and the
Company's predecessor. The Banks also named Mr. McFarlane as a defendant in the
action, alleging, in substance, that he had breached his fiduciary duties and
violated Bankruptcy Court orders by accepting an improper severance payment from
Odyssey. Both Mr. Cason and Mr. McFarlane denied the material allegations of the
complaint. The action was settled without any admission of liability in August
1995; pursuant to such settlement the Company paid the Banks an aggregate of $1
million on behalf of the defendants and reimbursed the defendants for certain
costs of defense.
In connection with the Acquisition, the Company, Whitney and the Whitney
1990 Equity Fund, L.P. (the "Equity Fund"), an affiliate of Whitney, entered
into a Preferred Stock Purchase Agreement pursuant to which the Company issued
an aggregate of 1,920,000 shares of Preferred Stock (currently convertible into
an aggregate of 3,406,590 shares of Common Stock) to Whitney and the Equity Fund
in consideration of $12,166,667. In connection with the sale of the Preferred
Stock, the Company paid Whitney a fee of $200,000. The holders of the Preferred
Stock have unanimously agreed to convert the Preferred Stock, plus accrued
dividends, in accordance with its terms into shares of Common Stock prior to or
concurrently with this offering. The Company also agreed to pay Whitney a
management fee of $250,000 per year, plus reimbursement of reasonable
out-of-pocket travel expenses incurred in connection with attendance by Whitney
representatives on the Board of Directors at regular Board meetings, not to
exceed $50,000 per year (which fee will terminate upon consummation of this
offering). During 1995, the Company paid Whitney a total of $250,000 as a
management fee and $16,009 for reimbursable expenses.
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Also in connection with the Acquisition, the Company and the Debt Fund, an
affiliate of Whitney, entered into a Subordinated Note and Common Stock Purchase
Agreement (the "Purchase Agreement") pursuant to which the Company issued to the
Debt Fund a Subordinated Promissory Note due June 7, 2001 bearing interest at
the rate of 10.101% per annum (the "Subordinated Note") in the aggregate
principal amount of $24,333,333 in return for a loan of $24,013,645 and
1,419,415 shares of Common Stock at a purchase price of $0.225 per share. In
connection with the issuance of the Subordinated Note, the Company paid Whitney
a fee of $730,000. The proceeds from the issuance of the Preferred Stock,
Subordinated Note and Common Stock were applied, together with borrowings under
the Credit Facility, to fund the Acquisition. The Purchase Agreement, as
amended, contains certain covenants that, among other things, require the
Company to maintain a specified minimum tangible net worth and fixed charge,
interest coverage and leverage ratios, limit capital expenditures and restrict
the Company's ability to incur additional indebtedness and pay cash dividends on
its capital stock. The Company was in compliance with these covenants as of June
19, 1996 and expects to remain in compliance with such covenants.
Approximately $10.1 million of the Subordinated Note, together with accrued
interest, will be repaid with the proceeds of this offering, and the
Subordinated Note will be amended and restated to reflect such repayment (the
"Restated Note"). As so amended, the Restated Note will provide that the Company
may, but is not required to, prepay the balance of the Restated Note with any
proceeds of this offering in excess of $30 million or with any proceeds of any
future underwritten public offering by the Company of its capital stock. See
"Use of Proceeds."
Through September 22, 1995, the Company was a party to a license agreement
with High Performance Sports, Ltd. ("HPS"), the Managing Director of which is
Lily Simon, the wife of William N. Simon, the President of the Company. Under
this agreement, HPS had exclusive licenses to use the Company's tradenames,
trademarks and logos and to sell its products and accessories in Hong Kong,
Taiwan and Macao. Revenues to the Company under this agreement were
approximately $280,000 during 1995. The Company believes that the terms of the
license agreement with HPS were at least as favorable to the Company as could
have been obtained at the time from an unaffiliated third party. Effective
September 22, 1995, the Company entered into a new license agreement with Mitsui
& Co. covering Hong Kong and Macao.
CERTAIN TRANSACTIONS
The Company has issued Common Stock to certain of its executive officers and
directors. See "Management -- Other Agreements" and "-- Stock Incentive Plans."
In addition, the Company also has been a party to certain transactions involving
the Company's executive officers, directors and stockholders. See "Management --
Compensation Committee Interlocks and Insider Participation."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of May 1, 1996, and as adjusted to
reflect the sale of Common Stock offered by the Company hereby, for (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors who
owns shares of Common Stock, (iii) each Named Executive Officer and (iv) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SHARES --------------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER (1)(2) OWNED OFFERING OFFERING
- ------------------------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Whitney 1990 Equity Fund, L.P. (3)(4)......................................... 3,341,693 42.3% 31.8%
Whitney Subordinated Debt Fund, L.P. (3)...................................... 1,419,415 18.0 13.5
J.H. Whitney & Co. (3)(5)..................................................... 835,423 10.6 8.0
Marsden S. Cason (6).......................................................... 701,707 8.9 6.7
William N. Simon (7).......................................................... 701,707 8.9 6.7
William A. McFarlane (8)...................................................... 519,066 6.6 5.0
Roxanna Prahser (9)........................................................... 11,100 * *
Roger Kase (10)............................................................... 4,162 * *
Barton L. Jackson (9)......................................................... 11,100 * *
All directors and executive officers as a group (12 persons).................. 1,440,877 18.3 13.7
</TABLE>
- ------------------------------
* Less than 1%.
(1) Determined in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended. Under this rule, a person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from May 1, 1996 upon the exercise of options, and each beneficial
owner's percentage ownership is determined by assuming that options that
are held by such person (but not those held by any other person) and that
are exercisable within 60 days from May 1, 1996 have been exercised. Unless
otherwise noted, the Company believes that all persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them.
(2) Unless otherwise indicated, the address of each of the persons named above
is in care of the Company at 2013 Farallon Drive, San Leandro, California
94577.
(3) Whitney 1990 Equity Fund, L.P., Whitney Subordinated Debt Fund, L.P., and
J.H. Whitney & Co. are limited partnerships in which Ray E. Newton, III ,
Peter M. Castleman, and William Laverack, Jr., directors of the Company,
are general partners. Messrs. Newton, Castleman, and Laverack disclaim
beneficial ownership of the securities held by such partnerships, except to
the extent of their respective ownership interests in such partnerships.
The address of each of Whitney 1990 Equity Fund, L.P., Whitney Subordinated
Debt Fund, L.P. and J.H. Whitney & Co. is 177 Broad Street, Stamford,
Connecticut 06901.
(4) Represents 3,341,693 shares of Common Stock issuable upon conversion of the
Preferred Stock.
(5) Represents 835,423 shares of Common Stock issuable upon conversion of the
Preferred Stock.
(6) Includes 102,571 shares of Common Stock issuable upon exercise of stock
options. Mr. Cason has agreed with the several Underwriters to sell to the
Underwriters 69,000 shares of Common Stock owned by him in the event the
Underwriters exercise their over-allotment option. If the Underwriters'
over-allotment option is exercised in full, Mr. Cason will beneficially own
632,707 shares after the offering, representing 5.9% of total shares
outstanding, and all directors and executive officers as a group will own
1,302,877 shares (12.1%).
(7) Includes 701,707 shares of Common Stock issuable upon exercise of stock
options. Mr. Simon has agreed with the several Underwriters to sell to the
Underwriters 69,000 shares of Common Stock owned by him in the event the
Underwriters exercise their over-allotment option. If the Underwriters'
over-allotment option is exercised in full, Mr. Simon will beneficially own
632,707 shares after the offering, representing 5.9% of total shares
outstanding, and all directors and executive officers as a group will own
1,302,877 shares (12.1%).
(8) Includes 51,285 shares of Common Stock issuable upon exercise of stock
options. Mr. McFarlane's address is 1606 Martin Avenue, Pleasanton,
California 94566.
(9) Includes 11,100 shares of Common Stock issuable upon exercise of stock
options.
(10) Includes 4,162 shares of Common Stock issuable upon exercise of stock
options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport to
be complete and is subject in all respects to applicable Delaware law and to the
provisions of the Company's Restated Certificate of Incorporation (the
"Charter") and By-laws, each of which will be amended or restated prior to or
simultaneous with the closing of this offering, and copies of which will be
filed as exhibits to the Registration Statement of which this Prospectus is a
part. References to the Company's Charter and By-laws in this Prospectus refer
to the Charter and By-laws as amended or restated.
The authorized capital stock of the Company currently consists of 10,000,000
shares of Common Stock (which will be increased to 50,000,000 shares prior to
the closing of this offering), par value $0.0025 per share, and 4,000,000 shares
of Preferred Stock, par value $1.00 per share. Immediately after the completion
of the offering, the Company estimates that there will be outstanding an
aggregate of 9,581,666 shares of Common Stock, 1,170,802 shares of Common Stock
will be issuable upon exercise of outstanding options and no shares of Preferred
Stock will be issued or outstanding.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of Common Stock do not
have cumulative voting rights, and therefore holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of the agreements governing the
Company's long-term debt. The Company does not anticipate paying cash dividends
in the foreseeable future and currently is precluded from doing so pursuant to
the terms of the Credit Facility. See "Dividend Policy." In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities.
Holders of the Common Stock have no preemptive, conversion or redemption
rights and are not subject to further calls or assessments by the Company.
Immediately upon consummation of this offering, all of the then outstanding
shares of Common Stock will be validly issued, fully paid and nonassessable.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "TNFI."
The transfer agent and registrar for the Common Stock is the America Stock
Transfer & Trust Company.
PREFERRED STOCK
The Board of Directors has the authority, without any vote or action by the
stockholders, to issue Preferred Stock in one or more series and to fix the
designations, preferences, rights, qualifications, limitations and restrictions
thereof, including the voting rights, dividend rights, dividend rate, conversion
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could
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<PAGE>
render more difficult or discourage an attempt to obtain control of the Company
by means of a proxy contest, tender offer, merger, or otherwise, and thereby
protect the continuity of the Company's management.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Whitney, the Equity Fund, the Debt Fund and Messrs. Cason, and Simon
(holding in the aggregate 6,999,945 shares of Common Stock, including shares
that may be acquired within 60 days from May 1, 1996 upon the exercise of
options) have certain demand and/or incidental, or "piggyback," registration
rights with respect to the Common Stock of the Company pursuant to a
Registration Rights Agreement, dated as of June 7, 1994, between the Company and
such holders, as amended (the "Registration Rights Agreement"). The demand
registration rights held by Whitney, the Equity Fund and the Debt Fund
(representing 5,596,531 shares of Common Stock) generally provide that those
holders of Common Stock have the right to require that, on three occasions
(subject to certain limitations), the Company file a registration statement
under the Securities Act covering all or part of such shares and that the
Company will use its best efforts to effect such registration. With respect to
incidental, or "piggyback," registration rights held by all parties defined in
the Registration Rights Agreement, the Company is required to notify the holders
of Common Stock having such rights that it intends to register its securities
and, if requested by such holder, to include additional shares in such
registration. The Company generally is obligated to bear the expenses, other
than underwriting discounts and sales commissions, of the registration of such
shares. Any exercise by the holders of such registration rights may hinder
efforts by the Company to arrange future financings and may have an adverse
impact on the market price of the Common Stock. Mr. McFarlane (holding in the
aggregate 519,066 shares of Common Stock) has certain incidental, or
"piggyback," registration rights with respect to the Common Stock of the Company
pursuant to the Registration Rights Agreement.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law ("DGCL"). In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the date such person became an interested stockholder unless (i) before such
person became an interested stockholder, the board of directors of the
corporation approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation, and held by certain employee stock ownership plans); or
(iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder. Whitney, the Equity
Fund and the Debt Fund are interested stockholders under the DGCL. However,
since their acquisitions of the Company's securities were approved in advance by
the Company's Board of Directors, they would not be prohibited from engaging in
a business combination for three years following their becoming interested
stockholders.
In addition, certain provisions of the Charter and By-laws of the Company
summarized in the following paragraphs will become operative upon the closing of
this offering and may be deemed to have an anti-takeover effect and may delay,
defer or prevent an attempt to obtain control of the Company by means of a proxy
contest, tender offer, merger or other transaction that a stockholder might
consider in its best interest, including those attempts that might result in a
premium over the market price for the shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS. The Charter provides for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the
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<PAGE>
Board of Directors will be elected each year. Moreover, under the DGCL, in the
case of a corporation having a classified board, stockholders may remove a
director only for cause. This provision, when coupled with the provision of the
By-laws authorizing only the Board of Directors to fill vacant directorships,
will preclude a stockholder from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
SPECIAL MEETING OF STOCKHOLDERS. The Charter provides that special meetings
of stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board of Directors or the Chief Executive Officer. This
provision will make it more difficult for stockholders to take actions opposed
by the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT. The Charter provides that no action
required or permitted to be taken at any annual or special meeting of the
stockholders of the Company may be taken without a meeting, and the power of
stockholders of the Company to consent in writing, without a meeting, to the
taking of any action is specifically denied.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The By-laws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received no later than the close
of business on the seventh day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. The By-laws
also specify certain requirements for a stockholder's notice to be in proper
written form. These provisions may preclude some stockholders from bringing
matters before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
LIMITATION OF LIABILITY
The Charter provides that to the fullest extent permitted by the DGCL, a
director of the Company shall not be liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director. Under current
Delaware law, liability of a director may not be limited (i) for any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases and (iv) for any transaction from which the
director derives an improper personal benefit. The effect of the provision of
the Charter is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek nonmonetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, the By-laws
provide that the Company shall indemnify its directors, officers, employees and
agents to the fullest extent permitted by Delaware law.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market after this offering may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital in the
future through the sale of its equity securities.
Upon the consummation of this offering, the Company will have 9,581,666
shares of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the 2,600,000 shares offered hereby will be freely tradeable without restriction
under the Securities Act unless such shares are purchased by "affiliates" of the
Company, as such term is defined in Rule 144 under the Securities Act (the
"Affiliates"). The remaining 6,981,666 shares of Common Stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act (the
"Restricted Shares"). Restricted Shares may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below. As a result of contractual restrictions described below and
the provisions of Rules 144 and 701, additional shares will be available for
sale in the public market as follows: (i) no Restricted Shares will be eligible
for immediate sale on the effective date of this Prospectus (the "Effective
Date"); (ii) 615,668 will be eligible for sale 90 days after the Effective Date
and (iii) 6,365,998 Restricted Shares will be eligible for sale upon expiration
of the lock-up agreements 180 days after the Effective Date. Of such Restricted
Shares, approximately 6,797,768 shares will be subject to certain volume
limitations and other resale restrictions pursuant to Rule 144.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock issuable upon the exercise of
stock options granted under the Option Plans. As of May 17, 1996, options to
purchase 1,170,802 shares of Common Stock were outstanding under the Option
Plans. Holders of 826,477 stock options to purchase Common Stock have granted
the Underwriters a 180-day lock-up on shares issuable upon the exercise of such
options. Of the remaining 344,325 options, 97,905 are exercisable at the
effective date of this offering.
Pursuant to the terms of the Registration Rights Agreement, beneficial
owners of an aggregate 7,519,011 shares of Common Stock (including shares that
may be acquired within 60 days from May 1, 1996 upon the exercise of options)
have demand and/or incidental, or "piggyback," registration rights, permitting
such holders, in the case of demand registration rights, to request on three
occasions (subject to certain limitations) that such shares be registered for
resale under the Securities Act at the Company's expense and, in the case of
piggyback rights, permitting such holders to include their shares, at the
Company's expense, in certain registration statements filed by the Company.
Registration of such shares under the Securities Act would result in such shares
becoming saleable without restriction under the Securities Act (except for
shares purchased by Affiliates) immediately upon the effectiveness of such
registration. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. See "Underwriting."
The Company and certain stockholders of the Company, who collectively hold
7,180,276 shares of Common Stock, including shares that may be acquired within
60 days from May 1, 1996 upon the exercise of options, have agreed with the
Underwriters, with certain limited exceptions, that they will not dispose of any
shares of Common Stock, for a period of 180 days after the date of this
Prospectus without the written consent of the Representatives of the
Underwriters.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) one percent of the outstanding
shares of the Company's Common Stock or (ii) the average weekly trading volume
of the Company's Common Stock in the Nasdaq National Market during the four
calendar weeks immediately preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales pursuant to Rule 144
are subject
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<PAGE>
to certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an Affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned Restricted Shares for at least three years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations
described above.
The Securities and Exchange Commission has proposed certain amendments to
Rule 144 that would reduce by one year the holding periods required for shares
subject to Rule 144 and Rule 144(k) to become eligible for resale in the public
market. This proposal, if adopted, would increase the number of shares of Common
Stock eligible for immediate resale following the expiration of the lock-up
agreements described above. No assurance can be given concerning whether or when
the proposal will be adopted by the Commission.
An employee, officer, or director of or consultant to the Company who
purchased or was awarded shares pursuant to a written compensatory plan or
contract is entitled to rely on the resale provisions of Rule 701 under the
Securities Act, which permits Affiliates and non-Affiliates to sell their Rule
701 shares without having to comply with Rule 144's holding period restrictions,
in each case commencing 90 days after the date of this Prospectus. In addition,
non-Affiliates may sell Rule 701 shares without complying with the public
information, volume and notice provisions of Rule 144.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Hambrecht & Quist LLC and J.P. Morgan
Securities Inc., have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<S> <C>
NUMBER OF
UNDERWRITER SHARES
-----------
Alex. Brown & Sons Incorporated......................................................................
Hambrecht & Quist LLC................................................................................
J.P. Morgan Securities Inc. .........................................................................
-----------
Total.......................................................................................... 2,600,000
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares are
purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the initial public offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the initial public offering, the offering price and other selling terms may be
changed by the Representatives of the Underwriters.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 390,000 additional shares of Common Stock, at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to 2,600,000, and the
Company and the Selling Stockholders will be obligated, pursuant to the option,
to sell such shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of Common
Stock hereby. If purchased, the Underwriters will offer such additional shares
on the same terms as those on which the 2,600,000 shares are being offered.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Company and certain stockholders of the Company have agreed not to
offer, sell, or otherwise dispose of any shares of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated, except that the Company may issue and grant
options to purchase shares of Common Stock under the Option Plans, and
individual stockholders may dispose of shares of Common Stock under certain
circumstances, provided that the transferee agrees to be bound by the terms of
such agreement. See "Shares Eligible for Future Sale."
58
<PAGE>
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiation among the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations will be prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Representatives of the
Underwriters believed to be comparable to the Company, estimates of the business
potential of the Company, the present state of the Company's development and
other factors deemed relevant. See "Risk Factors -- No Prior Market for Common
Stock; Possible Volatility of Stock Price."
The Underwriters have reserved for sale, at the initial public offering
price, up to 10% of the shares of Common Stock offered hereby for certain
employees, customers and vendors of the Company, and certain other individuals,
who have expressed an interest in purchasing such shares of Common Stock in the
offering. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as other shares offered hereby.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. Certain
legal matters will be passed upon for the Underwriters by Wilson Sonsini
Goodrich & Rosati, P.C., Palo Alto, California.
EXPERTS
The financial statements of The North Face, Inc. as of December 31, 1994 and
1995 and for the period from June 7, 1994 to December 31, 1994, and for the year
ended December 31, 1995, and the financial statements of The North Face
("Predecessor") for the period from April 1, 1994 through June 6, 1994 and the
year ended March 31, 1994 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and in the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, exhibits and schedules. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each such instance reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. This
Registration Statement and the exhibits and schedules thereto may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's Web site is http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent public accountants and
with quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited financial information.
59
<PAGE>
THE NORTH FACE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Cash Flows...................................... F-5
Consolidated Statements of Stockholders' Equity............................ F-6
Notes to Consolidated Financial Statements................................. F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE STOCKHOLDERS OF THE NORTH FACE, INC.:
We have audited the accompanying consolidated balance sheets of The North
Face, Inc. and its subsidiaries ("Successor") as of December 31, 1994 and 1995
and the related consolidated statements of operations, stockholders' equity and
cash flows for the period from June 7, 1994 through December 31, 1994, the year
ended December 31, 1995, and the consolidated statements of operations,
stockholders' equity and cash flows of The North Face ("Predecessor") for the
period from April 1, 1994 through June 6, 1994, and the year ended March 31,
1994. These financial statements are the responsibility of the Predecessor's and
Successor's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Successor consolidated financial statements referred to
above present fairly, in all material respects, the financial position of The
North Face, Inc. and its subsidiaries as of December 31, 1995 and 1994 and the
results of their operations and their cash flows for the year ended December 31,
1995 and for the period from June 7, 1994 through December 31, 1994, in
conformity with generally accepted accounting principles. Further, in our
opinion, the Predecessor consolidated financial statements referred to above
present fairly, in all material respects, the results of their operations and
their cash flows for the period from April 1, 1994 through June 6, 1994 and the
year ended March 31, 1994 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
February 9, 1996 (June 20, 1996 as to Note 16)
F-2
<PAGE>
THE NORTH FACE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Current Assets:
Cash and cash equivalents....................................... $ 826 $ 2,823 $ 705
Accounts receivable, net........................................ 13,486 16,582 17,881
Inventories..................................................... 12,068 21,048 26,690
Deferred taxes.................................................. 1,703 2,230 2,281
Other current assets............................................ 1,180 1,161 2,512
--------- --------- ------------
Total current assets........................................ 29,263 43,844 50,069
Property and equipment, net..................................... 4,066 8,388 8,435
Trademarks and intangibles, net................................. 30,602 30,108 29,919
Debt issuance costs, net........................................ 2,447 1,739 1,600
Other assets.................................................... 171 429 458
--------- --------- ------------
Total assets................................................ $ 66,549 $ 84,508 $ 90,481
--------- --------- ------------
--------- --------- ------------
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable................................................ $ 4,855 $ 9,526 $ 10,004
Accrued employee expenses....................................... 851 921 1,083
Current portion of long-term debt............................... 1,084 4,630 9,322
Current portion of obligations under capital leases............. 243 208 191
Income taxes payable............................................ 716 561 946
Other current liabilities....................................... 7,325 5,330 6,390
--------- --------- ------------
Total current liabilities................................... 15,074 21,176 27,936
Long-term debt.................................................. 4,449 11,995 11,827
Obligations under capital leases................................ 265 60 19
Other long-term liabilities..................................... 5,249 6,376 6,492
Subordinated debt............................................... 24,333 24,333 24,333
--------- --------- ------------
Total liabilities........................................... 49,370 63,940 70,607
--------- --------- ------------
Commitments and contingencies
<CAPTION>
MARCH 31,
1996
PRO FORMA
------------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
Stockholders' equity:
Series A Preferred Stock, $1.00 par value - shares authorized
4,000,000; issued and outstanding 1,936,000 (Liquidation
preference of $14,674,000 at March 31, 1996)................... 12,267 12,267 12,267 --
Cumulative Preferred Dividends Accrued (representing 379,956
shares at March 31, 1996)...................................... 696 2,049 2,407 --
Common Stock, $.0025 par value - 10,000,000 shares authorized;
3,431,000 issued and outstanding at December 31, 1994;
2,902,000 at December 31, 1995 and March 31, 1996; 7,010,000 at
March 31, 1996 (pro forma)..................................... 8 7 7 17
Additional paid-in capital...................................... 764 645 645 15,309
Subscriptions receivable........................................ (261) (142) (142) (142)
Retained earnings............................................... 3,939 6,071 5,084 5,084
Cumulative translation adjustments.............................. (234) (329) (394) (394)
--------- --------- ------------ ------------
Total stockholders' equity.................................. 17,179 20,568 19,874 19,874
--------- --------- ------------ ------------
Total liabilities and stockholders' equity.................. $ 66,549 $ 84,508 $ 90,481
--------- --------- ------------
--------- --------- ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
THE NORTH FACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR THE NORTH FACE, INC. (SUCCESSOR)
---------------------------- ------------------------------------------------
FOR THE
FOR THE PERIOD FROM FOR THE QUARTER
FOR THE PERIOD FROM JUNE 7, 1994 FOR THE ENDED
YEAR ENDED APRIL 1, 1994 TO YEAR ENDED MARCH 31,
MARCH 31, TO DECEMBER 31, DECEMBER --------------------
1994 JUNE 6, 1994 1994 31, 1995 1995 1996
------------- ------------- ------------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Sales............... $ 87,411 $ 9,085 $ 60,574 $ 121,534 $ 23,500 $ 31,020
Cost of Sales........... 50,807 5,317 31,060 66,470 13,133 18,417
------------- ------------- ------------- ----------- --------- ---------
Gross Profit............ 36,604 3,768 29,514 55,064 10,367 12,603
Operating Expenses...... 32,810 5,290 19,659 44,540 9,310 12,464
------------- ------------- ------------- ----------- --------- ---------
Operating Income
(Loss)................. 3,794 (1,522) 9,855 10,524 1,057 139
Interest expense........ (2,046) (58) (2,598) (5,530) (1,326) (1,453)
Other Income (Expense), Net (200) 19 186 589 85 167
------------- ------------- ------------- ----------- --------- ---------
Income (Loss) Before
Provision for Income
Taxes, and
Extraordinary Item..... 1,548 (1,561) 7,443 5,583 (184) (1,147)
Provision (Benefit) for
Income Taxes........... 722 112 2,808 2,098 (99) (518)
------------- ------------- ------------- ----------- --------- ---------
Income (Loss) Before
Extraordinary Items.... 826 (1,673) 4,635 3,485 (85) (629)
Extraordinary Item --
Gain on Extinguishment
of Debt, Net of Income
Taxes of $0............ 0 577 0 0 0 0
------------- ------------- ------------- ----------- --------- ---------
Net Income (Loss)....... $ 826 $ (1,096) $ 4,635 $ 3,485 $ (85) $ (629)
------------- ------------- ------------- ----------- --------- ---------
------------- ------------- ------------- ----------- --------- ---------
Pro Forma Information
(Unaudited):
Pro forma net income
(loss) per share....... $ 0.47 $ (0.09)
----------- ---------
----------- ---------
Shares used in pro forma
per share
calculation............ 7,427 7,394
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
THE NORTH FACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR THE NORTH FACE, INC. (SUCCESSOR)
--------------------------------- ------------------------------------------
FOR THE
FOR THE QUARTER
FOR THE PERIOD FROM FOR THE ENDED
FOR THE PERIOD FROM JUNE 7, 1994 TO YEAR ENDED MARCH 31,
YEAR ENDED APRIL 1, 1994 TO DECEMBER 31, DECEMBER 31, ---------
MARCH 31, 1994 JUNE 6, 1994 1994 1995 1995
--------------- ---------------- --------------- -------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from Operating Activities:
Net Income (Loss)............................. $ 826 $ (1,096) $ 4,635 $ 3,485 $ (85)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization............... 1,671 307 1,345 3,075 891
Deferred income taxes....................... (187) (93) (259) (441) 205
Provision for doubtful accounts............. 941 66 268 338 77
Other....................................... 115 0 0 0 0
Extraordinary gain on debt extinguishment... 0 (577) 0 0 0
Effect of changes in:
Accounts receivable......................... (1,235) 1,851 (5,912) (3,434) (1,327)
Inventories................................. 8,862 617 1,195 (8,980) (3,511)
Other assets................................ 2,084 (231) (542) (469) (592)
Accounts payable and accrued liabilities.... 876 (473) 696 3,631 963
--------------- ------- --------------- -------------- ---------
Net Cash Provided by (Used in) Operating
Activities................................... 13,953 371 1,426 (2,795) (3,379)
--------------- ------- --------------- -------------- ---------
Investing Activities:
Acquisition of The North Face assets........ 0 0 (59,710) 0 0
Proceeds from sale of trademark............. 0 0 10,800 0 0
Acquisition of Canadian Subsidiary.......... 0 0 0 (73) (289)
Purchase of minority interest............... (1,725) 0 0 0 0
Purchase of fixed assets.................... (1,002) (58) (327) (5,592) (605)
--------------- ------- --------------- -------------- ---------
Net Cash Used in Investing Activities......... (2,727) (58) (49,237) (5,665) (894)
--------------- ------- --------------- -------------- ---------
Financing Activities:
Debt repayments............................. (201) (729) (476) (2,595) (1,312)
Borrowings on term note..................... 0 0 0 5,600 0
Proceeds (payments) from revolver, net...... 0 0 (761) 7,847 6,163
Proceeds from acquisition debt.............. 0 0 30,559 0 0
Payments of debt acquisition costs.......... 0 0 (2,413) (300) (300)
Proceeds from sale of stock................. 0 0 12,333 0 0
Change in due to/from affiliates, net....... (2,946) (1,030) 0 0 0
--------------- ------- --------------- -------------- ---------
Net Cash Provided by (Used in) Financing
Activities................................... (3,147) (1,759) 39,242 10,552 4,551
--------------- ------- --------------- -------------- ---------
Effect of foreign currency fluctuations on
cash....................................... (18) 65 (234) (95) 186
--------------- ------- --------------- -------------- ---------
Increase (Decrease) in Cash and Cash
Equivalents.................................. 8,061 (1,381) (8,803) 1,997 464
Cash and Cash Equivalents, Beginning of
Period....................................... 2,949 11,010 9,629 826 826
--------------- ------- --------------- -------------- ---------
Cash and Cash Equivalents, End of Period...... $ 11,010 $ 9,629 $ 826 $ 2,823 $ 1,290
--------------- ------- --------------- -------------- ---------
--------------- ------- --------------- -------------- ---------
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest.................................. $ 1,311 $ 2,836 $ 2,398 $ 4,383
--------------- ------- --------------- --------------
--------------- ------- --------------- --------------
Income taxes.............................. $ 456 $ 0 $ 3,476 $ 1,785
--------------- ------- --------------- --------------
--------------- ------- --------------- --------------
Non-Cash Transactions:
Issuance of stock........................... $ 0 $ 0 $ 706 $ 0
--------------- ------- --------------- --------------
--------------- ------- --------------- --------------
Cancellation of stock and related promissory
note....................................... $ 0 $ 0 $ 0 $ 119
--------------- ------- --------------- --------------
--------------- ------- --------------- --------------
<CAPTION>
1996
---------
<S> <C>
Cash flows from Operating Activities:
Net Income (Loss)............................. $ (629)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization............... 850
Deferred income taxes....................... (51)
Provision for doubtful accounts............. (174)
Other....................................... 0
Extraordinary gain on debt extinguishment... 0
Effect of changes in:
Accounts receivable......................... (1,125)
Inventories................................. (5,642)
Other assets................................ (1,385)
Accounts payable and accrued liabilities.... 2,201
---------
Net Cash Provided by (Used in) Operating
Activities................................... (5,955)
---------
Investing Activities:
Acquisition of The North Face assets........ 0
Proceeds from sale of trademark............. 0
Acquisition of Canadian Subsidiary.......... 0
Purchase of minority interest............... 0
Purchase of fixed assets.................... (507)
---------
Net Cash Used in Investing Activities......... (507)
---------
Financing Activities:
Debt repayments............................. (66)
Borrowings on term note..................... 100
Proceeds (payments) from revolver, net...... 4,432
Proceeds from acquisition debt.............. 0
Payments of debt acquisition costs.......... (57)
Proceeds from sale of stock................. 0
Change in due to/from affiliates, net....... 0
---------
Net Cash Provided by (Used in) Financing
Activities................................... 4,409
---------
Effect of foreign currency fluctuations on
cash....................................... (65)
---------
Increase (Decrease) in Cash and Cash
Equivalents.................................. (2,118)
Cash and Cash Equivalents, Beginning of
Period....................................... 2,823
---------
Cash and Cash Equivalents, End of Period...... $ 705
---------
---------
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest..................................
Income taxes..............................
Non-Cash Transactions:
Issuance of stock...........................
Cancellation of stock and related promissory
note.......................................
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
THE NORTH FACE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK -------------------------------------
------------------------- ADDITIONAL
SHARES SHARES PAID IN
DESCRIPTION OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL
- ------------------------------------------------------------- ------------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Predecessor
March 31, 1993............................................. 1,000 $ 5,416 $ 3,882
Net Income...............................................
Translation Adjustments..................................
----- ---------- ----- --------- -----------
March 31, 1994............................................. 1,000 5,416 3,882
Net Loss.................................................
Translation Adjustments..................................
----- ---------- ----- --------- -----------
June 6, 1994............................................... 1,000 $ 5,416 $ 3,882
----- ---------- ----- --------- -----------
----- ---------- ----- --------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
The North Face, Inc. (Successor)
Preferred Stock Issued................................... 1,936 $ 12,267
Common Stock Issued...................................... 3,431 $ 8 $ 764
Net Income...............................................
Stock Dividends on Preferred Stock.......................
Translation Adjustments..................................
----- ---------- ----- --------- -----------
December 31, 1994.......................................... 1,936 12,267 3,431 8 764
Net Income...............................................
Cancellation of Restricted Stock......................... (529) (1) (119)
Stock Dividends on Preferred Stock.......................
Translation Adjustments..................................
----- ---------- ----- --------- -----------
December 31, 1995.......................................... 1,936 12,267 2,902 7 645
Net Income (unaudited)...................................
Stock Dividends on Preferred Stock (unaudited)...........
Translation Adjustments (unaudited)......................
----- ---------- ----- --------- -----------
March 31, 1996 (unaudited)................................. 1,936 $ 12,267 2,902 $ 7 $ 645
----- ---------- ----- --------- -----------
----- ---------- ----- --------- -----------
<CAPTION>
CUMULATIVE
PREFERRED
DIVIDENDS SUBSCRIPTIONS RETAINED TRANSLATION
DESCRIPTION ACCRUED RECEIVABLE EARNINGS ADJUSTMENTS
- ------------------------------------------------------------- ----------- -------------- ------------ -------------
<S> <C>
Predecessor
March 31, 1993............................................. $ (22,841) $ (395)
Net Income............................................... 826
Translation Adjustments.................................. (18)
----------- ------ ------------ ------
March 31, 1994............................................. (22,015) (413)
Net Loss................................................. (1,096)
Translation Adjustments.................................. 65
----------- ------ ------------ ------
June 6, 1994............................................... $ (23,111) $ (348)
----------- ------ ------------ ------
----------- ------ ------------ ------
- -------------------------------------------------------------
The North Face, Inc. (Successor)
Preferred Stock Issued...................................
Common Stock Issued...................................... $ (261)
Net Income............................................... $ 4,635
Stock Dividends on Preferred Stock....................... $ 696 (696)
Translation Adjustments.................................. $ (234)
----------- ------ ------------ ------
December 31, 1994.......................................... 696 (261) 3,939 (234)
Net Income............................................... 3,485
Cancellation of Restricted Stock......................... 119
Stock Dividends on Preferred Stock....................... 1,353 (1,353)
Translation Adjustments.................................. (95)
----------- ------ ------------ ------
December 31, 1995.......................................... 2,049 (142) 6,071 (329)
Net Income (unaudited)................................... (629)
Stock Dividends on Preferred Stock (unaudited)........... 358 (358)
Translation Adjustments (unaudited)...................... (65)
----------- ------ ------------ ------
March 31, 1996 (unaudited)................................. $ 2,407 $ (142) $ 5,084 $ (394)
----------- ------ ------------ ------
----------- ------ ------------ ------
<CAPTION>
DESCRIPTION TOTAL
- ------------------------------------------------------------- ------------
Predecessor
March 31, 1993............................................. $ (13,938)
Net Income............................................... 826
Translation Adjustments.................................. (18)
------------
March 31, 1994............................................. (13,130)
Net Loss................................................. (1,096)
Translation Adjustments.................................. 65
------------
June 6, 1994............................................... $ (14,161)
------------
------------
- -------------------------------------------------------------
The North Face, Inc. (Successor)
Preferred Stock Issued................................... $ 12,267
Common Stock Issued...................................... 511
Net Income............................................... 4,635
Stock Dividends on Preferred Stock....................... 0
Translation Adjustments.................................. (234)
------------
December 31, 1994.......................................... 17,179
Net Income............................................... 3,485
Cancellation of Restricted Stock......................... (1)
Stock Dividends on Preferred Stock....................... 0
Translation Adjustments.................................. (95)
------------
December 31, 1995.......................................... 20,568
Net Income (unaudited)................................... (629)
Stock Dividends on Preferred Stock (unaudited)........... 0
Translation Adjustments (unaudited)...................... (65)
------------
March 31, 1996 (unaudited)................................. $ 19,874
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITION, BASIS OF PRESENTATION, BUSINESS AND PRO FORMA INFORMATION
ACQUISITION -- On June 7, 1994, TNF Holdings Company, Inc. (a Delaware
corporation) acquired substantially all of the net operating assets and certain
liabilities of The North Face (the "Predecessor") (a California corporation) for
approximately $62.1 million cash (including transaction costs of approximately
$2.4 million) plus assumed liabilities of approximately $18.4 million (the
"Acquisition"). TNF Holdings Company, Inc. then changed its name to The North
Face, Inc. (the "Successor"). The Acquisition was accounted for as a purchase
and accordingly, Successor recorded the assets acquired (including $41.8 million
for trademarks) and liabilities assumed at their fair values. Immediately
subsequent to the purchase, an equity investor purchased Successor's trademark
in Japan for $10.8 million. Due to the Acquisition and resulting change in
accounting basis, and significant differences in the capital structures of the
Successor and the Predecessor, the accompanying consolidated financial
statements of the Successor may not be comparable to those of the Predecessor.
References to the Company throughout these notes to consolidated financial
statements refer to the operations of Successor and Predecessor collectively.
As part of the Acquisition, all amounts due to affiliates remained with the
Predecessor and were not assumed by The North Face, Inc. A substantial portion
of this debt was non-interest bearing during the year ended March 31, 1994.
BUSINESS -- The Company wholesales and retails high-quality technical
outerwear, mountaineering equipment, skiwear and sports apparel. At December 31,
1995 the Company had a corporate headquarters and distribution center in San
Leandro, California, a sales office and distribution center in Toronto, Ontario,
and a European headquarters and factory in Port Glasgow, Scotland. The Company's
products are sold through independent retailers in the United States (the
"U.S."), Europe and Canada, as well as through its own eleven retail stores in
the U.S. The Company sources the majority of its merchandise outside the U.S.
Any event causing a sudden disruption of imports, including the imposition of
additional import restrictions, could have a materially adverse effect on the
Company's operations.
PRO FORMA INFORMATION (UNAUDITED) -- Upon consummation of the Company's
proposed public offering, all outstanding shares of Series A Preferred Stock
will be converted into 4,109,000 shares of Common Stock. The pro forma
stockholders' equity at March 31, 1996 and pro forma net income (loss) per share
and shares used in pro forma per share calculations for the year ended December
31, 1995 and the quarter ended March 31, 1996 reflect this conversion as of the
beginning of each period. In accordance with the rules of the Securities and
Exchange Commission, all common stock equivalents issued within one year of the
Company's anticipated initial public offering have been considered outstanding
for all periods using the treasury stock method. Due to the conversion of the
Series A Preferred Stock into Common Stock, historical earnings per share is not
meaningful.
SUPPLEMENTAL PRO FORMA NET INCOME (LOSS) PER SHARE (UNAUDITED), reflecting
the issuance of up to 2,600,000 shares from the Company's proposed public
offering to fund the repayment of up to $30.3 million of the Company's debt and
a reduction in interest expense as of the beginning of each period, is as
follows:
<TABLE>
<S> <C>
Year ended December 31, 1995........................... $ 0.50
Three months ended March 31, 1996...................... $ (0.02)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the financial statements of the Company and its wholly-owned subsidiaries. All
intercompany accounts have been eliminated.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported
F-7
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates.
CHANGE IN YEAR-END -- The Company changed its year-end to December 31 from
March 31 effective December 31, 1994.
FOREIGN CURRENCY TRANSLATION -- The assets and liabilities of the Company's
foreign subsidiaries have been translated into U.S. dollars using the exchange
rates in effect at period end, and the revenues have been translated into U.S.
dollars using the average exchange rates in effect during the period.
Adjustments resulting from translating foreign financial statements into U.S.
dollars are reported as translation adjustments as a separate component of
stockholders' equity.
ACCOUNTS RECEIVABLE are recorded upon the sale of inventory to independent
retailers. A sale occurs when inventories are shipped and title and risk of loss
have transferred from the Company to the buyer. Seasonal goods are generally
shipped to retailers prior to the selling season. The Company offers extended
payment terms for pre-season orders.
INVENTORIES are stated at the lower of average cost or market. The Company
principally contracts for the manufacture of its products in the U.S., Asia and
Europe. Costs related to these inventories represent landed cost, which consists
of the price paid to third party manufacturers, and inbound duties and freight.
TRADEMARKS AND INTANGIBLES of The North Face, Inc. represent trademarks
(less proceeds from sale of the Japan trademark) recorded in connection with the
Acquisition and are amortized on a straight-line basis over forty years.
Accumulated amortization at December 31, 1995 was approximately $1.2 million.
Amortization expense was $453,000 and $783,000 for the period from June 7, 1994
to December 31, 1994 and the year ended December 31, 1995, respectively.
PROPERTY AND EQUIPMENT is stated at cost. Depreciation and amortization is
computed using the straight-line method over the remaining estimated useful life
of the asset (or over the remaining lease term, if shorter, for capital leases).
The estimated useful lives of certain categories are as follows:
<TABLE>
<S> <C>
Leasehold improvements.................................................. 5-10 years
Machinery and equipment................................................. 5 years
Furniture, fixtures and office equipment................................ 3-7 years
</TABLE>
Expenditures for replacements and improvements are capitalized; maintenance
and repairs are expensed as incurred.
PRODUCT WARRANTY -- Substantially all of the Company's products carry a
lifetime warranty for defects in quality and workmanship. The Company maintains
warranty departments in the U.S., Canada and Europe and repairs the majority of
items returned under warranty. The Company's warranty liability for future
warranty claims related to past sales at December 31, 1994 and 1995 is
approximately $4.3 million and $4.5 million, respectively, of which the
non-current portion of $3.4 million and $3.6 million is classified as other long
term liabilities as of December 31, 1994 and 1995, respectively. The current
portion of the warranty liability is $0.9 million and is classified as other
current liabilities in both years. Warranty expense was approximately $740,000,
$156,000, $467,000 and $1,004,000 for the year ended March 31, 1994, the period
from April 1, 1994 to June 6, 1994 (the "two-month period"), the period from
June 7, 1994 to December 31, 1994 (the "seven-month period"), and the year ended
December 31, 1995, respectively.
F-8
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED RENT -- Certain of the Company's operating leases contain
predetermined fixed increases of the minimum rental rate during the initial
lease term. For these leases, the Company recognizes the related rental expense
on a straight-line basis over the life of the lease and records the difference
between the amount charged to rent expense and the rent paid as deferred rent.
INCOME TAXES -- The Company applies an asset and liability approach in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
In estimating future tax consequences, SFAS No. 109 generally considers all
expected future events other than enactment of changes in the tax laws or rates.
Deferred taxes are provided for temporary differences between assets and
liabilities for financial reporting purposes and for income tax purposes and
valuation allowances are recorded against net deferred tax assets where
appropriate.
No U.S. income tax provisions have been provided on the cumulative
undistributed earnings of foreign operations as it is the Company's intention to
utilize those earnings in those foreign operations for an indefinite period of
time.
CASH AND CASH EQUIVALENTS represent short-term investments with original
maturities of less than three months.
SFAS NO. 121 -- In 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
SFAS No. 121 establishes recognition and measurement criteria for impairment
losses when the Company no longer expects to recover the carrying value of a
long-lived asset. The effect on the consolidated financial statements of
adopting SFAS No. 121 was not material.
SFAS NO. 123 -- The Company is required to adopt SFAS No. 123, "Accounting
for Stock-Based Compensation" in 1996. SFAS No. 123 establishes accounting and
disclosure requirements using a fair value based method of accounting for stock
based employee compensation plans. Under SFAS No. 123, the Company may either
adopt the new fair value based accounting method or continue the intrinsic value
method and provide pro forma disclosures of net income and earnings per share as
if the accounting provisions of SFAS No. 123 had been adopted. The Company only
adopted the disclosure requirements of SFAS No. 123; and will include such
information in its financial statements for the year ending December 31, 1996.
UNAUDITED INTERIM INFORMATION -- The financial information with respect to
the quarters ended March 31, 1995 and 1996 is unaudited. In the opinion of
management, such information contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of such
periods. The results of operations for the quarter ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
3. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $853,000 and $1,067,000 as of
December 31, 1994 and 1995, respectively. Write-offs to accounts receivable
during the year ended March 31, 1994, the two-month period ended June 6, 1994,
the seven-month period ended December 31, 1994, and the year ended December 31,
1995 were approximately $880,000, $123,000, $27,000 and $71,000, respectively.
During the year ended March 31, 1994, the two-month period ended June 6,
1994, the seven-month period ended December 31, 1994 and the year ended December
31, 1995, no customer accounted for more than 10% of net sales.
F-9
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
Inventories as of December 31, 1994 and 1995 consist of (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Finished goods................................................................... $ 9,778 $ 18,414
Work in process.................................................................. 468 237
Raw materials.................................................................... 1,822 2,397
--------- ---------
Total inventories................................................................ $ 12,068 $ 21,048
--------- ---------
--------- ---------
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1994 and 1995 consist of (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Leasehold improvements............................................................. $ 2,865 $ 4,985
Furniture, fixtures and office equipment........................................... 1,333 4,310
Machinery and equipment............................................................ 521 830
--------- ---------
Subtotal........................................................................... 4,719 10,125
Less accumulated depreciation and amortization..................................... (653) (1,737)
--------- ---------
Total property and equipment, net.................................................. $ 4,066 $ 8,388
--------- ---------
--------- ---------
</TABLE>
Depreciation and amortization expense related to property and equipment was
$1,415,000, $99,000, $653,000, and $1,268,000 for the year ended March 31, 1994,
the two-month period ended June 6, 1994, the seven-month period ended December
31, 1994, and the year ended December 31, 1995, respectively. Maintenance and
repair expense was $343,000, $80,500, $241,500, and $565,000 for the year ended
March 31, 1994, the two-month period ended June 6, 1994, the seven-month period
ended December 31, 1994, and the year ended December 31, 1995, respectively.
6. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR THE NORTH FACE, INC. (SUCCESSOR)
-------------------------------------------- -----------------------------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
FOR THE YEAR ENDED APRIL 1, 1994 TO JUNE 7, 1994 TO FOR THE YEAR ENDED
MARCH 31, 1994 JUNE 6, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995
--------------------- --------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Federal
Current........ $ 0 $ 0 $ 2,179 $ 825
Deferred....... 0 0 (327) 375
State
Current........ 6 0 530 202
Deferred....... 0 0 (31) 77
Foreign
Current........ 903 205 358 641
Deferred....... (187) (93) 99 (22)
----- ----- ------- -------
$ 722 $ 112 $ 2,808 $ 2,098
----- ----- ------- -------
----- ----- ------- -------
</TABLE>
The Predecessor was not in a U.S. federal tax paying position prior to the
Acquisition due to the availability of net operating loss (NOL) carryforwards.
These NOL carryforwards are not available to Successor as a result of the
Acquisition.
F-10
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Reconciliation of the U.S. Federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------- THE NORTH FACE, INC. (SUCCESSOR)
FOR THE PERIOD ----------------------------------------
FOR THE FROM FOR THE PERIOD FROM FOR THE
YEAR ENDED APRIL 1, 1994 TO JUNE 7, 1994 TO YEAR ENDED
MARCH 31, 1994 JUNE 6, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Statutory rate........... 34.0% 34.0% 34.0% 34.0%
State income taxes, net
of federal benefit...... 0.4% 0.0% 4.4% 4.2%
Net losses without tax
benefit................. 6.9% (40.4)% 0.0% 0.0%
Other.................... 5.3% (0.8)% (0.7)% (0.6)%
------ ------- ------- -------
Effective tax rate..... 46.6% (7.2)% 37.7% 37.6%
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
Deferred income taxes for the Company reflect the tax effects of temporary
differences between amounts of assets and liabilities for financial reporting
purposes and such amounts measured by tax laws. Significant components of the
net deferred tax asset as of December 31, 1994 and 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred Tax Assets:
Inventory costs not yet deductible..................................... $ 265 $ 313
State tax provisions................................................... 162 86
Depreciation........................................................... 64 271
Liabilities not yet deductible......................................... 1,891 2,591
--------- ---------
2,382 3,261
--------- ---------
Deferred Tax Liabilities:
Depreciation........................................................... (86) (83)
Intangibles............................................................ (1,583) (2,883)
Liabilities deductible for tax not book................................ (77) (100)
--------- ---------
(1,746) (3,066)
--------- ---------
Net Deferred Income Tax Asset............................................ $ 636 $ 195
--------- ---------
--------- ---------
</TABLE>
Of the $636,000 net deferred income tax asset at December 31, 1994,
$1,703,000 is recorded as a current asset and $1,067,000 is included in other
long-term liabilities in the consolidated balance sheet. Of the $195,000 net
deferred income tax asset at December 31, 1995, $2,230,000 is recorded as a
current asset and $2,035,000 is included in other long-term liabilities in the
consolidated balance sheet.
The cumulative amount of undistributed earnings of the European foreign
subsidiary, which the Company intends to indefinitely reinvest outside of the
U.S. and upon which deferred income taxes are not provided, approximates
$4,908,000 at December 31, 1995.
7. PENSION PLAN
The Company's European subsidiary has a contributory defined benefit pension
plan covering substantially all full-time employees. Benefits are based on years
of service and compensation. The Company funds the plan in amounts not less than
the minimum statutory requirements in the United Kingdom. The plan's assets
consist of investments in the Discretionary Managed Fund operated by Prudential
Portfolio Managers Limited.
F-11
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PENSION PLAN (CONTINUED)
Net pension plan expense consists of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR THE NORTH FACE, INC. (SUCCESSOR)
-------------------------------------- ----------------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE FROM FROM FOR THE
YEAR ENDED APRIL 1, 1994 TO JUNE 7, 1994 TO YEAR ENDED
MARCH 31, 1994 JUNE 6, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- ------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
Actual return on plan
assets.................. $ (131) $ 12 $ 35 $ (323)
Service cost............. 173 19 55 55
Interest cost on
projected benefit
obligations............. 126 30 89 180
Net amortization......... 51 (32) (94) 176
------ --- ----- ------
Net pension plan
expense............... $ 219 $ 29 $ 85 $ 88
------ --- ----- ------
Contributions to the
plan.................... $ 250 $ 69 $ 217 $ 346
------ --- ----- ------
------ --- ----- ------
</TABLE>
Actuarial present value of the benefit obligation as of December 31, 1994
and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Accumulated benefit obligation........................................... $ 1,449 $ 1,431
Additional amounts related to pension benefit obligation compensation
increases............................................................... 189 186
--------- ---------
Projected benefit obligation............................................. 1,638 1,617
Less fair value of assets................................................ (1,133) (1,118)
--------- ---------
Projected benefit obligation in excess of fair value..................... $ 505 $ 499
--------- ---------
--------- ---------
</TABLE>
The projected benefit obligation of $505,000 and $499,000 at December 31,
1994 and 1995, respectively, is included in other long-term liabilities in the
consolidated balance sheet.
The significant assumptions for each of the years ended December 31, 1994
and 1995 were as follows:
<TABLE>
<S> <C>
Discount rate.................................................................. 9%
Expected long-term rate of return on plan assets............................... 9%
Rate of increase in future compensation levels................................. 7%
</TABLE>
8. DEBT
Long-term debt as of December 31, 1994 and 1995 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Term note................................................................ $ 1,250 $ 4,600
Revolving line of credit................................................. 3,965 11,812
Other.................................................................... 318 213
--------- ---------
Total.................................................................. 5,533 16,625
Less current portion..................................................... (1,084) (4,630)
--------- ---------
Long-term debt........................................................... $ 4,449 $ 11,995
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT (CONTINUED)
Principal repayments on debt are due as follows at December 31, 1995 (in
thousands):
<TABLE>
<S> <C>
Year Ending December 31
1996.............................................................. $4,631
1997.............................................................. 1,126
1998.............................................................. 1,174
1999.............................................................. 1,318
2000.............................................................. 8,376
---------
$16,625
---------
---------
</TABLE>
Successor entered into a credit facility (the "Facility"), expiring in
February 2000, which includes a term note, a revolving line of credit and a
letter of credit facility. The term note (availability up to $6.0 million) is
payable in quarterly installments of $312,500 (pro rata based on amount
outstanding) beginning April 1, 1996, and carries interest payable monthly at
prime plus 1.25% or at LIBOR plus 3.0%. The rate on this term note at December
31, 1995 was 9.0%. The revolving line of credit provides for borrowing up to
$44.0 million with the actual borrowings limited to available collateral,
representing eligible receivables and inventory (approximately $19.5 million of
availability as of December 31, 1995). Interest on the revolving line of credit
is payable monthly at prime plus 1.0% or LIBOR plus 2.75%. The rate on the
revolver at December 31, 1995 was 9.0%. The revolving line of credit agreement
provides a sub limit facility for letters of credit up to a maximum of $15.0
million (approximately $3.5 million outstanding as of December 31, 1995). Fees
for outstanding letters of credit are payable quarterly at 2.0% per annum. The
Company also pays a monthly unused line fee on the revolver at .5% per annum.
Borrowings and outstanding letters of credit under the Facility are secured by
substantially all of the assets of the Company. The Facility includes certain
financial covenants and restrictions on new indebtedness and the payment of cash
dividends. The Facility also carries a prepayment penalty which expires on March
31, 1996. The Company was in compliance with all of its financial covenants as
of December 31, 1995. The Company incurred approximately $1.5 million of debt
issuance costs related to this facility which are being amortized over the
expected life of the Facility. Accumulated amortization of these costs at
December 31, 1994 and 1995 was approximately $225,000 and $1,004,000,
respectively.
During the first quarter of fiscal 1996, borrowings under the Facility
increased to finance the Company's working capital growth and operating loss.
In addition, the Company has a European overdraft facility of approximately
$2.6 million. The Company also has a European letter of credit facility. The
bank overdraft facility is reduced by the value of outstanding letters of credit
at that time. As of December 31, 1995, the Company had outstanding letters of
credit under the European facility of approximately $524,000.
DEBT EXTINGUISHMENT -- In May 1994, the Predecessor settled three notes
payable with a face value of $1,302,000 for cash of $725,000. These settlements
resulted in an extraordinary gain of $577,000.
9. SUBORDINATED DEBT
In connection with the Acquisition, the Company issued approximately $24.3
million of subordinated debt which matures on June 7, 2001 with 10.1% interest
payable quarterly. The subordinated debt agreement includes certain financial
covenants and restricts new indebtedness and the sale of assets and also
contains an acceleration clause in the case of a public offering. The Company
may also prepay this debt (but only after all senior debt has been repaid) with
no prepayment penalty. The Company incurred approximately $1.6 million of debt
issuance costs related to the subordinated debt which are being amortized over
the life of the debt. Accumulated amortization of these costs at December 31,
1994 and 1995 was approximately $128,000 and $357,000, respectively.
F-13
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LEASES
The Company leases buildings, equipment and vehicles under non-cancelable
lease agreements that expire at various dates through 2003. The leases generally
provide for renewal options for periods ranging from three to ten years. The
building leases generally provide for additional rents based on store sales and
for payments of taxes, insurance and maintenance expenses related to the leased
assets.
Future minimum lease payments under all leases with initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 1995 are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
--------------- -----------------
<S> <C> <C>
Year Ending December 31
1996................................................................ $ 225 $ 3,720
1997................................................................ 61 3,323
1998................................................................ 0 3,245
1999................................................................ 0 3,234
2000................................................................ 0 2,823
Thereafter.......................................................... 0 2,590
----- --------
Minimum lease commitments........................................... 286 $ 18,935
--------
--------
Less: amount representing interest.................................. (18)
-----
Present value of net minimum lease payments......................... 268
Less: current portion............................................... (208)
-----
Long term portion................................................... $ 60
-----
-----
</TABLE>
The cost of property under capitalized leases was $348,000 and $245,000, as
of December 31, 1994 and 1995, respectively, and primarily represents furniture,
fixtures and office equipment. Accumulated amortization related to these leases
was approximately $151,000 and $174,000 as of December 31, 1994 and 1995,
respectively.
Rental expense for operating leases was as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
FOR THE YEAR ENDED APRIL 1, 1994 TO JUNE 7, 1994 TO FOR THE YEAR ENDED
MARCH 31, 1994 JUNE 6, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Minimum
rentals......... $ 4,004 $ 636 $ 1,850 $ 2,569
Contingent
rentals......... 184 4 71 121
------- ----- ------- -------
$ 4,188 $ 640 $ 1,921 $ 2,690
------- ----- ------- -------
------- ----- ------- -------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
LITIGATION -- The Company is a defendant in a lawsuit alleging wrongful
termination of a sales representative based on age discrimination that was filed
in September 1993. The plaintiff seeks damages for future wages and unspecified
damages for emotional distress and unspecified punitive damages. The Company
believes it has meritorious defenses to the claim and intends to continue to
vigorously defend against the claim. While the final outcome of this lawsuit
cannot be determined with certainty, management believes that the final outcome
will not have a material adverse effect on the Company's results of operations
or financial condition.
F-14
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, the Company is party to other claims and litigation that arise
in the normal course of business. Management believes that the ultimate outcome
of these claims and litigation will not have a material adverse effect on the
Company's results of operations or financial condition.
PURCHASE COMMITMENTS -- The Company has approximately $20.2 million of
purchase commitments as of December 31, 1995 related to goods ordered for future
production in the normal course of business. Certain of these commitments are
collateralized by the outstanding letters of credit (see Note 8).
FOREIGN CURRENCY RECEIVABLES AND LOANS -- The Company sells merchandise to
retailers through Europe and the U.K. These sales are denominated in the local
currency of the retailer's country. The Company's U.K. subsidiary generally
hedges these receivables using foreign currency loans ($3.8 million and $1.8
million outstanding at December 31, 1995 and 1994, respectively). These loans
are denominated in various currencies, including German Deutsch Marks, French
Francs, Swedish Krona, Swiss Francs, Spanish Pesetas, Italian Lira, Dutch
Guilders and Belgian Dollars. Proceeds from these loans are deposited with the
lending institution and can only be used to pay off the foreign currency loans.
The balance of the cash accounts at December 31, 1995 and 1994 was $3.8 million
and $1.8 million, respectively. The cash accounts must be maintained at a level
sufficient to collateralize the foreign currency loans. These cash accounts and
the related foreign currency loans have been offset against each other in the
balance sheet. Receivables and loans denominated in foreign currencies at
December 31, 1994 and 1995 were translated using the exchange rates at each
date.
12. STOCKHOLDERS' EQUITY
COMMON STOCK -- In connection with the Acquisition, on June 7, 1994 the
Company issued 2,271,000 shares of common stock with a par value of $.0025 per
share for cash of $166,000, services rendered of $26,000 and debt issuance costs
of $320,000.
SERIES A PREFERRED STOCK -- In connection with the Acquisition, on June 7,
1994 the Company issued 1,935,781 shares of Series A Preferred Stock for cash of
$12,166,667 and for services rendered of approximately $100,000. Series A
Preferred Stock is entitled to dividends of 10% of the face value payable
quarterly in either cash or additional shares of Series A Preferred Stock.
Series A Preferred Stock is convertible into Common Stock at a ratio of two and
one half shares of Series A Preferred Stock to 4.44 shares of common stock, as
adjusted in the event of future dilution. Series A Preferred Stock also carries
liquidation preferences of face value ($14,316,459 as of December 31, 1995).
Stockholders' equity includes accrued and undeclared preferred stock dividends.
Series A Preferred Stock has voting rights on an as converted basis.
STOCK INCENTIVE PLANS -- The Company's Stock Incentive Plans, as amended,
provide for the issuance of nonqualified stock options and restricted stock to
key employees and officers. A total of 1,889,000 shares of Common Stock may be
issued under these plans. Stock options must be issued at an exercise price of
not less than fair market value. Restricted stock may be issued with terms
determined by the compensation committee of the Board of Directors. Holders of
such restricted shares have no shareholder rights until all restrictions have
been eliminated. Stock grants vest in 2004 with earlier vesting if the Company
achieves certain profitability targets.
F-15
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
Activity in the stock option plan from inception through December 31, 1995
was as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
------------ ---------------------
<S> <C> <C>
Outstanding, June 7, 1994.......................................... 0 $0.00
1994 Activity:
Granted.......................................................... 444,000 $.225
------------
Outstanding, December 31, 1994..................................... 444,000 $.225
1995 Activity:
Granted.......................................................... 808,267 $1.126
Canceled......................................................... (172,259) $.225
------------
Outstanding, December 31, 1995..................................... 1,080,008 $.225 -- $1.126
------------
------------
Exercisable, December 31, 1995..................................... 443,139 $.225 -- $1.126
------------
------------
</TABLE>
At December 31, 1995, 178,710 shares were available for stock option grants.
During 1994, 1,159,950 restricted shares were issued in exchange for
$261,250 of nonrecourse promissory notes. During 1995, 529,443 of these shares
and $119,244 of the promissory notes were canceled. No shares are available for
restricted stock grants.
SECURITY HOLDERS' AGREEMENT -- Holders of common and preferred stock,
including holders under the Company's Stock Incentive Plans, are bound under the
Security Holders' Agreement which includes certain restrictions on the sale of
their shares, certain preemptive and rights of first refusal for sales of stock
by the Company or other holders of the Company's stock and certain registration
rights. This agreement also provides for the mandatory sale of the holders'
share in certain cases when the major shareholder has agreed to sell its
holdings.
13. RELATED PARTY TRANSACTIONS
A shareholder of the Company provides management services to the Company for
a fee of $250,000 per year, payable quarterly.
During 1995, the Company was a party to a license agreement with High
Performance Sports, Ltd., a related party. Revenues to the Company under this
agreement were approximately $280,000 during 1995.
14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of the estimated fair value of financial instruments. The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable and debt approximates their estimated fair values at December 31, 1995,
except for the Company's subordinated debt which has a fair value of
approximately $23.1 million.
F-16
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT INFORMATION
The following table summarizes the Company's operations by geographical
area. The Company's intercompany sales are insignificant (in thousands).
<TABLE>
<CAPTION>
UNITED
STATES CANADA EUROPE CONSOLIDATED
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
For the fiscal year ended March 31, 1994
Net Sales............................................ $ 71,994 $ 0 $ 15,417 $ 87,411
Operating income..................................... 1,592 0 2,202 3,794
Income (loss) before provision for income taxes and
extraordinary item.................................. (427) 0 1,975 1,548
Identifiable assets.................................. 40,992 0 9,371 50,363
For the period from April 1, 1994 to June 6, 1994
Net Sales............................................ $ 5,714 $ 0 $ 3,371 $ 9,085
Operating income (loss).............................. (1,830) 0 308 (1,522)
Income (loss) before provision for income taxes and
extraordinary item.................................. (1,868) 0 307 (1,561)
Identifiable assets.................................. 36,840 0 9,086 45,926
For the period from June 7, 1994 to December 31, 1994
Net Sales............................................ $ 49,899 $ 0 $ 10,675 $ 60,574
Operating income..................................... 8,268 0 1,587 9,855
Income (loss) before provision for income taxes and
extraordinary item.................................. 5,556 0 1,887 7,443
Identifiable assets.................................. 57,323 0 9,226 66,549
For the fiscal year ended December 31, 1995
Net Sales............................................ $ 96,069 $ 5,130 $ 20,335 $ 121,534
Operating income (loss).............................. 8,635 (200) 2,089 10,524
Income (loss) before provision for income taxes and
extraordinary item.................................. 3,749 (271) 2,105 5,583
Identifiable assets.................................. 72,411 1,617 10,480 84,508
</TABLE>
16. SUBSEQUENT EVENTS
On March 27, 1996, the Company amended its credit facility, principally to
increase the term note availability to $7 million and increase the revolving
line of credit facility to $58 million.
In March 1996 and May 1996, the Board of Directors declared stock dividends
which resulted in each share of common stock being split into 4.44 shares of
Common Stock. All stock related data in the accompanying financial statements
reflect the stock splits for all periods presented.
In March 1996, the Board of Directors authorized the amendment and
restatement of its Articles of Incorporation to increase the number of
authorized shares of Common Stock to 10,000,000 and Preferred Stock to
4,000,000. In May 1996, the Board of Directors authorized the amendment and
restatement of its Articles of Incorporation to increase the number of
authorized shares of Common Stock to 50,000,000.
F-17
<PAGE>
DESCRIPTION OF PICTURES AND CAPTIONS:
BACK INSIDE COVER -- (Four pictures described clockwise from upper left)
1) Man on snowboard jumping off cliff.
CAPTION: "THE NORTH FACE EXTREME TEAM MEMBER JIM ZELLERS ABOVE THE
JUNEAU ICE CAP, ALASKA."
2) Man and woman on portable platform suspended from vertical rock face.
CAPTION: "CLIMBING TEAM MEMBERS LYNN HILL AND CONRAD ANKER ON
EXCALIBUR, EL CAPITAN, YOSEMITE."
3) Man in kayak alongside glacier.
CAPTION: "EXTREME TEAM MEMBER SCOT SCHMIDT SEEKS OUT NEW SKIING TERRAIN
NEAR THE COLUMBIA GLACIER, PRINCE WILLIAM SOUND, ALASKA."
4) Man pulling himself across river, suspended from a rope.
CAPTION: "CLIMBING TEAM MEMBER JAY SMITH CROSSING THE AK-SU RIVER BY
TYROLEAN TRAVERSE, PAMIR MOUNTAINS, KYRGYZSTAN."
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 5
Risk Factors................................... 7
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Dilution....................................... 17
Selected Consolidated Financial Data........... 18
Unaudited Pro Forma Statement of Operations.... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 28
Management..................................... 41
Certain Transactions........................... 51
Principal Stockholders......................... 52
Description of Capital Stock................... 53
Shares Eligible for Future Sale................ 56
Underwriting................................... 58
Legal Matters.................................. 59
Experts........................................ 59
Available Information.......................... 59
Index to Consolidated Financial Statements..... F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,600,000 SHARES
[LOGO]
COMMON STOCK
------------
PROSPECTUS
------------
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
J.P. MORGAN & CO.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, in connection with the issuance and distribution of
the securities registered hereby. All the amounts shown are estimates, except
for the Securities and Exchange Commission registration fee, the NASD filing fee
and the Nasdaq National Market listing fee. All of the following fees and
expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 14,435
NASD filing fee................................................ 4,686
Nasdaq National Market listing fee............................. 31,470
Printing and engraving expenses................................ 150,000
Legal fees and expenses........................................ 600,000
Accounting fees and expenses................................... 150,000
Public Company Directors and Officers Insurance Rider.......... 150,000
Blue Sky fees and expenses (including counsel fees and
expenses)..................................................... 30,000
Transfer Agent and Registrar fees and expenses................. 15,000
Miscellaneous.................................................. 154,409
----------
Total...................................................... $1,300,000
----------
----------
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under similar standards, except that no indemnification may be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine that despite
the adjudication of liability, such person is fairly and reasonably entitled to
be indemnified for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue, or
matter therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and that the corporation may purchase and
maintain insurance on behalf of a director or officer of the
II-1
<PAGE>
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
such Section 145.
Section 102(b)(7) of the General Corporation Law provides that a corporation
in its original certificate of incorporation or an amendment thereto validly
approved by stockholders may eliminate or limit personal liability of members of
its board of directors or governing body for breach of a director's fiduciary
duty. However, no such provision may eliminate or limit the liability of a
director for breaching his duty of loyalty, failing to act in good faith,
engaging in intentional misconduct or knowingly violating a law, paying a
dividend or approving a stock repurchase which was illegal, or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or rescission, for breach
of fiduciary duty. The Company's Restated Certificate of Incorporation contains
such a provision.
The Company's Restated Certificate of Incorporation provides that the
Company shall indemnify officers and directors, and to the extent authorized by
the Board of Directors, employees and agents of the Company, to the full extent
permitted by and in the manner permissible under the laws of the State of
Delaware. In addition, the Restated Certificate of Incorporation also permits
the Board of Directors to authorize the Company to purchase and maintain
insurance against any liability asserted against any director, officer, employee
or agent of the Company arising out of his capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 1, 1993, the Registrant issued and sold unregistered securities in
the following transactions:
1. On June 7, 1994, the Company issued to eight investors 2,271,064
shares of Common Stock for aggregate consideration of $511,501.
2. On June 7, 1994, the Company issued to two investors 1,920,000
shares of Series A Convertible Preferred Stock for aggregate consideration
of $12,166,667.
3. On June 7, 1994, the Company issued to one entity 15,781 shares of
Series A Convertible Preferred Stock in consideration for consulting
services rendered.
4. On June 7, 1994, the Company issued to two investors 315,253 shares
of Common Stock each for cash and promissory notes of $71,003 each.
The issuance of the above securities was deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act of 1933, as amended, transactions not involving a public
offering. Appropriate legends were affixed to the share certificates and other
securities issued in such transactions. All purchasers had adequate access to
information about the Registrant through their relationships with the Company
and appropriate disclosure documents.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
.11 Form of Underwriting Agreement.
++2.1 Purchase and Sale Agreement, dated as of May 25, 1994 by and among Odyssey Holding Inc. and The
North Face and TNF Holdings Company, Inc.
3.1 Form of Amended and Restated Certificate of Incorporation of The North Face, Inc.
3.2 Form of Amended and Restated Bylaws of The North Face, Inc.
4.1 Specimen Common Stock Certificate of The North Face, Inc.
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
++10.1 Subordinated Note and Common Stock Purchase Agreement, dated as of June 7, 1994, between TNF
Holdings Company, Inc.,* and Whitney Subordinated Debt Fund, L.P., as amended by Amendment No. 1,
dated as of March 1, 1995, and Amendment No. 2, dated as of March 27, 1996.
++10.1A Subordinated Promissory Note due June 7, 2001 (issued pursuant to the Subordinated Note and Common
Stock Purchase Agreement, dated as of June 7, 1994, as amended, included in 10.1).
10.1B Form of Amendment No. 3, dated as of , 1996, to Subordinated Note and Common Stock Purchase
Agreement (included in Exhibit 10.1).
10.1C Form of Amended and Restated Promissory Note due June 7, 2001 (included in Exhibit 10.1A).
++10.2 Preferred Stock Purchase Agreement, dated as of June 7, 1994, among TNF Holdings Company, Inc.,*
Whitney 1990 Equity Fund, L.P. and J.H. Whitney & Co., as amended by Amendment No. 1, dated as of
March 1, 1995, and Amendment No. 2, dated as of March 27, 1996.
10.2B Form of Amendment No. 3, dated as of , 1996, to Preferred Stock Purchase Agreement (included
in Exhibit 10.2).
++10.3 Management Stock Purchase and Non-Competition Agreement, dated as of June 6, 1994, among TNF
Holdings Company, Inc.,* Marsden S. Cason and William A. McFarlane, as amended by Amendment No.
1, dated as of June 22, 1995.
++10.4 Investor Stock Purchase Agreement, dated as of June 7, 1994, among TNF Holdings Company, Inc.,*
Richard T. Peery, Jack L. Richardson, Philip S. Schlein and Kenneth F. Siebel.
++10.5 Stock Purchase Agreement, dated as of December 28, 1993, between TNF Holdings Company, Inc., a
California corporation, and Kabushiki Kaisha Goldwin, as amended by Memorandum, dated as of March
29, 1994, among TNF Holdings Company, Inc., a California corporation, and Kabushiki Kaisha
Goldwin, and Memorandum No. 2, dated as of May 20, 1994, between TNF Holdings Company, Inc., a
California corporation, and Kabushiki Kaisha Goldwin.
++10.6 Securityholders Agreement, dated as of June 7, 1994, among TNF Holdings Company, Inc.,* Marsden S.
Cason, William A. McFarlane, J.H. Whitney & Co., Whitney 1990 Equity Fund, L.P., Whitney
Subordinated Debt Fund, L.P., Richard T. Peery, Jack L. Richardson, Philip S. Schlein and Kenneth
F. Siebel, as amended by Amendment No. 1, dated as of June 22, 1995.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
10.7 Registration Rights Agreement, dated as of June 7, 1994, among TNF Holdings Company, Inc.,* J.H.
Whitney & Co., Whitney 1990 Equity Fund, L.P., Whitney Subordinated Debt Fund, L.P., Marsden S.
Cason and William A. McFarlane, as amended by Amendment No. 1, dated as of June 22, 1995, and
Amendment No. 2, dated as of May 20, 1996.
<C> <S>
10.8 Amended and Restated Loan and Security Agreement, dated as of March 1, 1995, between The North
Face, Inc. and Heller Financial, Inc., as Agent and as a Lender, as amended by First Amendment,
dated as of May 4, 1995, Second Amendment, dated as of August , 1995, Third Amendment, dated as
of March 27, 1996, and Fourth Amendment, dated May 8, 1996.
10.8A Form of Second Amended and Restated Loan and Security Agreement, dated as of June , 1996,
between The North Face, Inc. and Heller Financial, Inc., as Agent and as a Lender.
10.9 TNF Holdings Company, Inc.* 1994 Stock Incentive Plan.
10.10 The North Face, Inc. 1995 Stock Incentive Plan.
10.11 The North Face, Inc. 1996 Stock Incentive Plan.
10.12 The North Face, Inc. 1996 Employee Stock Purchase Plan.
10.13 The North Face, Inc. 1996 Directors' Stock Option Plan.
10.14 Letter Employment Agreement, dated June 8, 1994, between Roxanna Prahser and TNF Holdings Company,
Inc.*
10.15 Letter Employment Agreement, dated May 3, 1995, between Roger Kase and The North Face, Inc.
10.16 Letter Employment Agreement, dated September 29, 1994, between Bart Jackson and The North Face,
Inc.
10.17 Confidential Change in Status and General Release Agreement, entered into on April 25, 1996, to be
effective on and as of December 19, 1995, by and between William A. McFarlane and The North Face,
Inc.
10.18 Trademark License, dated October 29, 1993, between the North Face and W.L. Gore & Associates, Inc.
++11.1 Computation of Pro Forma Net Income (Loss) Per Share.
++21.1 List of Subsidiaries of The North Face, Inc.
23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed as Exhibit 5.1
hereto).
23.2 Consent of Deloitte & Touche LLP.
++24.1 Powers of Attorney (included on signature pages).
++27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* TNF Holdings Company, Inc., a Delaware corporation, changed its name to The
North Face, Inc. on June 8, 1994.
+ To be filed by amendment.
++ Previously filed.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or are not
required, or because the required information is included in the financial
statements or notes thereto.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
for such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
(3) To provide to each underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by each such underwriter to permit prompt delivery to
each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Leandro, State of California, on June 24, 1996.
THE NORTH FACE, INC.
<TABLE>
<S> <C>
By: /s/ MARSDEN S. CASON
-------------------------------------------
Marsden S. Cason
Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the registration statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE OR CAPACITIES DATE
- --------------------------------------------- --------------------------------------------- ----------------
<C> <S> <C>
/s/ MARSDEN S. CASON Chief Executive Officer and Director
----------------------------------- (Principal Executive Officer) June 24, 1996
Marsden S. Cason
/s/ WILLIAM N. SIMON President and Director
----------------------------------- June 24, 1996
William N. Simon
/s/ ROXANNA PRAHSER Chief Financial Officer (Principal Financial
----------------------------------- and Accounting Officer) June 24, 1996
Roxanna Prahser
/s/ RAY E. NEWTON, III Chairman and Director
----------------------------------- June 24, 1996
Ray E. Newton, III
Director
-----------------------------------
Peter M. Castleman
/s/ WILLIAM LAVERACK, JR. Director
----------------------------------- June 24, 1996
William Laverack, Jr.
*By:
Marsden S. Cason
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
++2.1 Purchase and Sale Agreement, dated as of May 25, 1994 by and among Odyssey Holding
Inc. and The North Face and TNF Holdings Company, Inc.
3.1 Form of Amended and Restated Certificate of Incorporation of The North Face, Inc.
3.2 Form of Amended and Restated Bylaws of The North Face, Inc.
4.1 Specimen Common Stock Certificate of The North Face, Inc.
5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
++10.1 Subordinated Note and Common Stock Purchase Agreement, dated as of June 7, 1994,
between TNF Holdings Company, Inc.,* and Whitney Subordinated Debt Fund, L.P., as
amended by Amendment No. 1, dated as of March 1, 1995, and Amendment No. 2, dated
as of March 27, 1996.
++10.1A Subordinated Promissory Note due June 7, 2001 (issued pursuant to the Subordinated
Note and Common Stock Purchase Agreement, dated as of June 7, 1994, as amended,
included in 10.1).
10.1B Form of Amendment No. 3, dated as of , 1996, to Subordinated Note and Common
Stock Purchase Agreement (included in Exhibit 10.1).
10.1C Form of Amended and Restated Promissory Note due June 7, 2001 (included in Exhibit
10.1A).
++10.2 Preferred Stock Purchase Agreement, dated as of June 7, 1994, among TNF Holdings
Company, Inc.,* Whitney 1990 Equity Fund, L.P. and J.H. Whitney & Co., as amended
by Amendment No. 1, dated as of March 1, 1995, and Amendment No. 2, dated as of
March 27, 1996.
10.2B Form of Amendment No. 3, dated as of , 1996, to Preferred Stock Purchase
Agreement (included in Exhibit 10.2).
++10.3 Management Stock Purchase and Non-Competition Agreement, dated as of June 6, 1994,
among TNF Holdings Company, Inc.,* Marsden S. Cason and William A. McFarlane, as
amended by Amendment No. 1, dated as of June 22, 1995.
++10.4 Investor Stock Purchase Agreement, dated as of June 7, 1994, among TNF Holdings
Company, Inc.,* Richard T. Peery, Jack L. Richardson, Philip S. Schlein and
Kenneth F. Siebel.
++10.5 Stock Purchase Agreement, dated as of December 28, 1993, between TNF Holdings
Company, Inc., a California corporation, and Kabushiki Kaisha Goldwin, as amended
by Memorandum, dated as of March 29, 1994, among TNF Holdings Company, Inc., a
California corporation, and Kabushiki Kaisha Goldwin, and Memorandum No. 2, dated
as of May 20, 1994, between TNF Holdings Company, Inc., a California corporation,
and Kabushiki Kaisha Goldwin.
++10.6 Securityholders Agreement, dated as of June 7, 1994, among TNF Holdings Company,
Inc.,* Marsden S. Cason, William A. McFarlane, J.H. Whitney & Co., Whitney 1990
Equity Fund, L.P., Whitney Subordinated Debt Fund, L.P., Richard T. Peery, Jack L.
Richardson, Philip S. Schlein and Kenneth F. Siebel, as amended by Amendment No.
1, dated as of June 22, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------
<C> <S> <C>
10.7 Registration Rights Agreement, dated as of June 7, 1994, among TNF Holdings
Company, Inc.,* J.H. Whitney & Co., Whitney 1990 Equity Fund, L.P., Whitney
Subordinated Debt Fund, L.P., Marsden S. Cason and William A. McFarlane, as
amended by Amendment No. 1, dated as of June 22, 1995, and Amendment No. 2, dated
as of May 20, 1996.
10.8 Amended and Restated Loan and Security Agreement, dated as of March 1, 1995,
between The North Face, Inc. and Heller Financial, Inc., as Agent and as a Lender,
as amended by First Amendment, dated as of May 4, 1995, Second Amendment, dated as
of August , 1995, Third Amendment, dated as of March 27, 1996, and Fourth
Amendment, dated May 8, 1996.
10.8A Form of Second Amended and Restated Loan and Security Agreement, dated as of June
, 1996, between The North Face, Inc. and Heller Financial, Inc., as Agent and as
a Lender.
10.9 TNF Holdings Company, Inc.* 1994 Stock Incentive Plan.
10.10 The North Face, Inc. 1995 Stock Incentive Plan.
10.11 The North Face, Inc. 1996 Stock Incentive Plan.
10.12 The North Face, Inc. 1996 Employee Stock Purchase Plan.
10.13 The North Face, Inc. 1996 Directors' Stock Option Plan.
10.14 Letter Employment Agreement, dated June 8, 1994, between Roxanna Prahser and TNF
Holdings Company, Inc.*
10.15 Letter Employment Agreement, dated May 3, 1995, between Roger Kase and The North
Face, Inc.
10.16 Letter Employment Agreement, dated September 29, 1994, between Bart Jackson and The
North Face, Inc.
10.17 Confidential Change in Status and General Release Agreement, entered into on April
25, 1996, to be effective on and as of December 19, 1995, by and between William
A. McFarlane and The North Face, Inc.
10.18 Trademark License, dated October 29, 1993, between the North Face and W.L. Gore &
Associates, Inc.
++11.1 Computation of Pro Forma Net Income (Loss) Per Share.
++21.1 List of Subsidiaries of The North Face, Inc.
23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed
as Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP.
++24.1 Powers of Attorney (included on signature pages).
++27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* TNF Holdings Company, Inc., a Delaware corporation, changed its name to The
North Face, Inc. on June 8, 1994.
+ To be filed by amendment.
++ Previously filed.
<PAGE>
2,600,000 Shares
THE NORTH FACE, INC.
Common Stock
UNDERWRITING AGREEMENT
____________, 1996
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
J.P. Morgan Securities Inc.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
The North Face, Inc., a Delaware corporation (the "Company"), proposes to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of 2,600,000 shares (the "Firm Shares") of the Company's Common Stock, $0.0025
par value (the "Common Stock"). The respective amounts of the Firm Shares to be
so purchased by the several Underwriters are set forth opposite their names in
Schedule I hereto. The Company, along with Marsden S. Cason and William N.
Simon (each, a "Selling Stockholder" and together, the "Selling Stockholders"),
also proposes to sell at the Underwriters' option an aggregate of up to 390,000
additional shares of the Company's Common Stock (the "Option Shares"), of which
________ shares will be sold by the Company and ________ shares will be sold by
the Selling Stockholders. The Company and the Selling Stockholders are
sometimes referred to herein collectively as the "Sellers."
As the Representatives, you have advised the Company and the Selling
Stockholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and
the Option Shares (to the extent the aforementioned option is exercised) are
herein collectively called the "Shares."
<PAGE>
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY, THE SELLING
STOCKHOLDERS AND THE WHITNEY ENTITIES.
(a) The Company and each of the Selling Stockholders represent and
warrant as follows:
(i) A registration statement on Form S-1 (File
No. 333-04107) with respect to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act") and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission under the Act. Copies of such registration statement,
including any amendments thereto, the preliminary prospectuses (meeting the
requirements of Rule 430A of the Rules and Regulations) contained therein and
the exhibits, financial statements and schedules, as finally amended and
revised, have heretofore been delivered by the Company to you. Such
registration statement, herein referred to as the "Registration Statement,"
which shall be deemed to include all information omitted therefrom in reliance
upon Rule 430A and contained in the Prospectus referred to below, has been
declared effective by the Commission under the Act and no post-effective
amendment to the Registration Statement has been filed as of the date of this
Agreement. The form of prospectus first filed by the Company with the
Commission pursuant to its Rule 424(b) and Rule 430A is herein referred to as
the "Prospectus." Each preliminary prospectus included in the Registration
Statement prior to the time it becomes effective is herein referred to as a
"Preliminary Prospectus." Any reference herein to any Prospectus shall be
deemed to include any supplements or amendments thereto, filed with the
Commission after the date of filing of the Prospectus under Rules 424(b) and
430A, and prior to the termination of the offering of the Shares by the
Underwriters.
(ii) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and conduct
its business as described in the Registration Statement; each of the
subsidiaries of the Company as listed in Exhibit 21.1 to Item 16(a) of the
Registration Statement (collectively, the "Subsidiaries") has been duly
organized and is validly existing as a corporation in good standing or has such
other comparable status under the laws of the jurisdiction of its incorporation,
with corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement; the Company and each of
the Subsidiaries are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification, except where
the failure to be qualified would not have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Company or the Subsidiaries; the outstanding shares of capital stock of
each of the Subsidiaries have been duly authorized and validly issued, are fully
paid and non-assessable and, except as set forth in the Registration Statement,
are owned by the Company free and clear of all liens, encumbrances and security
interests; and no options, warrants or other rights to purchase, agreements or
other
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obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in the Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company
have been duly authorized and validly issued and are fully paid and non-
assessable; all Option Shares to be sold by the Selling Stockholders have been
duly authorized and, as of the Option Closing Date, will be validly issued,
fully paid and non-assessable; the portion of the Shares to be issued and sold
by the Company have been duly authorized for issuance and sale to the
Underwriters and when issued and paid for as contemplated herein will be validly
issued, fully paid and non-assessable; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue and sale thereof. Except
as disclosed in the Prospectus, there are no options to purchase from the
Company, nor any preemptive rights or other rights to subscribe for or to
purchase from the Company, any securities or obligations convertible into, or
any contracts or commitments by the Company to issue or sell, shares of the
Company's capital stock or any such options, rights or convertible securities or
obligations.
(iv) The authorized and outstanding capital stock of the
Company and the Shares conform with the statements concerning them in the
Registration Statement and the Prospectus.
(v) The Commission has not issued an order preventing or
suspending the use of any Preliminary Prospectus relating to the proposed
offering of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains and the Prospectus and any amendments or
supplements thereto will contain all statements which are required to be stated
therein by, and in all material respects conform or will conform, as the case
may be, to the requirements of, the Act and the Rules and Regulations. Neither
the Registration Statement nor any amendment thereto, and neither the Prospectus
nor any supplement thereto, contains or will contain, as the case may be, any
untrue statement of a material fact or omits or will omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that the Company and the Selling Stockholders make no
representations or warranties as to information contained in or omitted from the
Registration Statement or the Prospectus, or any such amendment or supplement,
in reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter through the Representatives,
specifically for use in the preparation thereof.
(vi) The consolidated financial statements of the Company
and the Subsidiaries, together with related notes and schedules as set forth in
the Registration Statement, other than the pro forma financial statements,
present fairly the consolidated financial position and results of operations of
the Company and Subsidiaries, at the indicated dates and for the indicated
periods. Such financial statements have been prepared in accordance with
generally accepted principles of accounting, consistently applied throughout the
periods involved, and all adjustments necessary for a fair presentation of
results for such periods have been made. The summary financial and statistical
data and the pro forma financial statements included in the Registration
Statement present fairly the
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information shown therein and have been compiled on a basis consistent with the
financial statements presented therein.
(vii) There is no action or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries before any court or administrative agency which is expected to
result in any material adverse change in the business or condition of the
Company and of the Subsidiaries taken as a whole, except as set forth in the
Registration Statement.
(viii) The Company and the Subsidiaries have good and
marketable title to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except those reflected in such financial statements (or as described in the
Registration Statement) or which are not material in amount. The Company and
the Subsidiaries occupy their leased properties under valid and binding leases
conforming to the description thereof set forth in the Registration Statement.
All real and personal property owned or leased by the Company and the
Subsidiaries (A) complies with applicable federal, state, local and foreign
statutes, rules, regulations, orders and laws and all covenants, conditions and
restrictions, (B) is free from known defects, (C) is in good condition and
repair (ordinary wear and tear excepted), and (D) is in a condition suitable for
the business of the Company and the Subsidiaries as it is currently being
conducted, except where the failure to be in such compliance, to be free from
such compliance, to be free from such defects and to be in such condition would
not have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company or the Subsidiaries.
(ix) The Company and the Subsidiaries have filed all
Federal, State and foreign income tax returns which have been required to be
filed and have paid all taxes indicated by said returns and all assessments
received by them or any of them to the extent that such taxes have become due,
except such taxes and assessments as are being contested in good faith, and the
Company has no knowledge of any tax deficiency which has been or might be
asserted against the Company or the Subsidiaries which might have a material
adverse effect on the condition (financial or otherwise), business, results of
operations or prospects of the Company or the Subsidiaries.
(x) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole or the earnings,
business affairs, management, or business prospects of the Company and its
Subsidiaries taken as a whole, whether or not occurring in the ordinary course
of business, and there has not been any material transaction entered into by the
Company or the Subsidiaries, other than transactions in the ordinary course of
business and changes and transactions contemplated by the Registration
Statement, as it may be amended or supplemented. The Company and the
Subsidiaries have no material contingent obligations which are not disclosed in
the Registration Statement, as it may be amended or supplemented.
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(xi) Neither the Company nor any of the Subsidiaries is
(A) in violation of its certificate of incorporation or bylaws or similar
instruments, (B) in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, joint venture or other agreement or instrument to which the Company
or any Subsidiary is a party or by which it or any of its properties may be
bound, or (C) in violation of any law, order, rule, regulation, injunction or
decree of any government, government instrumentality or court, domestic or
foreign, of which it has knowledge, except, in the case of (B) and (C), where
any such default or violation would not have a material adverse effect on the
condition (financial or otherwise), business, results of operations or prospects
of the Company.
(xii) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by applicable law or equitable principles, and except
as the enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, or by general equitable principles; the execution, delivery and
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under (A) the certificate of incorporation
or bylaws of the Company, (B) any indenture, mortgage, deed of trust, loan
agreement, bond, debenture, note agreement or other evidence of indebtedness, or
any lease, contract or other agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which the property of the Company or any of
its Subsidiaries is bound, or (C) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court or governmental agency or body
having jurisdiction over the Company or any of its Subsidiaries or over the
properties of the Company or any if its Subsidiaries; except, in the case of (B)
and (C), where any such default or violation would not have a material adverse
effect on the condition (financial or otherwise), business, results of
operations or prospects of the Company.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or may be necessary to
qualify the Shares for public offering by the Underwriters under State
securities or Blue Sky laws) has been obtained or made and is in full force and
effect.
(xiv) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental authorities which
are necessary to the conduct of their businesses; and neither the Company nor
any of the Subsidiaries has infringed any patents, patent rights, trade names,
trademarks, service marks, trade dress or copyrights of any third party, which
infringement is material to the business of the Company and the Subsidiaries
taken as a whole.
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(xv) Deloitte & Touche LLP, who have certified certain of
the financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(xvi) There is no contract or document of the Company or
any of its Subsidiaries that is required to be described in the Prospectus or
filed as an exhibit to the Registration Statement by the Act or by the Rules and
Regulations which has not been accurately described in all material respects in
the Prospectus or filed as an exhibit.
(xvii) Each of the Company and the Subsidiaries is
conducting business in compliance with all applicable federal, state, local, and
foreign laws, rules and regulations of the jurisdictions in which it is
conducting business, including without limitation, all applicable federal,
state, local and foreign laws and regulations governing employee and labor
matters (including minimum wage, worker's compensation and related matters) and
environmental matters, except where the failure to be so in compliance would not
have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company.
(xviii) Each of the Company and the Subsidiaries maintains
insurance of types and in amounts the Company deems adequate for their
businesses, including but not limited to, insurance covering real and personal
property owned or leased by the Company against theft, damage, destruction, acts
of vandalism and liability resulting from the sale of the Company's products and
all other risks customarily insured against, all of which insurance is in full
force and effect.
(xix) No labor disturbance by the employees of the Company
or any of the Subsidiaries exists or is imminent that might be expected to
result in any material adverse change in the condition (financial or otherwise),
business, results of operations or prospects of the Company.
(xx) Neither the Company nor any of the Subsidiaries has
at any time (A) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution, in violation of applicable law
or (B) made any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or allowed by applicable law.
(xxi) The Common Stock has been approved for quotation on
the Nasdaq National Market, subject to official notice of issuance.
(xxii) The Company has not distributed and will not
distribute prior to the Closing Date or on any date on which Option Shares are
to be purchased, as the case may be, any offering material in connection with
the offering and sale of the Shares other than the Preliminary Prospectus, the
Prospectus, the Registration Statement and other materials permitted by the Act
and the Rules and Regulations.
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<PAGE>
(xxiii) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might be reasonably
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(xxiv) The Company has not since the filing of the
Registration Statement, except in connection with the sale of the Shares of the
Company under this Agreement, (A) sold, bid for, purchased, attempted to induce
any person to purchase or paid anyone any compensation for soliciting purchases
of, the Shares or (B) paid or agreed to pay any person any compensation for
soliciting another to purchase any other securities of the Company.
(xxv) The Company is not, and will not on the Closing
Date or the Option Closing Date be, an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(xxvi) The Company is not aware that (A) any executive,
key employee or significant group of employees of the Company or any Subsidiary
plans to terminate employment with the Company or such Subsidiary or (B) any
such executive or key employee is subject to a nondisclosure, noncompete,
confidentiality, employment, consulting or similar agreement that would be
violated by the present or proposed business activities of the Company or its
Subsidiaries.
(xxvii) Each of the Company and its Subsidiaries maintains
a system of internal accounting controls sufficient to provide reasonable
assurances that (A) transactions are executed in accordance with management's
general or specific authorization, (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally accepted
principles of accounting and to maintain accountability for assets, (C) access
to its assets is permitted only in accordance with management's general or
specific authorization and (D) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to differences.
(xxviii) The Company currently is not involved in any
discussions or negotiations with respect to any potential acquisition of any
third party or parties which, if consummated, would be required to be disclosed
in the Prospectus.
(b) Each of the Selling Stockholders severally represents and
warrants as follows:
(i) Such Selling Stockholder has or at the Option
Closing Date (as such date is hereinafter defined) will have good and valid
title to the Option Shares to be sold by such Selling Stockholder, free of any
liens, encumbrances, equities and claims, and full right, power and authority to
effect the sale and delivery of such Option Shares; and upon the delivery of and
payment for such Option Shares pursuant to this Agreement, good and valid title
thereto, free of any liens, encumbrances, equities and claims, will be
transferred to the several Underwriters.
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<PAGE>
(ii) The consummation by such Selling Stockholder of the
transactions herein contemplated and the fulfillment by such Selling Stockholder
of the terms hereof will not result in a breach of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which such Selling Stockholder is a
party, or of any order, rule or regulation applicable to such Selling
Stockholder of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.
(iii) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to, or which has constituted,
or which might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock.
(iv) Without having undertaken to determine independently
the accuracy or completeness of either the representations and warranties of the
Company contained herein or the information contained in the Registration
Statement, such Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in this Section 1(a) are
not true and correct, is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or may adversely affect the
business of the Company or any of the Subsidiaries; and the sale of the Option
Shares by such Selling Stockholder pursuant hereto is not prompted by any
information concerning the Company or any of the Subsidiaries which is not set
forth in the Registration Statement.
(c) Without having undertaken to determine independently the accuracy
or completeness of either the representations and warranties of the Company
contained herein or the information contained in the Registration Statement,
each of Whitney Subordinated Debt Fund, L.P., Whitney 1990 Equity Fund, L.P. and
J.H. Whitney & Co. (collectively, the "Whitney Entities") hereby represents and
warrants that (i) it has reviewed the Registration Statement and the Prospectus
and the representations and warranties of the Company set forth in Section 1(a)
hereof; (ii) to the best of its knowledge, neither the Registration Statement
nor any amendment thereto, and neither the Prospectus nor any supplement
thereto, contains or will contain, as the case may be, any untrue statement of a
material fact or omits or will omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Whitney Entities make no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof; and (iii) to the best of its knowledge, it has no reason to
believe that any of the representations and warranties of the Company contained
in Section 1(a) hereof are inaccurate in any material respect.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES. On the basis of the
representations, warranties and covenants herein contained, and subject to the
conditions herein set forth, the Company agrees to sell to the Underwriters and
each Underwriter agrees, severally and not jointly,
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to purchase, at a price of $____ per share, the number of Firm Shares set forth
opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof.
Payment for the Firm Shares to be sold hereunder is to be made in New
York Clearing House funds by certified or bank cashier's checks drawn to the
order of the Company to an account of the Company designated by notice to the
Representatives at least two (2) business days prior to the Closing Date against
delivery of certificates therefor to the Representatives for the several
accounts of the Underwriters. Such payment and delivery are to be made at the
offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street,
Baltimore, Maryland, at 10:00 a.m., Baltimore time, on the fifth business day
after the date of this Agreement or at such other time, date or place not later
than five business days thereafter as you and the Company shall agree upon, such
time and date being herein referred to as the "Closing Date." (As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and not permitted
by law or executive order to be closed.) The certificates for the Firm Shares
will be delivered in such denominations and in such registrations as the
Representatives request in writing not later than the third full business day
prior to the Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing Date.
In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
and each of the Selling Stockholders hereby grant an option to the several
Underwriters to purchase the Option Shares at the price per share as set forth
in the first paragraph of this Section 2. The maximum number of Option Shares
to be sold by the Company and the Selling Stockholders is set forth opposite
their respective names on Schedule II hereto. The option granted hereby may be
exercised in whole or in part, but only once, and at any time upon written
notice given within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company and to each of the
Selling Stockholders setting forth the number of the Option Shares as to which
the several Underwriters are exercising the option, the names and denominations
in which the Option Shares are to be registered and the time and date at which
such certificates are to be delivered. If the option granted hereby is
exercised in part, the respective number of Option Shares to be sold by the
Company and each of the Selling Stockholders listed on Schedule II hereto shall
be determined on a pro rata basis in accordance with the percentages set forth
opposite their names on Schedule II hereto, adjusted by you in such manner as to
avoid fractional shares. The time and date at which certificates for Option
Shares are to be delivered shall be determined by the Representatives but shall
not be earlier than three (3) nor later than ten (10) full business days after
the exercise of such option, nor in any event prior to the Closing Date (such
time and date being herein referred to as the "Option Closing Date"). If the
date of exercise of the option is three or more days before the Closing Date,
the notice of exercise shall set the Closing Date as the Option Closing Date.
The number of Option Shares to be purchased by each Underwriter shall be in the
same proportion to the total number of Option Shares being purchased as the
number of Firm Shares being purchased by such Underwriter bears to 2,600,000,
adjusted by you in such manner as to avoid fractional shares. The option with
respect to the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such
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option at any time prior to its expiration by giving written notice of such
cancellation to the Company. To the extent, if any, that the option is
exercised, payment for the Option Shares shall be made on the Option Closing
Date in New York Clearing House funds by certified or bank cashier's check drawn
to the order of the Company for the shares to be sold by it and to the order of
________ for the shares to be sold by the Selling Stockholders, in each case
against delivery of certificates therefor at the offices of Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS. It is understood that the several
Underwriters are to make a public offering of the Firm Shares as soon as the
Representatives deem it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price set forth in the
Prospectus. The Representatives may from time to time thereafter change the
public offering price and other selling terms. To the extent, if at all, that
any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters
will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
(a) The Company covenants and agrees with the several Underwriters
and the Selling Stockholders that:
(i) The Company will (A) prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and Regulations,
(B) not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Rules and Regulations
and (C) file on a timely basis all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
subsequent to the date of the Prospectus and prior to the termination of the
offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly of
any request by the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose, and the Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if issued.
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(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long as the
Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date four signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such number of copies of the Registration Statement, but
without exhibits, and of all amendments thereto, as the Representatives may
reasonably request.
(v) If during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event shall occur as a
result of which, in the judgment of the Company or in the opinion of counsel for
the Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or, if
it is necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with such law.
(vi) As soon as practicable, but no later than the
Availability Date (as defined below), the Company will make generally available
to its security holders earnings statements (which need not be audited) in
reasonable detail covering a period of at least 12 months beginning after the
effective date of the Registration Statement which will satisfy the provisions
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations. For the
purpose of the preceding sentence, "Availability Date" means the 45th day after
the end of the fourth fiscal quarter following the fiscal quarter that includes
the effective date of the Registration Statement.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports and copies
of all other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange
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pursuant to the requirements of such exchange or with the Commission pursuant to
the Act or the Securities Exchange Act of 1934, as amended.
(viii) No offering, sale or other disposition of any Common
Stock of the Company will be made for a period of 180 days after the date of
this Agreement, directly or indirectly, by the Company otherwise than hereunder
or with the prior written consent of the Representatives except that the Company
may, without such consent, issue shares upon the conversion of the Company's
outstanding Series A Convertible Preferred Stock and upon the exercise of
options outstanding on the date of this Agreement issued pursuant to the 1994
Stock Incentive Plan, the 1995 Stock Incentive Plan, the 1996 Stock Incentive
Plan, the 1996 Directors' Stock Option Plan and the 1996 Employee Stock Purchase
Plan.
(ix) The Company will use its best efforts to obtain
approval for quotation, subject to notice of issuance, of the Shares on the
Nasdaq National Market.
(x) The Company will use the net proceeds received from
the sale of the Shares by the Company substantially as set forth in the
Registration Statement and the Prospectus.
(b) Each of the Selling Stockholders covenants and agrees with the
several Underwriters and the Company that:
(i) No offering, sale or other disposition of any Common
Stock of the Company will be made for a period of 180 days after the date of
this Agreement, directly or indirectly, by such Selling Stockholder without the
prior written consent of the Representatives, except under certain circumstances
as set forth in each respective lockup agreement, provided that the transferee
agrees to be bound by the terms of such agreement.
(ii) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of
1983 with respect to the transactions herein contemplated, each of the Selling
Stockholders agrees to deliver to the Underwriters prior to or at the Closing
Date a properly completed and executed United States Treasury Department Form
W-9 (or other applicable form or statement specified by the Treasury Department
regulations in lieu thereof).
5. COSTS AND EXPENSES. The Company will pay all costs, expenses and fees
incident to the performance of the obligations of the Sellers under this
Agreement, including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements of
counsel for the Company; the cost of printing and delivering to, or as requested
by, the Underwriters copies of the Registration Statement, Preliminary
Prospectuses, the Prospectus, this Agreement, the Agreement Among Underwriters,
the Underwriters' Selling Memorandum, the Underwriters' Questionnaire, the
Invitation Letter, the Power of Attorney, the Listing Application, the Blue Sky
Survey and any supplements or amendments thereto; the filing fees of the
Commission, the filing fees and expenses incident to securing any required
review by the National Association of
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Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Shares;
the Listing Fee of the Nasdaq National Market; and the expenses, including the
fees and disbursements of counsel for the Underwriters, incurred in connection
with the qualification of the Shares under State securities or Blue Sky laws.
To the extent, if at all, that any of the Selling Stockholders engage special
legal counsel to represent them in connection with this offering, the fees and
expenses of such counsel shall be borne by such Selling Stockholders. Any
transfer taxes imposed on the sale of the Shares to the several Underwriters
will be paid by the Sellers pro rata. The Sellers shall not, however, be
required to pay for any of the Underwriters' expenses (other than those related
to qualification under State securities or Blue Sky laws) except that, if this
Agreement shall not be consummated because the conditions in Section 7 hereof
are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 6 hereof, or by reason of any failure,
refusal or inability on the part of the Company or the Selling Stockholders to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on their part to be performed, unless such failure
to satisfy said condition or to comply with said terms be due to the default or
omission of any Underwriter, then the Company shall reimburse the several
Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company and the Selling Stockholders shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing Date
and the Option Shares, if any, on the Option Closing Date are subject to the
accuracy, as of the Closing Date or the Option Closing Date, as the case may be,
of the representations and warranties of the Company and the Selling
Stockholders contained herein, and to the performance by the Company and the
Selling Stockholders of their covenants and obligations hereunder and to the
following additional conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and in effect
and no proceedings for that purpose shall have been taken or, to the knowledge
of the Company or the Selling Stockholders, shall be contemplated by the
Commission.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Paul, Weiss,
Rifkind, Wharton & Garrison, counsel for the Company and the Selling
Stockholders, dated the Closing Date or the Option Closing Date, as the case may
be, addressed to the Underwriters to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; the Company is duly qualified to
transact business in all jurisdictions in which the conduct of its business
requires such qualification, or in which the failure to qualify would have a
materially adverse effect upon the
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<PAGE>
business of the Company and the Subsidiaries taken as a whole; and, to the best
of such counsel's knowledge, except as set forth in the Registration Statement
(including pursuant to the Credit Facility as defined in the Prospectus), the
outstanding shares of capital stock of each of the Subsidiaries are owned free
and clear of all liens, encumbrances and security interests, and no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into any shares of capital stock or
of ownership interests in the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital
stock as set forth under the captions "Capitalization" and "Description of
Capital Stock" in the Prospectus; the authorized shares of its Common Stock have
been duly authorized; the outstanding shares of its Common Stock have been duly
authorized and validly issued, are fully paid and non-assessable and, to the
best of such counsel's knowledge, were issued in compliance with the
registration and qualification requirements of all applicable federal and state
securities laws; all of the Shares conform to the description thereof contained
in the Prospectus; the certificates for the Shares are in due and proper form;
the shares of Common Stock to be sold by the Company pursuant to this Agreement
have been duly authorized and will be validly issued, fully paid and non-
assessable when issued and paid for as contemplated by this Agreement; no
preemptive rights of stockholders arising under the Company's certificate of
incorporation or bylaws or any instrument, document or other agreement referred
to in the Registration Statement or filed as an exhibit thereto or, to the best
of such counsel's knowledge, under the statutes, judicial and administrative
decisions, or the rules and regulations of the governmental agencies of the
State of Delaware exist with respect to any of the Shares or the issue and sale
thereof; and, to the best of such counsel's knowledge, except as set forth in
the Prospectus, no option, warrant or other right to purchase, agreement or
other obligation to issue, or right to convert any obligation into, any share of
capital stock or ownership interest in the Company exists or is outstanding.
(iii) The Registration Statement has become effective under
the Act and, to the best of such counsel's knowledge, no stop order proceeding
with respect thereto has been instituted or is pending or threatened under the
Act.
(iv) The Registration Statement, the Preliminary Prospectus
dated June 3, 1996, the Prospectus and each amendment or supplement thereto
comply as to form in all material respects with the requirements of the Act and
the applicable rules and regulations thereunder (except that such counsel need
express no opinion as to the financial statements, schedules and other financial
and statistical information included therein).
(v) The statements under the captions "Risk Factors--
Control by Existing Stockholders; Anti-Takeover Devices," "Risk Factors--Shares
Eligible for Future Sale," "Use of Proceeds," "Dividend Policy," "Management--
Other Agreements," "Management--Stock Incentive Plans," "Management--
Compensation Committee Interlocks and Insider Participation," "Description of
Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar
as such statements
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<PAGE>
constitute a summary of documents referred to therein or matters of law, are
accurate summaries and fairly and correctly present the information called for
with respect to such documents and matters.
(vi) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are not so filed
or described as required, and such contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.
(vii) Except as set forth in the Prospectus, such counsel
knows of no material legal proceedings pending or threatened (A) against the
Company or any of the Subsidiaries or (B) to which the assets of the Company or
any of the Subsidiaries may be subject.
(viii) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the certificate of incorporation or by-laws of the
Company, or any agreement or instrument known to such counsel to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound.
(ix) This Agreement has been duly authorized, executed and
delivered by the Company.
(x) All corporate action necessary to execute and deliver
this Agreement and consummate the transactions contemplated hereby has been
taken by the Company, its Board of Directors and its stockholders.
(xi) To the best of such counsel's knowledge, there is no
right to require registration of any shares of capital stock of the Company in
connection with the filing of the Registration Statement that has not been
effectively satisfied or waived.
(xii) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by State
securities and Blue Sky laws, as to which such counsel need express no opinion)
except such as have been obtained or made.
(xiii) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Stockholders.
(xiv) Each Selling Stockholder has full legal right, power
and authority, and any approval required by law (other than as required by State
securities and Blue Sky laws as to which
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<PAGE>
such counsel need express no opinion), to sell, assign, transfer and deliver the
Option Shares to be sold by such Selling Stockholder.
(xv) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the New York Uniform Commercial Code and
acquiring Shares without notice of any adverse claim with respect thereto) have
acquired good and marketable title to the Option Shares being sold by each
Selling Stockholder on the Option Closing Date, free and clear of all claims,
liens, encumbrances and security interests whatsoever.
In rendering such opinion, Paul, Weiss, Rifkind, Wharton & Garrison may
rely as to matters governed by the laws of states of the United States other
than Delaware or New York or Federal laws on local counsel in such
jurisdictions, provided that in each case Paul, Weiss, Rifkind, Wharton &
Garrison shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters set
forth above, such opinion shall also include a statement in such counsel's
customary form to the effect that nothing has come to the attention of such
counsel which leads them to believe that the Registration Statement, as of the
time it became effective under the Act, the Prospectus or any amendment or
supplement thereto, on the date it was filed pursuant to Rule 424(b) and the
Registration Statement and the Prospectus, or any amendment or supplement
thereto, as of the Closing Date or the Option Closing Date, as the case may be,
contain an 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 not
misleading (except that such counsel need express no view as to financial
statements, schedules and other financial or statistical information included
therein). With respect to such statement, Paul, Weiss, Rifkind, Wharton &
Garrison may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(c) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinions of McGrigor Donald as
to matters relating to The North Face (Europe) Limited and Ostler Hoskins &
Harcourt as to matters relating to The North Face (Canada), Inc. dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters to the effect that the respective Subsidiary has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with corporate power and
authority to own its properties and conduct its business as described in the
Prospectus; the respective Subsidiary is duly qualified to transact business in
all jurisdictions in which the conduct of its business requires such
qualification, or in which the failure to qualify would have a materially
adverse effect upon the business of the Company and the Subsidiaries taken as a
whole; and the outstanding shares of capital stock of the respective Subsidiary
has been duly authorized and validly issued, is fully paid and non-assessable
and is owned by the Company or a Subsidiary.
(d) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Crosby, Heafey,
Roach & May, trademark counsel for the Company, dated the Closing Date or the
Option Closing Date, as the case may be, addressed to the Underwriters to the
effect that:
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<PAGE>
(i) To the best of such counsel's knowledge, there is no
pending or threatened legal or governmental proceeding, judgment or order
against the Company based upon alleged infringement, dilution, unfair
competition or other claim arising from the Company's use of any of the marks
identified in the attached schedule (the "Schedule") of trademark registrations
and applications.
(ii) To the best of such counsel's knowledge, (a) all
registrations of marks listed in the Schedule are valid registrations effective
to the extent respectively provided by the laws of the jurisdictions in which
they were issued, (b) there is no pending or threatened legal or governmental
proceeding against the Company which seeks to invalidate, oppose or cancel any
registrations listed in the Schedule, and (c) there is no judgment or order of a
court or governmental agency issued against the Company which has invalidated or
canceled any registrations listed in the Schedule.
(iii) To the best of such counsel's knowledge, the Company
has not filed any documents in any jurisdiction, or otherwise taken steps, to
abandon any of the registrations listed in the Schedule.
(iv) To the best of such counsel's knowledge, the Company
owns all the registrations and applications listed on the Schedule, except for
the registrations and applications in Japan and Korea which the Company sold to
Kabushiki Kaisha Goldwin as of June 7, 1994.
(v) To the best of such counsel's knowledge, the
statements in the Prospectus under the caption "Business--Trademarks and
Licensing" (the "Trademark Portion"), insofar as such statements constitute a
summary of the Company's marks and licensing status, are in all material
respects accurate summaries of the legal matters, documents and proceedings
relating to such marks and licensing status described therein.
In addition to the matters set forth above, such opinion shall also
include a statement in such counsel's customary form to the effect that nothing
has come to the attention of such counsel which leads them to believe that the
Trademark Portions of the Registration Statement, as of the time it became
effective under the Act, and the Prospectus or any amendment or supplement
thereto, on the date it was filed pursuant to Rule 424(b) and the Trademark
Portions of the Registration Statement and the Prospectus, or any amendment or
supplement thereto, as of the Closing Date or the Option Closing Date, as the
case may be, contain an 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 not misleading (except that such counsel need express no view as to
financial statements, schedules and other financial or statistical information
included therein). With respect to such statement, Crosby, Heafey, Roach & May
may state that its belief is based upon the procedures set forth therein, but is
without independent check or verification.
(e) The Representatives shall have received from Wilson Sonsini
Goodrich & Rosati, P.C., counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing
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<PAGE>
Date, as the case may be, substantially to the effect specified in subparagraphs
(ii), (iii), (iv) and (ix) of Paragraph (b) of this Section 6, and that the
Company is a validly organized and existing corporation under the laws of the
State of Delaware. In rendering such opinion, counsel may rely as to all
matters governed other than by the laws of the states of California or Delaware
or Federal laws on the opinions of counsel referred to in Paragraphs (b), (c)
and (d) of this Section 6. In addition to the matters set forth above, such
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel which leads them to believe that the Registration
Statement, as of the time it became effective under the Act, and the Prospectus
or any amendment or supplement thereto, on the date it was filed pursuant to
Rule 424(b) and the Registration Statement and the Prospectus, or any amendment
or supplement thereto, as of the Closing Date or the Option Closing Date, as the
case may be, contain an 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 not misleading (except that such counsel need express no view as to
financial statements, schedules and other financial or statistical information
included therein). With respect to such statement, Wilson Sonsini Goodrich &
Rosati, P.C. may state that its belief is based upon the procedures set forth
therein, but is without independent check and verification.
(f) The Representatives shall have received at or prior to the
Closing Date from Wilson Sonsini Goodrich & Rosati, P.C., a memorandum or
summary, in form and substance satisfactory to the Representatives, with respect
to the qualification for offering and sale by the Underwriters of the Shares
under the State securities or Blue Sky laws of such jurisdictions as the
Representatives may reasonably have designated to the Company.
(g) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a signed letter from Deloitte &
Touche LLP, dated the Closing Date or the Option Closing Date, as the case may
be, which shall confirm, on the basis of a review in accordance with the
procedures set forth in the letter signed by such firm and dated and delivered
to the Representatives on the date hereof, that nothing has come to their
attention during the period from the date five days prior to the date hereof to
a date not more than five days prior to the Closing Date or the Option Closing
Date, as the case may be, which would require any change in their letter dated
the date hereof if it were required to be dated and delivered on the Closing
Date or the Option Closing Date, as the case may be. All such letters shall be
in form and substance satisfactory to the Representatives.
(h) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Company signed by the Chief Executive Officer and the Chief Financial
Officer of the Company to the effect that, as of the Closing Date or the Option
Closing Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under
the Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his or her knowledge, contemplated by the Commission.
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<PAGE>
(ii) He or she does not know of any litigation instituted
or threatened against the Company of a character required to be disclosed in the
Registration Statement which is not so disclosed; he or she does not know of any
material contract required to be filed as an exhibit to the Registration
Statement which is not so filed; and the representations and warranties of the
Company contained in Section 1 hereof are true and correct as of the Closing
Date or the Option Closing Date, as the case may be.
(iii) He or she has carefully examined the Registration
Statement and the Prospectus and, in his or her opinion, as of the effective
date of the Registration Statement, the statements contained in the Registration
Statement were true and correct, and such Registration Statement and Prospectus
did not omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading and, in his or her
opinion, since the effective date of the Registration Statement, no event has
occurred which should have been set forth in a supplement to or an amendment of
the Prospectus which has not been so set forth in such supplement or amendment.
(i) The Company and the Selling Stockholders shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties contained herein and related matters as the
Representatives may reasonably have requested.
(j) The Firm Shares and Option Shares, if any, have been approved for
quotation upon official notice of issuance, on the Nasdaq National Market.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Wilson Sonsini
Goodrich & Rosati, P.C., counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Stockholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Company, the Selling Stockholders and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers to sell and deliver the portion of the Shares required to be delivered
as and when specified in this Agreement are subject to the conditions that at
the Closing Date or the Option Closing Date, as the case may be, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and in effect and no proceedings for that purpose shall have been taken
or, to the knowledge of the Company or the Selling Stockholders, shall be
contemplated by the Commission.
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8. INDEMNIFICATION.
(a) (i) The Company and the Selling Stockholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act
against any losses, claims, damages or liabilities to which such Underwriter or
such controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter and each such
controlling person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that the Company and the Selling Stockholders will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof; and provided, further, that neither the Company nor any
Selling Stockholder will not be liable to any Underwriter, the directors,
officers, employees or agents of such Underwriter or any person controlling such
Underwriter with respect to any loss, claim, damage or liability arising out of
or based on any untrue statement or alleged untrue statement or omission or
alleged omission to state a material fact in any Preliminary Prospectus which is
corrected in the Prospectus if the person asserting any such loss, claim, damage
or liability purchased from such Underwriter but was not sent or given a copy of
the Prospectus at or prior to the written confirmation of the sale of such
Shares to such person. In no event, however, shall the liability of any Selling
Stockholder to the Underwriters under this Agreement exceed the net proceeds
received by such Selling Stockholder from the Underwriters in the offering.
This indemnity agreement will be in addition to any liability which the Company
or the Selling Stockholders may otherwise have.
(ii) Notwithstanding the foregoing, no Selling Stockholder shall
be required to provide indemnification or reimbursement under Section 8(a)(i)
hereof unless: (a) in the case of a claim for reimbursement, (1) the
indemnified party has first made a written demand (a "Demand") on the Company
for payment with respect thereto and (2) the Company has failed to make such
demanded payment within 120 days of the receipt of such Demand; provided,
however, that if (A) the Company has asserted in writing that it is not liable
under this Agreement for all or a portion of the amount demanded in the Demand
on the grounds that the fees, expenses or costs of investigation for which
reimbursement is sought are not reasonable or were not reasonably incurred, and
(b) the Company has paid, within 120 days of receipt of the Demand, the portion
or portions thereof which it does not assert is unreasonable or unreasonably
incurred, as the case may be, then (C) the Selling Stockholders shall be
required to provide such unpaid reimbursement amount only if the Company's
liability for the disputed amounts has been determined by a final judgment in
favor of the indemnified
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party and the Company has failed to pay the amount required to be paid by it
pursuant to such final judgment in accordance with its terms; or (b) in the case
of a claim for indemnification, (1) the Company has become liable for such a
payment pursuant to the settlement of any proceeding effected with the consent
of such Selling Stockholder and the Company has failed to pay the amount
required to be paid by it pursuant to such settlement in accordance with its
terms or (2) a final judgment has been entered against an indemnified party
seeking to be indemnified under Section 8(a)(i) hereof, such indemnified party
has made a written demand for payment on the Company with respect to such
judgment and the Company has failed to make such demanded payment within 120
days of the receipt thereof, and such indemnified party has theretofore
initiated a suit against the Company for payment under Section 8(a)(i) hereof
with respect to such indemnification. For purposes of this paragraph (ii), a
"final judgment" shall mean a judgment or arbitration award which is not subject
to further appeal or as to which the time in which any appeal therefrom may be
taken has expired.
(b) Each Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or the Selling Stockholders, within the meaning of the Act, against any
losses, claims, damages or liabilities to which the Company, or any such
director, officer, Selling Stockholder or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, Selling Stockholder or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that each Underwriter shall
be liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has been
made in the Registration Statement, any Preliminary Prospectus, the Prospectus
or such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in
Section 8(a) or (b) shall be available to any party who shall fail to give
notice as provided in this Section 8(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties from any liability
which it or they may have to the indemnified party for contribution or otherwise
than on account of the provisions of
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Section 8(a) or (b). In case any such proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party and shall pay as incurred the fees and disbursements of
such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel at its own
expense. Notwithstanding the foregoing, the indemnifying party shall pay as
incurred the reasonable fees and expenses of the counsel retained by the
indemnified party in the event that (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company and the Selling Stockholders in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment.
(d) If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentences is not permitted by applicable law or if the indemnified
party failed to give the notice required under Section 8(c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company and the
Selling Stockholders bears to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Selling Stockholders on
the one hand or the
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<PAGE>
Underwriters on the other and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(d)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
Section 8(d). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment therein,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option Closing
Date, as the case may be, any Underwriter shall fail to purchase and pay for the
portion of the Shares which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of the Company
or a Selling Stockholder), you, as Representatives of the Underwriters, shall
use your best efforts to procure within 24 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Stockholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such
24 hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion in the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate
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<PAGE>
number of shares of Firm Shares or Option Shares, as the case may be, with
respect to which such default shall occur exceeds 10% of the Firm Shares or
Option Shares, as the case may be, covered hereby, the Company and the Selling
Stockholders or you as the Representatives of the Underwriters will have the
right, by written notice given within the next 24-hour period to the parties to
this Agreement, to terminate this Agreement without liability on the part of the
non-defaulting Underwriters or of the Company or of the Selling Stockholders
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. NOTICES. All communication hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered or telegraphed and
confirmed as follows: if to the Underwriters, to Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention:
Alexander Daignault; if to the Company or the Selling Stockholders, to The North
Face, Inc., 2013 Farallon Drive, San Leandro, California 94577, Attention:
Marsden S. Cason, Chief Executive Officer; and if to the Whitney Entities, to
J.H. Whitney & Co., 177 Broad Street, Stamford, Connecticut 06901.
11. TERMINATION. This Agreement may be terminated by you by notice to the
Company as follows:
(a) any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m.
(Baltimore time) on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company and its Subsidiaries taken
as a whole or the earnings, business affairs, management or business prospects
of the Company and its Subsidiaries taken as a whole, whether or not arising in
the ordinary course of business, (ii) any outbreak of hostilities or other
national or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, calamity, crisis or change on the
financial markets of the United States would, in your reasonable judgment, make
the offering or delivery of the Shares impracticable, (iii) suspension of
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange or limitation on prices (other than limitations on hours or
numbers of days of trading) for securities, on either such Exchange, (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental authority
which in your reasonable opinion materially and adversely affects or will
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<PAGE>
materially or adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by either federal or New York State
authorities, or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States; or
(c) as provided in Sections 6 and 9 of this Agreement;
This Agreement also may be terminated by you, by notice to the
Company, as to any obligation of the Underwriters to purchase the Option Shares,
upon the occurrence at any time prior to the Option Closing Date of any of the
events described in subparagraph (b) above or as provided in Sections 6 and 9 of
this Agreement.
12. SUCCESSORS. This Agreement has been and is made solely for the benefit
of the Underwriters, the Company and the Selling Stockholders and their
respective successors, executors, administrators, heirs and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of the Shares merely because of such purchase.
13. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers and the Selling Stockholders and
(c) delivery and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland.
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<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders, the Whitney Entities and the several Underwriters in accordance
with its terms.
Very truly yours,
THE NORTH FACE, INC.
By:
------------------------------------------
Name:
Title:
---------------------------------------------
Marsden S. Cason
---------------------------------------------
William N. Simon
For Purposes of Section 1(c) only:
WHITNEY SUBORDINATED DEBT FUND, L.P.
By:
------------------------------------------
Name:
Title:
WHITNEY 1990 EQUITY FUND, L.P.
By:
------------------------------------------
Name:
Title:
J.H. WHITNEY & CO.
By:
------------------------------------------
Name:
Title:
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<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written:
ALEX. BROWN & SONS INCORPORATED
HAMBRECHT & QUIST LLC
J.P. MORGAN SECURITIES INC.
As Representatives of the several
Underwriters listed on Schedule I
BY: ALEX. BROWN & SONS INCORPORATED
By:
-----------------------------
Authorized Officer
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<PAGE>
SCHEDULE I
Schedule of Underwriters
Number of Firm Shares
Underwriter to be Purchased
--------------------- ------------------------
Alex. Brown & Sons Incorporated. . . . . . .
Hambrecht & Quist LLC. . . . . . . . . . . .
J.P. Morgan Securities Inc . . . . . . . . .
-----------
Total. . . . . . . . . . . 2,600,000
-----------
-----------
<PAGE>
SCHEDULE II
Schedule of Option Shares
Maximum Number Percentage of
of Option Shares Total Number of
Name of Seller to be Sold Option Shares
- --------------------------- ---------------- ---------------
Marsden S. Cason
William N. Simon
The North Face, Inc.
----------- ----------
Total 390,000 100.00%
----------- ----------
----------- ----------
<PAGE>
DRAFT
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
of
THE NORTH FACE, INC.
The North Face, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is The North Face, Inc.
(the "Corporation"). The name under which the Corporation was originally
incorporated was TNF Holdings Company, Inc. The original Certificate of
Incorporation of the Corporation was filed with the Secretary of State of the
State of Delaware on May 16, 1994; a Restated Certificate of Incorporation of
the Corporation was filed with the Secretary of State of the State of Delaware
on June 6, 1994; a Restated Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on June 7, 1994; a
Certificate of Amendment thereto was filed with the Secretary of State of the
State of Delaware on June 8, 1994, changing the Corporation's name to The North
Face, Inc.; and a Restated Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on March 26, 1996.
SECOND: The Amended and Restated Certificate of Incorporation of the
Corporation set forth below has been duly adopted in accordance with the
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware (the "General Corporation Law") by the directors and
stockholders of the Corporation, and prompt written notice was duly given
pursuant to Section 228 of the General Corporation Law to those stockholders who
did not approve the Amended and Restated Certificate of Incorporation, as so
amended, by written consent.
THIRD: This Amended and Restated Certificate of Incorporation
restates, integrates and amends the provisions of the Corporation's Restated
Certificate of Incorporation, as follows:
1. NAME. The name of the Corporation is The North Face, Inc.
2. ADDRESS; REGISTERED OFFICE AND AGENT. The address of the
Corporation's registered office is 1013 Centre Road, City of Wilmington, County
of New Castle, State of Delaware 19805; and its registered agent at such address
is Corporation Service Company.
<PAGE>
2
3. PURPOSES. The purpose of the Corporation is to engage in, carry
on and conduct any lawful act or activity for which corporations may be
organized under the General Corporation Law.
4. CAPITAL STOCK.
4.1 NUMBER OF SHARES. The total number of shares of all classes
of capital stock that the Corporation shall have authority to issue is fifty-
four million (54,000,000), of which fifty million (50,000,000) shall be shares
of common stock of the par value of one-fourth of one penny ($0.0025) per share
(the "Common Stock") and four million (4,000,000) of which shall be shares of
preferred stock of the par value of one dollar ($1.00) per share (the "Preferred
Stock").
4.2 DESIGNATION OF CLASSES; RELATIVE RIGHTS, ETC. The
designation, relative rights, preferences and limitations of the shares of each
class are as follows:
4.2.1 The shares of Preferred Stock may be issued from
time to time in one or more series of any number of shares, provided that the
aggregate number of shares issued and not cancelled of any and all such series
shall not exceed the total number of shares of Preferred Stock hereinabove
authorized, and with distinctive serial designations, all as shall hereafter be
stated and expressed in the resolution or resolutions providing for the issue of
such shares of Preferred Stock from time to time adopted by the Board of
Directors (the "Board") pursuant to authority so to do which is hereby vested in
the Board. Each series of shares of Preferred Stock (a) may have such voting
powers, full or limited, or may be without voting powers; (b) may be subject to
redemption at such time or times and at such prices; (c) may be entitled to
receive dividends (which may be cumulative or non-cumulative) at such rate or
rates, on such conditions and at such times, and payable in preference to, or in
such relation to, the dividends payable on any other class or classes or series
of stock; (d) may have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; (e) may be made convertible into
or exchangeable for, shares of any other class or classes or of any other series
of the same or any other class or classes of shares of the Corporation at such
price or prices or at such rates of exchange and with such adjustments; (f) may
be entitled to the benefit of a sinking fund to be applied to the purchase or
redemption of shares of such series in such amount or amounts; (g) may be
entitled to the benefit of conditions and restrictions upon the creation of
indebtedness of the Corporation or any subsidiary, upon the issue of any
additional shares (including additional shares of such series or of any other
series) and upon the payment of dividends or the making of other distributions
on, and the purchase, redemption or other acquisition by the Corporation or any
subsidiary of, any outstanding shares of the Corporation and (h) may have such
other relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof; all as shall be stated in said resolution
or resolutions providing for the issue of such shares of Preferred Stock. Any
of the
<PAGE>
3
voting powers, designations, preferences, rights and qualifications, limitations
or restrictions of any such series of Preferred Stock may be made dependent upon
facts ascertainable outside of the resolution or resolutions providing for the
issue of such Preferred Stock adopted by the Board pursuant to the authority
vested in it by this Section 4.2.1, provided that the manner in which such facts
shall operate upon the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of such series of Preferred Stock is
clearly and expressly set forth in the resolution or resolutions providing for
the issue of such Preferred Stock. The term "facts" as used in the next
preceding sentence shall have the meaning given to it in section 151(a) of the
General Corporation Law. Shares of Preferred Stock of any series that have been
redeemed (whether through the operation of a sinking fund or otherwise) or that
if convertible or exchangeable, have been converted into or exchanged for shares
of any other class or classes shall have the status of authorized and unissued
shares of Preferred Stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of shares of Preferred Stock to be created by
resolution or resolutions of the Board or as part of any other series of shares
of Preferred Stock, all subject to the conditions or restrictions on issuance
set forth in the resolution or resolutions adopted by the Board providing for
the issue of any series of shares of Preferred Stock.
4.2.2 Subject to the provisions of any applicable law or
of the By-laws of the Corporation, as from time to time amended (the "By-laws),
with respect to the closing of the transfer books or the fixing of a record date
for the determination of stockholders entitled to vote and except as otherwise
provided by law or by the resolution or resolutions providing for the issue of
any series of shares of Preferred Stock, the holders of outstanding shares of
Common Stock shall exclusively possess voting power for the election of
directors and for all other purposes, each holder of record of shares of Common
Stock being entitled to one vote for each share of Common Stock standing in his
or her name on the books of the Corporation. Except as other provided by the
resolution or resolutions providing for the issue of any series of shares of
Preferred Stock, the holders of shares of Common Stock shall be entitled, to the
exclusion of the holders of shares of Preferred Stock of any and all series, to
receive such dividends as may be declared from time to time by the Board. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after payment shall have been made to the
holders of shares of Preferred Stock of the full amount to which they shall be
entitled pursuant to the resolution or resolutions providing for the issue of
any series of shares of Preferred Stock, the holders of shares of Common Stock
shall be entitled, to the exclusion of the holders of shares of Preferred Stock
of any and all series, to share, ratably according to the number of shares of
Common Stock held by them, in all remaining assets of the Corporation available
for distribution to its stockholders.
4.2.3 Subject to the provisions of this Certificate of
Incorporation and except as otherwise provided by law, the stock of the
Corporation,
<PAGE>
4
regardless of class, may be issued for such consideration and for such corporate
purposes as the Board may from time to time determine.
4.3 POWERS, PREFERENCES AND RIGHTS. The powers, preferences and
rights of the Series A Preferred Stock and the Common Stock and the
qualifications, limitations and restrictions thereof are as follows (capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
Section 4.3(c)):
(a) SERIES A PREFERRED STOCK.
i) RANKING. The Series A Preferred Stock shall, with
respect to dividend right and rights on liquidation, dissolution or winding up,
rank senior to the Common Stock and any other series or class of the
Corporation's preferred or common stock, now or hereafter authorized.
ii) DIVIDENDS AND DISTRIBUTIONS.
A) DIVIDENDS. The holders of shares of Series A
Preferred Stock shall be entitled to receive, as and when declared by the
Board of Directors, out of funds legally available therefor ("LEGALLY
AVAILABLE FUNDS"), dividends at an annual rate equal to 10% of the
aggregate Liquidation Preference of the then outstanding shares of
Preferred Stock, calculated on the basis of a 360-day year consisting of
twelve 30-day months. Dividends shall be paid quarterly in arrears on the
Dividend Payment Date commencing June 30, 1994 in the manner provided in
Section 4.3(a)(ii)(C).
B) ACCRUED DIVIDENDS; RECORD DATE. Dividends payable
pursuant to Section 4.3(a)(ii)(A) shall begin to accrue and be cumulative
from the Issue Date, and shall begin to accrue on a daily basis, in each
case whether or not earned or declared. The Board of Directors may fix a
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of the dividends payable
pursuant to Section 4.3(a)(ii)(A), which record date shall not be more than
60 days prior to the dividend Payment Date.
C) PAYMENT. All dividends on Series A Preferred
Stock shall be payable at the option of the Corporation, either in cash,
subject to Section 4.3(a)(ii) (G), or by issuing additional fully paid and
nonassessable shares of Series A Preferred Stock at the rate of one share
for each $6.33681 of such dividend payable. The issuance of shares of
Series A Preferred Stock shall constitute full payment of such dividend and
all such shares which may be issued in payment of such dividend shall upon
issuance be duly authorized, validly issued, fully paid and nonassessable.
<PAGE>
5
D) RESERVATION OF SHARES. The Corporation shall
reserve and keep available out of its authorized and unissued shares of
Series A Preferred Stock solely for the purposes of paying dividends on
shares of Series A Preferred Stock pursuant to subparagraph (c) above, such
number of shares of Series A Preferred Stock as shall from time to time be
sufficient for such purpose, including immediately following the initial
issuance of shares of Series A Preferred Stock) at least the number of
additional shares of Series A Preferred Stock that would be required to
enable the Corporation to issue shares of Series A Preferred Stock to pay
all dividends that will accrue on the Series A Preferred Stock through the
seventh anniversary of the initial issuance. The Board of Directors shall,
from time to time, if necessary, propose to the stockholders of the
Corporation, amendments to this Amended and Restated Certificate of
Incorporation to increase the Corporation's authorized capital stock and
take such other actions as may be necessary to permit the issuance from
time to time of shares of Series A Preferred Stock upon the declaration of
any dividend payable in shares of Series A Preferred Stock.
E) FRACTIONAL SHARES. Fractional shares of Series A
Preferred Stock shall be issued to the extent necessary to make dividend
payments in shares of Series A Preferred Stock. Each fractional shares of
Series A Preferred Stock outstanding shall be entitled to a ratably
proportionate amount of all dividends accruing with respect to each
outstanding share of Series A Preferred Stock and all of such dividends
with respect to such outstanding fractional shares of Series A Preferred
Stock shall be fully cumulative and shall accrued (whether or not earned or
declared) and shall be payable in the same manner and at such times as
provided for in this Section 4.3(a)(ii) with respect to dividends on each
outstanding share of Series A Preferred Stock.
F) DIVIDENDS PRO RATA. All dividends paid with
respect to shares of Series A Preferred Stock pursuant to this
Section 4.3(a)(ii) shall be paid pro rata to the holders entitled thereto.
In the event that the Legally Available Funds shall be insufficient for the
payment of the entire amount of cash dividends payable at any Dividend
Payment Date, subject to Section 4.3(a)(ii)(G), such funds shall be
allocated for the payment of dividends with respect to the shares of
Series A Preferred Stock pro rata based upon the Liquidation Preference of
the outstanding shares.
G) CERTAIN RESTRICTIONS.
(1) Notwithstanding the foregoing provisions of
this Section 4.3(a)(ii), cash dividends on the Series A Preferred Stock may
not be declared, paid or set apart for payment if (a) the Corporation is
not solvent or would be rendered insolvent thereby or (b) at such time the
<PAGE>
6
terms and provisions of any law or agreement of the Corporation, including
any agreement relating to its indebtedness, specifically prohibit such
declaration, payment or setting apart for payment or provide that such
declaration, payment or setting apart for payment would constitute a
violation or breach thereof or a default thereunder.
(2) If the dividends payable on shares of
Series A Preferred Stock are not paid in full in cash, then until all such
dividends shall have been paid in full in cash, the Corporation shall not
declare or pay cash dividends on, or redeem, purchase or otherwise acquire
for consideration, any shares of Common Stock or other shares of Junior
Stock, except with the prior written consent of holders of sixty-six and
two-thirds percent (66-2/3%) of the outstanding shares of Series A
Preferred Stock.
(3) The Corporation shall not permit any
Subsidiary of the Corporation, or cause any other Person, to make any
distribution with respect to, or purchase or otherwise acquire for
consideration, any shares of capital stock of the Corporation unless the
Corporation could, pursuant to subsection (2) of this
Section 4.3(a)(ii)(G), make such distribution or purchase or otherwise
acquire such shares at such time and in such manner.
(iii) VOTING RIGHTS. In addition to any voting rights
provided by law, shares of Series A Preferred Stock shall have the following
voting rights:
(A) Except as otherwise required by applicable law and
without limiting the provisions of Section 4.3(a)(iii)(B), each share of
Series A Preferred Stock shall entitle the holder thereof to vote, in
person or by proxy, at each special and annual meeting of stockholders, on
all matters voted on by holders of Common Stock, voting together as a
single class with the holders of the Common Stock and with holders of all
other shares entitled to vote thereon. With respect to any such vote, each
share of Series A Preferred Stock shall entitle the holder thereof to cast
that number of votes per share as is equal to the number of votes that such
holder would be entitled to cast assuming that such shares of Series A
Preferred Stock had been converted, on the record date for determining the
stockholders of the Corporation eligible to vote on any such matters, into
the maximum number of shares of Common Stock into which such shares of
Series A Preferred Stock are then convertible as provided in
Section 4.3(a)(vi).
(B) Unless the consent or approval of a greater number
of shares shall then be required by law, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the
outstanding shares of Series A Preferred Stock in person or by proxy, at
each
<PAGE>
7
special and annual meeting of stockholders called for the purpose, or by
written consent, shall be necessary to (1) authorize, increase the
authorized number of shares of or issue (including on conversion or
exchange of any convertible or exchangeable securities or by
reclassification) any shares of any class or classes of Senior Stock or
Parity Stock or any additional shares of Series A Preferred Stock (other
than shares of Series A Preferred Stock issued in payment of dividends as
provided in Section 4.3(a)(ii)), (2) authorize, adopt or approve each
amendment to this Amended and Restated Certificate of Incorporation that
would increase or decrease the par value of the shares of Series A
Preferred Stock, alter or change the powers, preferences or rights of any
other capital stock of the Corporation if after such alteration or change
such capital stock would be Senior Stock or Parity Stock, (3) amend, alter
or repeal this Amended and Restated Certificate of Incorporation so as to
affect the shares of Series A Preferred Stock adversely, including, without
limitation, by granting any voting right to any holder of notes, bonds,
debentures or other debt obligations of the Corporation, or (4) authorize
or issue any security convertible into, exchangeable for or evidencing the
right to purchase or otherwise receive any shares of any class or classes
of Senior Stock or Parity Stock.
(iv) REDEMPTION. The Corporation shall not have any right
or obligation to redeem any shares of Series A Preferred Stock.
(v) LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, before any
distribution or payment to holders of Junior Stock, the holders of shares
of Series A Preferred Stock shall be entitled to be paid an amount equal to
the Liquidation Preference, plus an amount equal to all accrued and unpaid
dividends, if any, with respect to each share of Series A Preferred Stock.
(B) If, upon any liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation available for
distribution to the holders of Series A Preferred Stock shall be
insufficient to permit payment in full to such holders of the sums which
such holders are entitled to receive in such case, then all the assets
available for distribution to holders of the Series A Preferred Stock shall
be distributed among and paid to such holders ratably in proportion to the
amounts that would be payable to such holders if such assets were
sufficient to permit payment in full.
(C) Neither the consolidation or merger of the
Corporation with or into any other Person nor the sale or other
distribution to another Person of all or substantially all the assets,
property or business of the
<PAGE>
8
Corporation, shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section 4.3(a)(v).
(vi) CONVERSION.
(A) STOCKHOLDERS' RIGHT TO CONVERT. Each share of
Series A Preferred Stock shall be convertible, at the option of the holder
thereof, into fully paid and nonassessable shares of Common Stock at the
Conversion Price.
(B) NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION. The number of shares of Common Stock to be issued upon
conversion of shares of Series A Preferred Stock pursuant to Section
4.3(a)(vi)(A) shall be equal to the product of (X) and (Y), where (X) is a
fraction, the numerator of which is the Liquidation Preference and the
denominator of which is the Conversion Price and (Y) is the number of
shares of Series A Preferred Stock to be converted.
(C) ANTIDILUTION ADJUSTMENTS. The Conversion Price
shall be adjusted from time to time in certain cases as follows:
(1) DIVIDEND; SUBDIVISION; COMBINATION OR
RECLASSIFICATION OF COMMON STOCK. If the Corporation shall, at any time or
from time to time, (a) declare a dividend on the Common Stock payable in
shares of its capital stock including Common Stock, (b) subdivide the
outstanding Common Stock, (c) combine the outstanding Common Stock into a
smaller number of shares, or (d) issue any shares of its capital stock in a
reclassification of the Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Corporation is
the continuing corporation), then in each such case, the Conversion Price
in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification shall
be adjusted to that price which will permit the number of shares of Common
Stock into which Series A Preferred Stock may be converted to be increased
or reduced in the same proportion as the number of shares of Common Stock
are increased or reduced in connection with such dividend, subdivision,
combination or reclassification. Any such adjustment shall become
effective immediately after the record date of such dividend or the
effective date of such subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur. If a dividend is declared and such dividend is not paid, the
Conversion Price shall be adjusted to the Conversion Price in effect
immediately prior to the record date of such dividend.
(2) ISSUANCE OF RIGHTS TO PURCHASE COMMON STOCK
BELOW CURRENT MARKET PRICE OF DILUTION PRICE. If the
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9
Corporation shall, at any time or from time to time, fix a record date for
the issuance of rights or warrants to all holders of its Common Stock
entitling them (for a period expiring with 45 calendar days after such
record date) to subscribe for or purchase shares of Common Stock or
securities convertible into Common Stock at a price per share of Common
Stock, or having a conversion price per share of Common Stock, if a
security is convertible into Common Stock (determined in each such case by
dividing (X) the total consideration payable to the Corporation upon
exercise, conversion or exchange of such rights, warrants or other
securities convertible into Common Stock by (Y) the total number of shares
of Common Stock covered by such rights, warrants or other securities
convertible into Common Stock) lower than either the Current Market Price
per share of Common Stock on such record date (or, if an ex-dividend date
has been established for such record date, on the day next preceding such
ex-dividend date) or the Dilution Price, then the Conversion Price shall be
reduced to the price determined by multiplying the Conversion Price in
effect immediately prior to such record date by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding on such
record date plus the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
to be offered (or the aggregate initial Conversion Price of the convertible
securities so to be offered) would purchase at the Applicable Price, and
the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of
Common Stock to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible). In
case such price for subscription or purchase may be paid in a consideration
part or all of which shall be in a form other than cash, the value of such
consideration shall be determined in good faith by the Board of Directors.
Any such adjustment shall become effective immediately after the record
date for such rights or warrants. Such adjustment shall be made
successively when such a record date is fixed. If such rights or warrants
are not issued to the holders of Common Stock, the Conversion Price shall
be adjusted to the Conversion Price in effect immediately prior to such
record date.
(3) CERTAIN DISTRIBUTIONS. If the Corporation
shall fix a record date for the distribution to all holders of Common Stock
(including any such distribution made in connection with a consolidation or
merger in which the Corporation is the continuing corporation) of evidences
of indebtedness, assets or other property (other than regularly scheduled
cash dividends or cash distributions payable out of consolidated earnings
or earned surplus or dividends payable in capital stock for which
adjustment is made under Section 4.3(a)(vi)(C)(1)) or subscription rights
or warrants (excluding those referred to in Section 4.3(a)(vi)(C)(2)), then
the Conversion Price shall be reduced to the price determined by
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10
multiplying the Conversion Price in effect immediately prior to such record
date by a fraction (which shall in no event be less than zero), the
numerator of which shall be the Current Market Price per share of Common
Stock on such record date (or, if an ex-dividend date has been established
for such record date, on the next day preceding such ex-dividend date),
less the fair market value (as determined in good faith by the Board of
Directors) of the portion of the assets, evidences of indebtedness, other
property, subscription rights or warrants so to be distributed applicable
to one share of Common Stock and the denominator of which shall be such
Current Market Price per share on Common Stock. Such adjustment shall be
made successively whenever such a record date is fixed. Any such
adjustment shall become effective immediately after the record date for
such distribution. In the event that such distribution is not so made, the
Conversion Price shall be adjusted to be the Conversion Price in effect
immediately prior to such record date.
(4) ISSUANCE OF COMMON STOCK BELOW CURRENT MARKET
PRICE OR DILUTION PRICE. If the Corporation shall, at any time or from
time to time, directly or indirectly, sell or issue shares of Common Stock
(regardless of whether originally issued or from the Corporation's
treasury), or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of
Common Stock (excluding shares issued (a) in any of the transactions
described in Section 4.3(a)(vi)(C)(1), (2) or (3), (b) issued on June 7,
1994, or upon the exercise or conversion of options, warrants or any other
securities convertible into or exchangeable for shares of Common Stock
outstanding on June 7, 1994 and (c) to the Corporation's employees under
bona-fide employee benefit plans approved or adopted by the Corporation's
Board of Directors, if such shares would otherwise be included in this
Section 4.3(a)(vi)(C)(4)) at a price per share of Common Stock (determined,
in the case of rights, options, warrants or convertible or exchangeable
securities, by dividing (X) the total consideration received or receivable
by the Corporation in consideration of the sale or issuance of such rights,
options, warrants or convertible or exchangeable securities, plus the total
consideration payable to the Corporation upon exercise or conversion or
exchange thereof, by (Y) the total number of shares of Common Stock covered
by such rights, options, warrants or convertible or exchangeable
securities) lower than either the Current Market Price per share of Common
Stock or the Dilution Price immediately prior to such sale or issuance,
then the Conversion Price shall be reduced to a price determined by
multiplying the Conversion Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to such sale or issuance plus
the number of shares of Common Stock which the aggregate consideration
received (determined as provided below) for such sale or issuance would
purchase at the Applicable Price and the denominator of which shall be the
total number of shares of Common Stock outstanding immediately
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11
after such sale or issuance. Such adjustment shall be made successively
whenever such sale or issuance is made. For the purposes of such
adjustments, the shares of Common Stock which the holder of any such
rights, options, warrants, or convertible or exchangeable securities shall
be entitled to subscribe for or purchase shall be deemed to be issued and
outstanding as of the date of such sale or issuance and the consideration
"received" by the Corporation therefor shall be deemed to be the
consideration actually received or receivable by the Corporation (plus any
underwriting discounts or commissions in connection therewith) for such
rights, options, warrants or convertible or exchangeable securities, plus
the consideration stated in such rights, options, warrants or convertible
or exchangeable securities to be payable to the Corporation for the shares
of Common Stock covered thereby. If the Corporation shall sell or issue
shares of Common Stock for a consideration consisting, in whole or in part,
of property other than cash or its equivalent, then in determining the
"price per share of Common Stock" and the "consideration" received or
receivable by or payable to the Corporation for purposes of the first
sentence and the immediately preceding sentence of this Section
4.3(a)(vi)(C)(4), the fair value of such property shall be determined in
good faith by the Board of Directors. The determination of whether any
adjustment is required under this Section 4.3(a)(vi)(C)(4), by reason of
the sale and issuance of rights, options, warrants or convertible or
exchangeable securities and the amount of such adjustment, if any, shall be
made only at the time of such issuance or sale and not at the subsequent
time of issuance or sale of Common Stock upon the exercise of such rights
to subscribe or purchase.
(5) DE MINIMIS ADJUSTMENT. No adjustment of the
Conversion Price shall be made if the amount of such adjustment would
result in a change in the Conversion Price per share of less than $.02, but
in such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment, which together with any adjustment so
carried forward, would result in a change in the Conversion Price in excess
of $.05 per share. If the Corporation shall, at any time or from time to
time, issue Common Stock by way of dividends on any stock of the
Corporation or subdivide or combine the outstanding shares of the Common
Stock, such amounts of $.02 and $.05 (as theretofore increased or
decreased, if such amounts shall have been adjusted in accordance with the
provisions of this clause) shall forthwith be proportionately increased in
the case of a combination or decreased in the case of a subdivision or
stock dividend so as appropriately to reflect the same. Notwithstanding
the provisions of the first sentence of this Section 4.3(a)(vi)(C)(5), any
adjustment postponed pursuant to this Section 4.3(a)(vi)(C)(5) shall be
made no later than the earlier of (a) three years from the date of the
transaction that would, but for the provisions of the first sentence of
this Section 4.3(a)(vi)(C)(5), have
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12
required such adjustment and (b) the date of any conversion of shares of
Series A Preferred Stock into shares of Common stock.
(6) FRACTIONAL SHARES. Notwithstanding any other
provision of this Amended and Restated Certificate of Incorporation, the
Corporation shall not be required to issue fractions of shares upon
conversion of any shares of Series A Preferred Stock or to distribute
certificates which evidence fractional shares. In lieu of fractional
shares, the Corporation may pay therefor, at the time of conversion of
shares of Series A Preferred Stock as herein provided, an amount in cash
equal to such fraction multiplied by the greater of the Current Market
Price of a share of Common Stock on such date and the Dilution Price.
(D) REORGANIZATION, RECLASSIFICATION AND MERGER
ADJUSTMENT. If there occurs any capital reorganization or any
reclassification of the Common Stock of the Corporation, the consolidation
or merger of the Corporation with or into another Person (other than a
merger or consolidation of the Corporation in which the Corporation is the
continuing Corporation and which does not result in any reclassification or
change of outstanding shares of its Common Stock) or the sale or conveyance
of all substantially all of the assets of the Corporation to another
Person, then each share of Series A Preferred Stock shall thereafter be
convertible into the same kind and amounts of securities (including shares
of stock) or other assets, or both, which were issuable or distributable to
the holders of outstanding Common Stock of the Corporation upon such
reorganization, reclassification, consolidation, merger, sale or
conveyance, in respect of the number of shares of Common Stock into which
such shares of Series A Preferred Stock might have been converted
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or conveyance; and, in any such case, appropriate adjustments
(as determined in good faith by the Board of Directors of the Corporation)
shall be made to assure that the provisions set forth herein (including
provisions with respect to changes in, and other adjustments of, the
Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be practicable, in relation to any securities or other assets
thereafter deliverable upon the conversion of the Series A Preferred Stock.
(E) MECHANICS OF CONVERSION. The option to convert
shall be exercised by surrendering for such purpose to the Corporation, at
any place where the Corporation shall maintain a transfer agent for its
Common Stock, certificates representing the shares to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer, and at
the time of such surrender, the Person in whose name any certificate for
shares of Common Stock shall be issuable upon such conversion shall be
deemed to be the holder of record of such shares of Common Stock on such
date, notwithstanding that the share register of the Corporation shall
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13
then be closed or that the certificates representing such Common Stock
shall not then be actually delivered in person.
(F) CERTIFICATE AS TO ADJUSTMENTS. Whenever the
Conversion Price or the securities or other property deliverable upon the
conversion of the Series A Preferred Stock shall be adjusted pursuant to
the provisions hereof, the Corporation shall promptly give written notice
thereof to each holder of shares of Series A Preferred Stock at such
holder's address as it appears on the transfer books of the Corporation and
shall forthwith file, at its principal executive office and with any
transfer agent or agents for the Series A Preferred Stock and the Common
Stock, a certificate, signed by the Chairman of the Board, President or one
of the Vice Presidents of the Corporation, and by its Chief Financial
Officer, its Treasurer or one of its Assistant Treasurers, stating the
adjusted Conversion Price and the securities or other property deliverable
per share of Series A Preferred Stock calculated to the nearest cent or to
the nearest one one-hundredth of a share and setting forth in reasonable
detail the method of calculation and the facts requiring such adjustment
and upon which such calculation is based. Each adjustment shall remain in
effect until a subsequent adjustment hereunder is required.
(G) RESERVATION OF COMMON STOCK. The Corporation
shall at all times reserve and keep available for issuance upon the
conversion of the shares of Series A Preferred Stock the maximum number of
its authorized but unissued shares of Common Stock as is reasonably
anticipated to be sufficient to permit the conversion of all outstanding
shares of Series A Preferred Stock, and shall take all action required to
increase the authorized number of shares of Common Stock if at any time
there shall be insufficient authorized but unissued shares of Common Stock
to permit such reservation or to permit the conversion of all outstanding
shares of Series A Preferred Stock.
(H) NO CONVERSION CHARGE OR TAX. The issuance and
delivery of certificates for shares of Common Stock upon the conversion of
shares of Series A Preferred Stock shall be made without charge to the
holder of shares of Series A Preferred Stock for any issuance or transfer
tax, or other incidental expense in respect of the issuance or delivery of
such certificates or the securities represented thereby, all of which taxes
and expenses shall be paid by the Corporation.
(vii) NOTICE OF CERTAIN EVENTS. In case the Corporation
shall propose at any time or from time to time (A) to declare or pay any
dividend payable in stock of any class to the holders of Common Stock or to make
any other distribution to the holders of Common Stock (other than a regularly
scheduled cash dividend), (B) to offer to the holders of Common Stock rights or
warrants to subscribe for or to purchase any additional shares of Common Stock
or
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14
shares of stock of any class or any other securities, rights or options, (C) to
effect any reclassification of its Common Stock (D) to effect any consolidation,
merger or sale, transfer or other disposition of all or substantially all of the
property, assets or business of the Corporation which would, if consummated,
adjust the Conversion Price or the securities issuable upon conversion of shares
of Series A Preferred Stock, or (E) to effect the liquidation, dissolution or
winding up of the Corporation, then, in each such case, the Corporation shall
mail to each holder of shares of Series A Preferred Stock, at such holder's
address as it appears on the transfer books of the Corporation, a written notice
of such proposed action, which shall specify (1) the date on which a record is
to be taken for the purpose of such dividend or distribution of rights or
warrants or, if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend or distribution
of rights or warrants are to be determined, or (2) the date on which such
reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding up is expected to become effective, and such notice shall
be so given as promptly as possible but in any event at least ten (10) Business
Days prior to the applicable record, determination or effective date, specified
in such notice.
(viii) CERTAIN REMEDIES. Any registered holder of shares of
Series A Preferred Stock shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Amended and Restated Certificate of
Incorporation and to enforce specifically the terms and provisions of this
Amended and Restated Certificate of Incorporation in any court of the United
States or any state thereof having jurisdiction, this being in addition to any
other remedy to which such holder may be entitled at law or in equity.
(b) COMMON STOCK. Each holder of Common Stock shall be entitled
to one vote for each share of Common Stock held of record on all matters on
which stockholders generally are entitled to vote and to all other rights, power
sand privileges of stockholders under Delaware law. Upon the dissolution,
liquidation or winding up of the Corporation, after any preferential amounts to
be distributed to the holders of the Preferred Stock and any other class or
series of stock having a preference over the Common Stock then outstanding have
been paid or declared and funds sufficient for the payment thereof in full set
apart for payment, the holders of the Common Stock shall be entitled to receive
pro rata all the remaining assets of the Corporation available for distribution
to its stockholders.
(c) DEFINITIONS. For the purposes of this Amended and Restated
Certificate of Incorporation, the following terms shall have the meanings
indicated.
"APPLICABLE PRICE" shall mean the highest of (i) the Current Market
Price per share of Common Stock on the applicable record or other relevant date
and (ii) the Dilution Price.
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15
"APPLICABLE RATE" shall mean .39960934.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or execution order to close.
"CLOSING PRICE" shall mean, with respect to each share of Common Stock
for any day, (i) the last reported sale price regular way or, in case no such
sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case as reported on the principal national securities
exchange on which such Common Stock is listed or admitted for trading or (ii) if
such Common Stock is not listed or admitted for trading on any national
securities exchange, the last reported sale price or, in case no such sale takes
place on such day, the average of the highest reported bid and the lowest
reported asked quotation for such Common Stock, in either case as reported on
the Automatic Quotation System of NASDAQ or a similar service if NASDAQ is no
longer reporting such information.
"COMMON STOCK" has the meaning assigned to such term in Section 4.1.
"CONVERSION PRICE" shall mean, with respect to each share of Series A
Preferred Stock, the amount in dollars equal to the product of (i) the
Liquidation Preference for such share and (ii) a fraction, the numerator of
which is 1 and the denominator of which is the Applicable Rate. The Conversion
Price is subject to adjustment as set forth in Section 4.3(a)(vi).
"CURRENT MARKET PRICE" shall mean, with respect to shares of Common
Stock on any date, the average of the daily Closing Prices per share of such
Common Stock for the 10 consecutive trading days commencing 15 days before the
day in question. If on any such date the shares of Common Stock are not listed
or admitted for trading on any national securities exchange and not quoted in
NASDAQ or any similar service, the Current Market Price for such shares shall be
the fair market value as determined in good faith by a committee of
disinterested members of the Board of Directors based on a written opinion of an
independent investment banking firm of nationally recognized stature.
"DILUTION PRICE" shall mean the amount in dollars equal to the product
of (1) the Liquidation Preference for a share of Series A Preferred Stock and
(ii) a fraction, the numerator of which is 1 and the denominator of which is the
Applicable Rate, subject to appropriate adjustment for events described in
Section 4.3(a)(vi)(D).
"DIVIDEND PAYMENT DATE" shall mean the last day of each March, June,
September and December, except that if any Dividend Payment Date is not a
Business Day, then the next succeeding Business Day shall be the Dividend
Payment Date.
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16
"GAAP" means generally accepted United States accounting principles in
effect from time to time.
"INITIAL PUBLIC OFFERING" shall mean the sale by the Corporation of
its capital stock pursuant to a registration statement on Form S-1 or otherwise
under the Securities Act.
"ISSUE DATE" shall mean the date on which shares of Series A Preferred
Stock are issued.
"JUNIOR STOCK" shall mean, with respect to she shares of Series A
Preferred Stock, any capital stock of the Corporation, including without
limitation the Common Stock, ranking junior to the Series A Preferred Stock with
respect to dividends, distribution in liquidation or any other preference, right
or power.
"LEGALLY AVAILABLE FUNDS" has the meaning assigned such term in
Section 4.3(a)(ii)(A).
"LIQUIDATION PREFERENCE" shall mean, with respect to each share of
Series A Preferred Stock, $6.33681.
"NASDAQ" shall mean the National Association of Securities Dealers,
Inc.
"PARITY STOCK" shall mean, with respect to shares of Series A
Preferred Stock, any capital stock of the Corporation ranking on a parity with
the Series A Preferred Stock with respect to dividends, distribution in
liquidation or any other preference, right or power.
"PERSON" shall mean any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, governmental agency or political subdivision thereof or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
5. ELECTION OF DIRECTORS. Members of the Board of Directors may be
elected either by written ballot or by voice vote.
6. TERM OF DIRECTORS. The number of directors of the Corporation
shall be fixed from time to time pursuant to the By-laws of the Corporation.
The directors of the Corporation shall be divided into three classes, as nearly
equal in number as reasonably possible, as determined by the Board, with the
initial term of office of the first class of such directors ("Class I
Directors") to expire at the annual meeting of stockholders to be held in 1997,
the initial term of office of the second
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17
class of such directors ("Class II Directors") to expire at the annual meeting
of stockholders to be held in 1998 and the initial term of office of the third
class of such directors ("Class III Directors") to expire at the annual meeting
of stockholders to be held in 1999, with each class of directors to hold office
until their successors have been duly elected and qualified. The initial Class
I Director shall be __________; the initial Class II Directors shall be Messrs.
_________ and __________; and the initial Class III Directors shall be Messrs.
_________ and __________________. At each annual meeting of stockholders,
directors elected to succeed the directors whose terms expire at such annual
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders in the third year following the year of their election
and until their successors have been duly elected and qualified. If the number
of directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain or attain a number of directors in each class as
nearly equal as reasonably possible but no decrease in the number of directors
may shorten the term of any incumbent director. No director may be removed
except for cause. This Section 6 may not be amended, modified or repealed
except by the affirmative vote of the holders of not less than seventy-five
percent (75%) of the voting power of all outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors,
considered for purposes hereof as a single class.
In the event that the holders of any class or series of stock of the
Corporation shall be entitled, voting separately as a class, to elect any
directors of the Corporation, then the number of directors that may be elected
by such holders shall be in addition to the number fixed pursuant to the By-laws
and, except as otherwise expressly provided in the terms of such class or
series, the terms of the directors elected by such holders shall expire at the
annual meeting of stockholders next succeeding their election without regard to
the classification of the remaining directors.
7. ACTION BY STOCKHOLDERS. Notwithstanding the provisions of
section 228 of the General Corporation Law, any action required or permitted to
be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of such stockholders and may not be effected by
any consent in writing by such stockholders. Except as otherwise required by
law and subject to the rights under Section 4 hereof of the holders of any class
or series of stock having a preference over the Common Stock as to dividends or
upon liquidation, special meetings of stockholders of the Corporation may be
called only by the Board of Directors, the Chairman of the Board of Directors or
the Chief Executive Officer. Notwithstanding anything contained in this Amended
and Restated Certificate of Incorporation to the contrary, the affirmative vote
of the holders of at least 75% of the aggregate voting power of the outstanding
shares of stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter, amend,
adopt any provision inconsistent with or repeal this Section 7.
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18
8. LIMITATION OF LIABILITY. No director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, provided that this provision shall
not eliminate or limit the liability of a director (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under section 174 of the General Corporation Law
or (d) for any transaction from which the director derived any improper personal
benefits.
Any repeal or modification of the foregoing provision shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
9. INDEMNIFICATION.
9.1 To the extent not prohibited by law, the Corporation shall
indemnify any person who is or was made, or threatened to be made, a party to
any threatened, pending or completed action, suit or proceeding (a
"Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Corporation, or, at the request of the Corporation, is or was
serving as a director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not directors or officers of the Corporation (or
otherwise entitled to indemnification pursuant to the preceding sentence) may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Section 9.
9.2 The Corporation shall, from time to time, reimburse or
advance to any director or officer or other person entitled to indemnification
hereunder the funds necessary for payment of expenses, including attorneys' fees
and disbursements, incurred in connection with any Proceeding, in advance of the
final disposition of such Proceeding; PROVIDED, HOWEVER, that, if required by
the General Corporation Law, such expenses incurred by or on behalf of any
director or officer or other person may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such director, officer or other person is not
entitled to be indemnified for such expenses.
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19
9.3 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 9
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, this Certificate of Incorporation, the
By-laws, any agreement, any vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
9.4 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 9
shall continue as to a person who has ceased to be a director or officer (or
other person indemnified hereunder) and shall inure to the benefit of the
executors, administrators, legatees and distributees of such person.
9.5 The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of an Other Entity, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of this Section 9, the By-laws or under section 145 of the
General Corporation Law or any other provision of law.
9.6 The provisions of this Section 9 shall be a contract between
the Corporation, on the one hand, and each director and officer who serves in
such capacity at any time while this Section 9 is in effect and any other person
entitled to indemnification hereunder, on the other hand, pursuant to which the
Corporation and each such director, officer, or other person intend to be, and
shall be, legally bound. No repeal or modification of this Section 9 shall
affect any rights or obligations with respect to any state of facts then or
theretofore existing or thereafter arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
9.7 The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Section 9
shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Corporation. Neither the failure
of the Corporation (including its Board, its independent legal counsel and its
stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the Corporation
(including its Board, its independent legal counsel and its stockholders) that
such person is not entitled to such indemnification
<PAGE>
20
or reimbursement or advancement of expenses shall constitute a defense to the
action or create a presumption that such person is not so entitled. Such a
person shall also be indemnified for any expenses reasonably incurred in
connection with successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
9.8 Any director or officer of the Corporation serving in any
capacity of (a) another corporation of which a majority of the shares entitled
to vote in the election of its directors is held, directly or indirectly, by the
Corporation or (b) any employee benefit plan of the Corporation or any
corporation referred to in clause (a) shall be deemed to be doing so at the
request of the Corporation.
9.9 Any person entitled to be indemnified or to reimbursement or
advancement of expenses as a matter of right pursuant to this Section 8 may
elect to have the right to indemnification or reimbursement or advancement of
expenses interpreted on the basis of the applicable law in effect at the time of
the occurrence of the event or events giving rise to the applicable Proceeding,
to the extent permitted by law, or on the basis of the applicable law in effect
at the time such indemnification or reimbursement or advancement of expenses is
sought. Such election shall be made, by a notice in writing to the Corporation,
at the time indemnification or reimbursement or advancement of expenses is
sought; PROVIDED, HOWEVER, that if no such notice is given, the right to
indemnification or reimbursement or advancement of expenses shall be determined
by the law in effect at the time indemnification or reimbursement or advancement
of expenses is sought.
10. ADOPTION, AMENDMENT AND/OR REPEAL OF BY-LAWS. The Board may from
time to time adopt, amend or repeal the By-laws of the Corporation; PROVIDED,
HOWEVER, that any By-laws adopted or amended by the Board may be amended or
repealed, and any By-laws may be adopted, by the stockholders of the Corporation
by vote of a majority of the holders of shares of stock of the Corporation
entitled to vote in the election of Directors of the Corporation voting together
as a single class.
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21
WITNESS the signature of this Certificate this of , 19 .
The North Face, Inc.
By:
------------------------------------
Name: Marsden S. Cason
Title: Chief Executive Officer
Attest:
By:
--------------------------------
Name: Roxanna Prahser
Title: Secretary
<PAGE>
Draft
AMENDED AND RESTATED
BY-LAWS
of
THE NORTH FACE, INC.
(A Delaware Corporation)
________________________
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise requires, the
term:
1.1 "Assistant Secretary" means an Assistant Secretary of the
Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the
Corporation.
1.3 "Board" means the Board of Directors of the Corporation.
1.4 "By-laws" means the initial by-laws of the Corporation, as
amended from time to time.
1.5 "Certificate of Incorporation" means the initial certificate of
incorporation of the Corporation, as amended, supplemented or restated from time
to time.
1.6 "Chairman" means the Chairman of the Board of Directors of the
Corporation.
1.7 "Chief Executive Officer" means the Chief Executive Officer of
the Corporation.
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2
1.8 "Corporation" means The North Face, Inc.
1.9 "Directors" means directors of the Corporation.
1.10 "Entire Board" means all directors of the Corporation in office,
whether or not present at a meeting of the Board, but disregarding vacancies.
1.11 "General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended from time to time.
1.12 "Office of the Corporation" means the executive office of the
Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.13 "President" means the President of the Corporation.
1.14 "Secretary" means the Secretary of the Corporation.
1.15 "Stockholders" means stockholders of the Corporation.
1.16 "Treasurer" means the Treasurer of the Corporation.
1.17 "Vice President" means a Vice President of the Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 PLACE OF MEETINGS. Every meeting of Stockholders shall be held
at the Office of the Corporation or at such other place within or without the
State of Delaware as shall be specified or fixed in the notice of such meeting
or in the waiver of notice thereof.
2.2 ANNUAL MEETING. A meeting of Stockholders shall be held annually
for the election of Directors and the transaction of other business at such hour
and on such
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3
business day in May or June or as may be determined by the Board and
designated in the notice of meeting.
2.3 DEFERRED MEETING FOR ELECTION OF DIRECTORS, ETC. If the annual
meeting of Stockholders for the election of Directors and the transaction of
other business is not held within the months specified in Section 2.2 hereof,
the Board shall call a meeting of Stockholders for the election of Directors and
the transaction of other business as soon thereafter as convenient.
2.4 OTHER SPECIAL MEETINGS. A special meeting of Stockholders (other
than a special meeting for the election of Directors), unless otherwise
prescribed by statute, may be called at any time by the Board or by the Chairman
or Chief Executive Officer. At any special meeting of Stockholders only such
business may be transacted as is related to the purpose or purposes of such
meeting set forth in the notice thereof given pursuant to Section 2.6 hereof or
in any waiver of notice thereof given pursuant to Section 2.7 hereof.
2.5 FIXING RECORD DATE. For the purpose of (a) determining the
Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders
or any adjournment thereof, (ii) unless otherwise provided in the Certificate of
Incorporation to express consent to corporate action in writing without a
meeting or (iii) to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock; or (b) any other lawful action, the
Board may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date was adopted by
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4
the Board and which record date shall not be (x) in the case of clause (a)(i)
above, more than 60 nor less than ten days before the date of such meeting,
(y) in the case of clause (a)(ii) above, more than ten days after the date
upon which the resolution fixing the record date was adopted by the Board
and (z) in the case of clause (a)(iii) or (b) above, more than 60 days prior
to such action. If no such record date is fixed:
2.5.1 the record date for determining Stockholders entitled
to notice of or to vote at a meeting of Stockholders shall be at the close
of business on the day next preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held;
2.5.2 the record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting (unless
otherwise provided in the Certificate of Incorporation), when no prior
action by the Board is required under the General Corporation Law, shall be
the first day on which a signed written consent setting forth the action
taken or proposed to be taken is delivered to the Corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of Stockholders are recorded; and
when prior action by the Board is required under the General Corporation
Law, the record date for determining Stockholders entitled to consent to
corporate action in writing
<PAGE>
5
without a meeting shall be at the close of business on the date on which
the Board adopts the resolution taking such prior action; and
2.5.3 the record date for determining Stockholders for any
purpose other than those specified in Sections 2.5.1 and 2.5.2 shall be at
the close of business on the day on which the Board adopts the resolution
relating thereto.
When a determination of Stockholders entitled to notice of or to vote at any
meeting of Stockholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof unless the Board fixes a
new record date for the adjourned meeting. Delivery made to the Corporation's
registered office in accordance with Section 2.5.2 shall be by hand or by
certified or registered mail, return receipt requested.
2.6 NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise provided
in Sections 2.5 and 2.7 hereof, whenever under the provisions of any statute,
the Certificate of Incorporation or these By-laws, Stockholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. Unless otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, a
copy of the notice of any meeting shall be given, personally or by mail, not
less than ten nor more than 60 days before the date of the meeting, to each
Stockholder entitled to notice of or to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in
<PAGE> 6
the United States mail, with postage prepaid, directed to the
Stockholder at his or her address as it appears on the records of the
Corporation. An affidavit of the Secretary or an Assistant Secretary or of
the transfer agent of the Corporation that the notice required by this
Section 2.6 has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted at the meeting as originally
called. If, however, the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each Stockholder of
record entitled to vote at the meeting.
2.7 WAIVERS OF NOTICE. Whenever the giving of any notice is
required by statute, the Certificate of Incorporation or these By-laws, a
waiver thereof, in writing, signed by the Stockholder or Stockholders
entitled to said notice, whether before or after the event as to which such
notice is required, shall be deemed equivalent to notice. Attendance by a
Stockholder at a meeting shall constitute a waiver of notice of such
meeting except when the Stockholder attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction
of any business on the ground that the meeting has not been lawfully called
or convened. Neither the business to be transacted at, nor the purpose of,
any regular or special
<PAGE>
7
meeting of the Stockholders need be specified in any written waiver of notice
unless so required by statute, the Certificate of Incorporation or these
By-laws.
2.8 LIST OF STOCKHOLDERS. The Secretary shall prepare and make, or
cause to be prepared and made, at least ten days before every meeting of
Stockholders, a complete list of the Stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
Stockholder and the number of shares registered in the name of each Stockholder.
Such list shall be open to the examination of any Stockholder, the Stockholder's
agent, or attorney, at the Stockholder's expense, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any Stockholder who is present. The
Corporation shall maintain the Stockholder list in written form or in another
form capable of conversion into written form within a reasonable time. Upon the
willful neglect or refusal of the Directors to produce such a list at any
meeting for the election of Directors, they shall be ineligible for election to
any office at such meeting. The stock ledger shall be the only evidence as to
who are the Stockholders entitled to examine the stock ledger, the list of
Stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of Stockholders.
<PAGE>
8
2.9 QUORUM OF STOCKHOLDERS; ADJOURNMENT. Except as otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, the
holders of one-third of all outstanding shares of stock entitled to vote at any
meeting of Stockholders, present in person or represented by proxy, shall
constitute a quorum for the transaction of any business at such meeting. When a
quorum is once present to organize a meeting of Stockholders, it is not broken
by the subsequent withdrawal of any Stockholders. The holders of a majority of
the shares of stock present in person or represented by proxy at any meeting of
Stockholders, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. Shares of its own
stock belonging to the Corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; PROVIDED, HOWEVER, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
2.10 VOTING; PROXIES. Unless otherwise provided in the Certificate
of Incorporation, every Stockholder of record shall be entitled at every meeting
of Stockholders to one vote for each share of capital stock standing in his or
her name on the record of Stockholders determined in accordance with Section 2.5
hereof. If the Certificate of Incorporation provides for more or less than one
vote for any share on any matter, each reference in the By-laws or the General
Corporation Law to a majority or other proportionof stock shall refer to such
majority or other proportion
<PAGE>
9
of the votes of such stock. The provisions of Sections 212 and 217 of the
General Corporation Law shall apply in determining whether any shares of
capital stock may be voted and the persons, if any, entitled to vote such
shares; but the Corporation shall be protected in assuming that the persons
in whose names shares of capital stock stand on the stock ledger of the
Corporation are entitled to vote such shares. Holders of redeemable shares
of stock are not entitled to vote after the notice of redemption is mailed
to such holders and a sum sufficient to redeem the stocks has been
deposited with a bank, trust company, or other financial institution under
an irrevocable obligation to pay the holders the redemption price on
surrender of the shares of stock. At any meeting of Stockholders (at which
a quorum was present to organize the meeting), all matters, except as
otherwise provided by statute or by the Certificate of Incorporation or by
these By-laws, shall be decided by a majority of the votes cast at such
meeting by the holders of shares present in person or represented by proxy
and entitled to vote thereon, whether or not a quorum is present when the
vote is taken. All elections of Directors shall be by written ballot
unless otherwise provided in the Certificate of Incorporation. In voting
on any other question on which a vote by ballot is required by law or is
demanded by any Stockholder entitled to vote, the voting shall be by
ballot. Each ballot shall be signed by the Stockholder voting or the
Stockholder's proxy and shall state the number of shares voted. On all
other questions, the voting may be VIVA VOCE. Each Stockholder entitled to
vote at a meeting of Stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another person
or persons to act for such
<PAGE>
10
Stockholder by proxy. The validity and enforceability of any proxy shall
be determined in accordance with Section 212 of the General Corporation
Law. A Stockholder may revoke any proxy that is not irrevocable by
attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance with
applicable law bearing a later date to the Secretary.
2.11 VOTING PROCEDURES AND INSPECTORS OF ELECTION AT MEETINGS OF
STOCKHOLDERS. The Board, in advance of any meeting of Stockholders, may appoint
one or more inspectors to act at the meeting and make a written report thereof.
The Board may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate has been appointed
or is able to act at a meeting, the person presiding at the meeting may appoint,
and on the request of any Stockholder entitled to vote thereat shall appoint,
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall (a) ascertain the number of
shares outstanding and the voting power of each, (b) determine the shares
represented at the meeting and the validity of proxies and ballots, (c) count
all votes and ballots, (d) determine and retain for a reasonable period a record
of the disposition of any challenges made to any determination by the inspectors
and (e) certify their determination of the number of shares represented at the
meeting and their count of all votes and ballots. The
<PAGE>
11
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of their duties. Unless otherwise provided
by the Board, the date and time of the opening and the closing of the polls
for each matter upon which the Stockholders will vote at a meeting shall be
determined by the person presiding at the meeting and shall be announced at
the meeting. No ballot, proxies or votes, or any revocation thereof or
change thereto, shall be accepted by the inspectors after the closing of
the polls unless the Court of Chancery of the State of Delaware upon
application by a Stockholder shall determine otherwise.
2.12 ORGANIZATION. (a) At each meeting of Stockholders, the
Chairman, or in the absence of the Chairman, the Chief Executive Officer, or if
there is no Chief Executive Officer or if there be one and the Chief Executive
Officer is absent, the President, or if there is no President or if there be one
and the President is absent, a Vice President, and in case more than one Vice
President shall be present, that Vice President designated by the Board (or in
the absence of any such designation, the most senior Vice President, based on
age, present), shall act as chairman of the meeting. The Secretary, or in his
or her absence, one of the Assistant Secretaries, shall act as secretary of the
meeting. In case none of the officers above designated to act as chairman or
secretary of the meeting, respectively, shall be present, a chairman or a
secretary of the meeting, as the case may be, shall be chosen by a majority of
the votes cast at such meeting by the holders of shares of capital stock present
in person or represented by proxy and entitled to vote at the meeting.
<PAGE>
12
(b) Only persons who are nominated in accordance with the
following procedures shall be eligible for election as Directors. Nominations
of persons for election to the Board may be made at an annual meeting or special
meeting of Stockholders (i) by or at the direction of the Board, (ii) by any
nominating committee or person appointed by the Board or (iii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the provisions of the following paragraph (persons
nominated in accordance with (iii) above are referred to herein as "stockholder
nominees").
In addition to any other applicable requirements, all nominations
of stockholder nominees must be made by written notice given by or on behalf of
a stockholder of record of the Corporation (the "Notice of Nomination"). The
Notice of Nomination must be delivered personally to, or mailed to, and received
at the Office of the Corporation, addressed to the attention of the Secretary,
no less than 60 days nor more than 90 days prior to the annual meeting or
special meeting of Stockholders, or in the event that less than 70 days' notice
of the date of the annual meeting is given to Stockholders, no later than the
close of business on the seventh day following the day on which such notice of
the date of the annual meeting or special meeting was mailed. Public notice
shall be deemed to have been given more than 70 days in advance of the annual
meeting if the Corporation shall have previously disclosed, in these By-laws or
otherwise, that the annual meeting in each year is to be held on a determinable
date, unless and until the Board determines to hold the meeting on a different
date. Such Notice of Nomination shall set forth
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13
(i) the name and record address of the Stockholder proposing to make
nominations, (ii) the class and number of shares of capital stock held of
record, held beneficially and represented by proxy held by such person as
of the record date for the meeting and as of the date of such Notice of
Nomination, (iii) all information regarding each stockholder nominee that
would be required to be set forth in a definitive proxy statement filed
with the Securities and Exchange Commission pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended, or any successor thereto
("Section 14"), and the written consent of each such stockholder nominee to
serve if elected, and (iv) all other information that would be required to
be filed with the Securities and Exchange Commission if the person
proposing such nominations were a participant in a solicitation subject to
Section 14. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting, that any proposed nomination of a
stockholder nominee was not made in accordance with the foregoing
procedures and, if he should so determine, he shall declare to the meeting
and the defective nomination shall be of no effect.
(c) At any annual meeting of Stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting of Stockholders, (i) business must
be specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (ii) otherwise properly brought before the meeting
by or at the direction of the Board or (iii) otherwise properly brought before
the meeting by a Stockholder in accordance with the terms of the following
paragraph (business
<PAGE>
14
brought before the meeting in accordance with (iii) above is referred to
as "stockholder business").
In addition to any other applicable requirements, all proposals
of stockholder business must be made by written notice given by or on behalf of
a stockholder of record of the Corporation (the "Notice of Business"). The
Notice of Business must be delivered personally to, or mailed to, and received
at the Office of the Corporation, addressed to the attention of the Secretary,
no less than 60 days nor more than 90 days prior to the annual meeting or
special meeting of Stockholders, or in the event that less than 70 days' notice
of the date of the annual meeting is given to Stockholders, no later than the
close of business on the seventh day following the day on which such notice of
the date of the annual meeting or special meeting was mailed. Public notice
shall be deemed to have been given more than 70 days in advance of the annual
meeting if the Corporation shall have previously disclosed, in these By-laws or
otherwise, that the annual meeting in each year is to be held on a determinable
date, unless and until the Board determines to hold the meeting on a different
date. Such Notice of Business shall set forth (i) the name and record address
of the Stockholder proposing such stockholder business, (ii) the class and
number of shares of capital stock held of record, held beneficially and
represented by proxy held by such person as of the record date for the meeting
and as of the date of such Notice of Business, (iii) a brief description of the
stockholder business desired to be brought before the annual meeting and the
reasons for conducting such stockholder business at the annual meeting, (iv) any
material interest of the Stockholder in such stockholder business and
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15
(v) all other information that would be required to be filed with the
Securities and Exchange Commission if the person proposing such stockholder
business were a participant in a solicitation subject to Section 14.
Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at the annual meeting of Stockholders except in
accordance with the procedures set forth in this Section 2.12(c), PROVIDED,
HOWEVER, that nothing in this Section 2.12(c) shall be deemed to preclude
discussion by any Stockholder of any business properly brought before the
annual meeting in accordance with said procedure. The chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance
with the foregoing procedures and, if he should so determine, he shall
declare to the meeting and any such business not properly brought before
the meeting shall not be transacted.
2.13 ORDER OF BUSINESS. The order of business at each such meeting
shall be as determined by the chairman of the meeting. The chairman of the
meeting shall have the right and authority to prescribe such rules, regulations
and procedures and to do all such acts and things as are necessary or desirable
for the proper conduct of the meeting, including, without limitation, the
establishment of procedures for the maintenance of order and safety, limitations
on the time allotted to questions or comments on the affairs of the Corporation,
restrictions on entry to such meeting after the time prescribed for the
commencement thereof and the opening and closing of the voting polls.
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16
2.14 NO STOCKHOLDER ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the Stockholders must be effected at a duly called
annual or special meeting of Stockholders and may not be effected by any consent
in writing by Stockholders.
ARTICLE 3
DIRECTORS
3.1 GENERAL POWERS. Except as otherwise provided in the
Certificate of Incorporation, the business and affairs of the Corporation
shall be managed by or under the direction of the Board. The Board may
adopt such rules and regulations, not inconsistent with the Certificate of
Incorporation or these By-laws or applicable laws, as it may deem proper
for the conduct of its meetings and the management of the Corporation. In
addition to the powers expressly conferred by these By-laws, the Board may
exercise all powers and perform all acts that are not required, by these
By-laws or the Certificate of Incorporation or by statute, to be exercised
and performed by the Stockholders.
3.2 NUMBER; QUALIFICATION; TERM OF OFFICE. The Board shall
consist of one or more members. The number of Directors shall be seven
initially and may thereafter be changed from time to time by action of the
Stockholders or by action of the Board. Directors need not be
Stockholders. Each Director shall hold office until a successor is elected
and qualified or until the Director's death, resignation or removal.
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17
3.3 ELECTION. Directors shall, except as otherwise required by
statute or by the Certificate of Incorporation, be elected by a plurality of the
votes cast at a meeting of Stockholders by the holders of shares entitled to
vote in the election.
3.4 NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Unless otherwise
provided in the Certificate of Incorporation, newly created Directorships
resulting from an increase in the number of Directors and vacancies occurring in
the Board for any other reason, including the removal of Directors without
cause, may be filled by the affirmative votes of a majority of the entire Board,
although less than a quorum, or by a sole remaining Director, or may be elected
by a plurality of the votes cast by the holders of shares of capital stock
entitled to vote in the election at a special meeting of Stockholders called for
that purpose. A Director elected to fill a vacancy shall be elected to hold
office until a successor is elected and qualified, or until the Director's
earlier death, resignation or removal. Any Director elected or appointed to
fill a vacancy shall hold office until the next election of the class of
directors of the director which such director replaced, and until his or her
successor is elected and qualified or until his or her earlier resignation or
removal.
3.5 RESIGNATION. Any Director may resign at any time by written
notice to the Corporation. Such resignation shall take effect at the time
therein specified, and, unless otherwise specified in such resignation, the
acceptance of such resignation shall not be necessary to make it effective.
<PAGE>
18
3.6 REMOVAL. Subject to the provisions of Section 141(k) of the
General Corporation Law, any or all of the Directors may be removed only with
cause by vote of the holders of a majority of the shares then entitled to vote
at an election of Directors.
3.7 COMPENSATION. Each Director, in consideration of his or her
service as such, shall be entitled to receive from the Corporation such amount
per annum or such fees for attendance at Directors' meetings, or both, as the
Board may from time to time determine, together with reimbursement for the
reasonable out-of-pocket expenses, if any, incurred by such Director in
connection with the performance of his or her duties. Each Director who shall
serve as a member of any committee of Directors in consideration of serving as
such shall be entitled to such additional amount per annum or such fees for
attendance at committee meetings, or both, as the Board may from time to time
determine, together with reimbursement for the reasonable out-of-pocket
expenses, if any, incurred by such Director in the performance of his or her
duties. Nothing contained in this Section 3.7 shall preclude any Director from
serving the Corporation or its subsidiaries in any other capacity and receiving
proper compensation therefor.
3.8 TIMES AND PLACES OF MEETINGS. The Board may hold meetings, both
regular and special, either within or without the State of Delaware. The times
and places for holding meetings of the Board may be fixed from time to time by
resolution of the Board or (unless contrary to a resolution of the Board) in the
notice of the meeting.
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19
3.9 ANNUAL MEETINGS. On the day when and at the place where the
annual meeting of stockholders for the election of Directors is held, and as
soon as practicable thereafter, the Board may hold its annual meeting, without
notice of such meeting, for the purposes of organization, the election of
officers and the transaction of other business. The annual meeting of the Board
may be held at any other time and place specified in a notice given as provided
in Section 3.11 hereof for special meetings of the Board or in a waiver of
notice thereof.
3.10 REGULAR MEETINGS. Regular meetings of the Board may be held
without notice at such times and at such places as shall from time to time be
determined by the Board.
3.11 SPECIAL MEETINGS. Special meetings of the Board may be called by
the Chairman, the Chief Executive Officer, the President or the Secretary or by
any two or more Directors then serving on at least one day's notice to each
Director given by one of the means specified in Section 3.14 hereof other than
by mail, or on at least three days' notice if given by mail. Special meetings
shall be called by the Chairman, Chief Executive Officer, President or Secretary
in like manner and on like notice on the written request of any two or more of
the Directors then serving.
3.12 TELEPHONE MEETINGS. Directors or members of any committee
designated by the Board may participate in a meeting of the Board or of such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and
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participation in a meeting pursuant to this Section 3.12 shall constitute
presence in person at such meeting.
3.13 ADJOURNED MEETINGS. A majority of the Directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. At least one day's
notice of any adjourned meeting of the Board shall be given to each Director
whether or not present at the time of the adjournment, if such notice shall be
given by one of the means specified in Section 3.14 hereof other than by mail,
or at least three days' notice if by mail. Any business may be transacted at an
adjourned meeting that might have been transacted at the meeting as originally
called.
3.14 NOTICE PROCEDURE. Subject to Sections 3.11 and 3.17 hereof,
whenever, under the provisions of any statute, the Certificate of Incorporation
or these By-laws, notice is required to be given to any Director, such notice
shall be deemed given effectively if given in person or by telephone, by mail
addressed to such Director at such Director's address as it appears on the
records of the Corporation, with postage thereon prepaid, or by telegram, telex,
telecopy or similar means addressed as aforesaid.
3.15 WAIVER OF NOTICE. Whenever the giving of any notice is required
by statute, the Certificate of Incorporation or these By-laws, a waiver thereof,
in writing, signed by the person or persons entitled to said notice, whether
before or after the event as to which such notice is required, shall be deemed
equivalent to notice. Attendance by a person at a meeting shall constitute a
waiver of
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21
notice of such meeting except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Directors or a
committee of Directors need be specified in any written waiver of notice
unless so required by statute, the Certificate of Incorporation or these
By-laws.
3.16 ORGANIZATION. At each meeting of the Board, the Chairman, or in
the absence of the Chairman, the Chief Executive Officer or, in the absence of
the Chief Executive Officer, the President, or in the absence of the President,
a chairman chosen by a majority of the Directors present, shall preside. The
Secretary shall act as secretary at each meeting of the Board. In case the
Secretary shall be absent from any meeting of the Board, an Assistant Secretary
shall perform the duties of secretary at such meeting; and in the absence from
any such meeting of the Secretary and all Assistant Secretaries, the person
presiding at the meeting may appoint any person to act as secretary of the
meeting.
3.17 QUORUM OF DIRECTORS. The presence in person of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business at any meeting of the Board, but a majority of a smaller
number may adjourn any such meeting to a later date.
3.18 ACTION BY MAJORITY VOTE. Except as otherwise expressly required
by statute, the Certificate of Incorporation or these By-laws, the act of a
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22
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board.
3.19 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all Directors or members of such committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE 4
COMMITTEES OF THE BOARD
4.1 AUDIT COMMITTEE. The Board may, by resolution passed by a
majority of the entire Board, designate two or more of their number to
constitute an Audit Committee to hold office at the pleasure of the Board. The
function of the Audit Committee shall be (a) to review the professional services
and independence of the Corporation's independent auditors and the scope of the
annual external audit as recommended by the independent auditors, (b) to ensure
that the scope of the annual external audit is sufficiently comprehensive,
(c) to review, in consultation with the independent auditors and the internal
auditors, the plan and results of the annual external audit, the adequacy of the
Corporation's internal control systems and the results of the Corporation's
internal audits, (d) to review, with management and the independent auditors,
the Corporation's annual financial statements, financial reporting practices and
the results of each external audit and (e) to undertake
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23
reasonably related activities to those set forth in clauses (a) through
(d) of this Section 4.1. The Audit Committee shall also have the authority
to consider the qualification of the Corporation's independent auditors, to
make recommendations to the Board as to their selection and retention and
to review and resolve disputes between such independent auditors and
management relating to the preparation of the annual financial statements.
4.2 COMPENSATION COMMITTEE. The Board, by resolution passed by a
majority of the Entire Board, may designate not less than two (2) of the
directors then in office to constitute a Compensation Committee to hold office
at the pleasure of the Board. At least one of such directors shall be
independent of management and free from any relationship that, in the opinion of
the Board, would interfere with such director's exercise of independent judgment
as a committee member. Unless otherwise determined by the Board in the
resolution establishing any such plan, the Compensation Committee shall have and
may exercise all of the authority of the Board in administering the
Corporation's executive compensation plans and approving any employment
agreement to which the Corporation is a party.
4.3 OTHER COMMITTEES. In addition to the Audit Committee and the
Compensation Committee, the Board, by resolution passed by a vote of a majority
of the Entire Board, may designate one or more other committees of the Board,
each committee to consist of one or more of the Directors of the Corporation.
The Board may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. If
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24
a member of a committee shall be absent from any meeting, or disqualified
from voting thereat, the remaining member or members present and
not disqualified from voting, whether or not such member or members constitute a
quorum, may, by a unanimous vote, appoint another member of the Board to act at
the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board passed as
aforesaid, shall have and may exercise all the powers and authority of the Board
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be impressed on all papers that may
require it, but no such committee shall have the power or authority of the Board
in reference to amending the Certificate of Incorporation, adopting an agreement
of merger or consolidation under section 251 or section 252 of the General
Corporation Law, recommending to the stockholders (a) the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
or (b) a dissolution of the Corporation or a revocation of a dissolution, or
amending the By-laws of the Corporation; and, unless the resolution designating
it expressly so provides, no such committee shall have the power and authority
to declare a dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law. Unless otherwise specified in the resolution of the Board
designating a committee, at all meetings of such committee a majority of the
total number of members of the committee shall constitute a quorum for the
transaction of business, and the vote of a majority of the members of the
committee present at any meeting at which there is a
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25
quorum shall be the act of the committee. Each committee shall keep
regular minutes of its meetings. Unless the Board otherwise provides, each
committee designated by the Board may make, alter and repeal rules for the
conduct of its business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board conducts its business
pursuant to Article 3 of these By-laws.
4.4 COMMITTEE MINUTES. The committees shall keep regular minutes of
their proceedings and shall report the same to the Board.
ARTICLE 5
OFFICERS
5.1 POSITIONS. The officers of the Corporation shall be a Chief
Executive Officer, a President, a Secretary and such other officers as the Board
may appoint, including, without limitation, a Chairman, one or more Vice
Presidents, a Treasurer, and one or more Assistant Secretaries and Assistant
Treasurers, who shall exercise such powers and perform such duties as shall be
determined from time to time by the Board. The Board may designate one or more
Vice Presidents as Executive Vice Presidents and may use descriptive words or
phrases to designate the standing, seniority or areas of special competence of
the Vice Presidents elected or appointed by it. Any number of offices may be
held by the same person unless the Certificate of Incorporation or these By-laws
otherwise provide.
5.2 APPOINTMENT. The officers of the Corporation shall be chosen by
the Board at its annual meeting or at such other time or times as the Board
shall determine.
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5.3 COMPENSATION. The compensation of all officers of the
Corporation shall be fixed by the Board. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that the officer
is also a Director.
5.4 TERM OF OFFICE. Each officer of the Corporation shall hold
office for the term for which he or she is elected and until such officer's
successor is chosen and qualifies or until such officer's earlier death,
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. Such resignation shall take effect at the date of receipt
of such notice or at such later time as is therein specified, and, unless
otherwise specified, the acceptance of such resignation shall not be necessary
to make it effective. The resignation of an officer shall be without prejudice
to the contract rights of the Corporation, if any. Any officer elected or
appointed by the Board may be removed at any time, with or without cause, by
vote of a majority of the entire Board. Any vacancy occurring in any office of
the Corporation shall be filled by the Board. The removal of an officer without
cause shall be without prejudice to the officer's contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights.
5.5 FIDELITY BONDS. The Corporation may secure the fidelity of any
or all of its officers or agents by bond or otherwise.
5.6 CHAIRMAN. The Chairman, if one shall have been appointed, shall
preside at all meetings of the Board and shall exercise such powers and perform
such other duties as shall be determined from time to time by the Board.
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27
5.7 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall have general supervision over the business of the Corporation,
subject, however, to the control of the Board and of any duly authorized
committee of Directors. The Chief Executive Officer shall preside at all
meetings of the Stockholders and at all meetings of the Board at which the
Chairman (if there be one) is not present. The Chief Executive Officer may sign
and execute in the name of the Corporation deeds, mortgages, bonds, contracts
and other instruments except in cases in which the signing and execution thereof
shall be expressly delegated by the Board or by these By-laws to some other
officer or agent of the Corporation or shall be required by statute otherwise to
be signed or executed and, in general, the Chief Executive Officer shall perform
all duties incident to the office of Chief Executive Officer of a corporation
and such other duties as may from time to time be assigned to the Chief
Executive Officer by the Board.
5.8 PRESIDENT. The President shall be the Chief Operating Officer of
the Corporation and shall have general supervision over the business of the
Corporation, subject, however, to the control of the Board and of any duly
authorized committee of Directors. The President shall preside at all meetings
of the Stockholders and at all meetings of the Board at which the Chairman (if
there be one) and the Chief Executive Officer is not present. At the request of
the Chief Executive Officer, or, in the Chief Executive Officer's absence, at
the request of the Board, the President shall perform all of the duties of the
Chief Executive Officer and, in so performing, shall have all the powers of, and
be subject to all restrictions upon, the
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Chief Executive Officer. The President may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts and other instruments
except in cases which the signing and execution thereof shall be expressly
delegated by the Board or by these By-laws to some other officer or agent
of the Corporation or shall be required by statute otherwise to be signed
or executed and, in general, the President shall perform all duties
incident to the office of President of a corporation and such other duties
as may from time to time be assigned to the President by the Board or by
the Chief Executive Officer.
5.9 VICE PRESIDENTS. Any Vice President may sign and execute in the
name of the Corporation deeds, mortgages, bonds, contracts or other instruments,
except in cases in which the signing and execution thereof shall be expressly
delegated by the Board or by these By-laws to some other officer or agent of the
Corporation, or shall be required by statute otherwise to be signed or executed,
and each Vice President shall perform such other duties as from time to time may
be assigned to such Vice President by the Board or by the Chief Executive
Officer or by the President.
5.10 SECRETARY. The Secretary shall attend all meetings of the Board
and of the Stockholders and shall record all the proceedings of the meetings of
the Board and of the stockholders in a book to be kept for that purpose, and
shall perform like duties for committees of the Board, when required. The
Secretary shall give, or cause to be given, notice of all special meetings of
the Board and of the stockholders and shall perform such other duties as may be
prescribed by the Board or by the
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29
Chief Executive Officer or by the President, under whose supervision the
Secretary shall be. The Secretary shall have custody of the corporate seal
of the Corporation, and the Secretary, or an Assistant Secretary, shall
have authority to impress the same on any instrument requiring it, and when
so impressed the seal may be attested by the signature of the Secretary or
by the signature of such Assistant Secretary. The Board may give general
authority to any other officer to impress the seal of the Corporation and
to attest the same by such officer's signature. The Secretary or an
Assistant Secretary may also attest all instruments signed by the Chief
Executive Officer, President or any Vice President. The Secretary shall
have charge of all the books, records and papers of the Corporation
relating to its organization and management, shall see that the reports,
statements and other documents required by statute are properly kept and
filed and, in general, shall perform all duties incident to the office of
Secretary of a corporation and such other duties as may from time to time
be assigned to the Secretary by the Board or by the Chief Executive Officer
or by the President.
5.11 TREASURER. The Treasurer shall be the Chief Financial Officer of
the Corporation and shall have charge and custody of, and be responsible for,
all funds, securities and notes of the Corporation; receive and give receipts
for moneys due and payable to the Corporation from any sources whatsoever;
deposit all such moneys and valuable effects in the name and to the credit of
the Corporation in such depositaries as may be designated by the Board; against
proper vouchers, cause such funds to be disbursed by checks or drafts on the
authorized depositaries of the
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30
Corporation signed in such manner as shall be determined by the Board and
be responsible for the accuracy of the amounts of all moneys so disbursed;
regularly enter or cause to be entered in books or other records maintained
for the purpose full and adequate account of all moneys received or paid
for the account of the Corporation; have the right to require from time to
time reports or statements giving such information as the Treasurer may
desire with respect to any and all financial transactions of the
Corporation from the officers or agents transacting the same; render to the
Chief Executive Officer, the President or the Board, whenever the Chief
Executive Officer, the President or the Board shall require the Treasurer
so to do, an account of the financial condition of the Corporation and of
all financial transactions of the Corporation; exhibit at all reasonable
times the records and books of account to any of the Directors upon
application at the office of the Corporation where such records and books
are kept; disburse the funds of the Corporation as ordered by the Board;
and, in general, perform all duties incident to the office of Treasurer of
a corporation and such other duties as may from time to time be assigned to
the Treasurer by the Board or by the Chief Executive Officer or by the
President.
5.12 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. Assistant
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Board or by the Chief Executive Officer or by the President.
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31
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 EXECUTION OF CONTRACTS. The Board, except as otherwise provided
in these By-laws, may prospectively or retroactively authorize any officer or
officers, employee or employees or agent or agents, in the name and on behalf of
the Corporation, to enter into any contract or execute and deliver any
instrument, and any such authority may be general or confined to specific
instances, or otherwise limited.
6.2 LOANS. The Board may prospectively or retroactively authorize
the Chief Executive Officer or the President or any other officer, employee or
agent of the Corporation to effect loans and advances at any time for the
Corporation from any bank, trust company or other institution, or from any firm,
corporation or individual, and for such loans and advances the person so
authorized may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, and, when
authorized by the Board so to do, may pledge and hypothecate or transfer any
securities or other property of the Corporation as security for any such loans
or advances. Such authority conferred by the Board may be general or confined
to specific instances, or otherwise limited.
6.3 CHECKS, DRAFTS, ETC. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all evidences of
indebtedness of the Corporation shall be signed on behalf of the Corporation in
such manner as shall from time to time be determined by resolution of the Board.
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6.4 DEPOSITS. The funds of the Corporation not otherwise employed
shall be deposited from time to time to the order of the Corporation with such
banks, trust companies, investment banking firms, financial institutions or
other depositaries as the Board may select or as may be selected by an officer,
employee or agent of the Corporation to whom such power to select may from time
to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 CERTIFICATES REPRESENTING SHARES. The shares of capital stock of
the Corporation shall be represented by certificates in such form (consistent
with the provisions of Section 158 of the General Corporation Law) as shall be
approved by the Board. Such certificates shall be signed by the Chairman, the
Chief Executive Officer or the President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and may be impressed with
the seal of the Corporation or a facsimile thereof. The signatures of the
officers upon a certificate may be facsimiles, if the certificate is
countersigned by a transfer agent or registrar other than the Corporation itself
or its employee. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon any certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, such certificate may, unless otherwise ordered by the
Board, be issued by the Corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
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7.2 TRANSFER OF SHARES. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by the holder's duly authorized attorney appointed by a power of
attorney duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer and upon payment of
all necessary transfer taxes. Every certificate exchanged, returned or
surrendered to the Corporation shall be marked "Cancelled," with the date of
cancellation, by the Secretary or an Assistant Secretary or the transfer agent
of the Corporation. A person in whose name shares of capital stock shall stand
on the books of the Corporation shall be deemed the owner thereof to receive
dividends, to vote as such owner and for all other purposes as respects the
Corporation. No transfer of shares of capital stock shall be valid as against
the Corporation, its stockholders and creditors for any purpose, except to
render the transferee liable for the debts of the Corporation to the extent
provided by law, until such transfer shall have been entered on the books of the
Corporation by an entry showing from and to whom transferred.
7.3 TRANSFER AND REGISTRY AGENTS. The Corporation may from time to
time maintain one or more transfer offices or agents and registry offices or
agents at such place or places as may be determined from time to time by the
Board.
7.4 LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES. The holder
of any shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing
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such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the owner of the lost, destroyed, stolen or
mutilated certificate, or his or her legal representatives, to make proof
satisfactory to the Board of such loss, destruction, theft or mutilation and to
advertise such fact in such manner as the Board may require, and to give the
Corporation and its transfer agents and registrars, or such of them as the Board
may require, a bond in such form, in such sums and with such surety or sureties
as the Board may direct, to indemnify the Corporation and its transfer agents
and registrars against any claim that may be made against any of them on account
of the continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
7.5 RULES AND REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these By-laws or
with the Certificate of Incorporation, concerning the issue, transfer and
registration of certificates representing shares of its capital stock.
7.6 RESTRICTION ON TRANSFER OF STOCK. A written restriction on the
transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 202 of the General Corporation Law and noted conspicuously
on the certificate representing such capital stock, may be enforced against the
holder of the restricted capital stock or any successor or transferee of the
holder, including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like
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35
responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing such capital stock, a
restriction, even though permitted by Section 202 of the General
Corporation Law, shall be ineffective except against a person with actual
knowledge of the restriction. A restriction on the transfer or
registration of transfer of capital stock of the Corporation may be imposed
either by the Certificate of Incorporation or by an agreement among any
number of Stockholders or among such Stockholders and the Corporation. No
restriction so imposed shall be binding with respect to capital stock
issued prior to the adoption of the restriction unless the holders of such
capital stock are parties to an agreement or voted in favor of the
restriction.
7.7 DIVIDENDS, SURPLUS, ETC. Subject to the provisions of the
Certificate of Incorporation and of law, the Board:
7.7.1 may declare and pay dividends or make other
distributions on the outstanding shares of capital stock in such amounts
and at such time or times as it, in its discretion, shall deem advisable
giving due consideration to the condition of the affairs of the
Corporation;
7.7.2 may use and apply, in its discretion, any of the
surplus of the Corporation in purchasing or acquiring any shares of capital
stock of the Corporation, or purchase warrants therefor, in accordance with
law, or any of its bonds, debentures, notes, scrip or other securities or
evidences of indebtedness; and
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7.7.3 may set aside from time to time out of such surplus
or net profits such sum or sums as, in its discretion, it may think proper,
as a reserve fund to meet contingencies, or for equalizing dividends or for
the purpose of maintaining or increasing the property or business of the
Corporation, or for any purpose it may think conducive to the best
interests of the Corporation.
ARTICLE 8
INDEMNIFICATION
8.1 INDEMNITY UNDERTAKING. To the extent not prohibited by law, the
Corporation shall indemnify any person who is or was made, or threatened to be
made, a party to any threatened, pending or completed action, suit or proceeding
(a "Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a Director or
officer of the Corporation, or, at the request of the Corporation, is or was
serving as a director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not Directors or officers of the Corporation (or
otherwise entitled to indemnification pursuant to the preceding
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sentence) may be similarly indemnified in respect of service to the
Corporation or to an Other Entity at the request of the Corporation to the
extent the Board at any time specifies that such persons are entitled to
the benefits of this Article 8.
8.2 ADVANCEMENT OF EXPENSES. The Corporation shall, from time to
time, reimburse or advance to any Director or officer or other person entitled
to indemnification hereunder the funds necessary for payment of expenses,
including attorneys' fees and disbursements, incurred in connection with any
Proceeding, in advance of the final disposition of such Proceeding; PROVIDED,
HOWEVER, that, if required by the General Corporation Law, such expenses
incurred by or on behalf of any Director or officer or other person may be paid
in advance of the final disposition of a Proceeding only upon receipt by the
Corporation of an undertaking, by or on behalf of such Director or officer (or
other person indemnified hereunder), to repay any such amount so advanced if it
shall ultimately be determined by final judicial decision from which there is no
further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 RIGHTS NOT EXCLUSIVE. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall not be deemed exclusive of any other rights to which a
person seeking indemnification or reimbursement or advancement of expenses may
have or hereafter be entitled under any statute, the Certificate of
Incorporation, these By-laws, any agreement, any vote of Stockholders or
disinterested Directors or otherwise, both as
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to action in his or her official capacity and as to action in another
capacity while holding such office.
8.4 CONTINUATION OF BENEFITS. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall continue as to a person who has ceased to be a Director or
officer (or other person indemnified hereunder) and shall inure to the benefit
of the executors, administrators, legatees and distributees of such person.
8.5 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of an Other Entity,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power to indemnify such person against such
liability under the provisions of this Article 8, the Certificate of
Incorporation or under section 145 of the General Corporation Law or any other
provision of law.
8.6 BINDING EFFECT. The provisions of this Article 8 shall be a
contract between the Corporation, on the one hand, and each Director and officer
who serves in such capacity at any time while this Article 8 is in effect and
any other person entitled to indemnification hereunder, on the other hand,
pursuant to which the Corporation and each such Director, officer or other
person intend to be, and shall be legally bound. No repeal or modification of
this Article 8 shall affect any rights or
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obligations with respect to any state of facts then or theretofore existing
or thereafter arising or any proceeding theretofore or thereafter brought
or threatened based in whole or in part upon any such state of facts.
8.7 PROCEDURAL RIGHTS. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall be enforceable by any person entitled to such
indemnification or reimbursement or advancement of expenses in any court of
competent jurisdiction. The burden of proving that such indemnification or
reimbursement or advancement of expenses is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel and its Stockholders) to have made a
determination prior to the commencement of such action that such indemnification
or reimbursement or advancement of expenses is proper in the circumstances nor
an actual determination by the Corporation (including its Board of Directors,
its independent legal counsel and its Stockholders) that such person is not
entitled to such indemnification or reimbursement or advancement of expenses
shall constitute a defense to the action or create a presumption that such
person is not so entitled. Such a person shall also be indemnified for any
expenses incurred in connection with successfully establishing his or her right
to such indemnification or reimbursement or advancement of expenses, in whole or
in part, in any such proceeding.
8.8 SERVICE DEEMED AT CORPORATION'S REQUEST. Any Director or officer
of the Corporation serving in any capacity (a) another corporation of which a
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majority of the shares entitled to vote in the election of its directors is
held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
8.9 ELECTION OF APPLICABLE LAW. Any person entitled to be
indemnified or to reimbursement or advancement of expenses as a matter of right
pursuant to this Article 8 may elect to have the right to indemnification or
reimbursement or advancement of expenses interpreted on the basis of the
applicable law in effect at the time of the occurrence of the event or events
giving rise to the applicable Proceeding, to the extent permitted by law, or on
the basis of the applicable law in effect at the time such indemnification or
reimbursement or advancement of expenses is sought. Such election shall be
made, by a notice in writing to the Corporation, at the time indemnification or
reimbursement or advancement of expenses is sought; PROVIDED, HOWEVER, that if
no such notice is given, the right to indemnification or reimbursement or
advancement of expenses shall be determined by the law in effect at the time
indemnification or reimbursement or advancement of expenses is sought.
ARTICLE 9
BOOKS AND RECORDS
9.1 BOOKS AND RECORDS. There shall be kept at the Office of the
Corporation correct and complete records and books of account recording the
financial transactions of the Corporation and minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shall
keep
<PAGE>
41
at its principal office, or at the office of the transfer agent or
registrar of the Corporation, a record containing the names and addresses of all
Stockholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof.
9.2 FORM OF RECORDS. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
written form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
9.3 INSPECTION OF BOOKS AND RECORDS. Except as otherwise provided by
law, the Board shall determine from time to time whether, and, if allowed, when
and under what conditions and regulations, the accounts, books, minutes and
other records of the Corporation, or any of them, shall be open to the
Stockholders for inspection.
ARTICLE 10
SEAL
The Corporation may have a corporate seal which shall have the name of
the Corporation inscribed thereon and shall be in such form as may be approved
from time to time by the Board of Directors. The corporate seal may be used by
<PAGE>
42
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and may be changed,
by resolution of the Board. Until so fixed, the fiscal year of the Corporation
shall end on December 31 in each year.
ARTICLE 12
PROXIES AND CONSENTS
Unless otherwise directed by the Board, the Chairman, the Chief
Executive Officer, the President, any Vice President, the Secretary or the
Treasurer, or any one of them, may execute and deliver on behalf of the
Corporation proxies respecting any and all shares or other ownership interests
of any Other Entity owned by the Corporation appointing such person or persons
as the officer executing the same shall deem proper to represent and vote the
shares or other ownership interests so owned at any and all meetings of holders
of shares or other ownership interests, whether general or special, and/or to
execute and deliver consents respecting such shares or other ownership
interests; or any of the aforesaid officers may attend any meeting of the
holders of shares or other ownership interests of such Other Entity and thereat
vote or exercise any or all other powers of the Corporation as the holder of
such shares or other ownership interests.
<PAGE>
43
ARTICLE 13
EMERGENCY BY-LAWS
Unless the Certificate of Incorporation provides otherwise, the
following provisions of this Article 13 shall be effective during an emergency,
which is defined as when a quorum of the Corporation's Directors cannot be
readily assembled because of some catastrophic event. During such emergency:
13.1 NOTICE TO BOARD MEMBERS. Any one member of the Board or any one
of the following officers: Chairman, Chief Executive Officer, President, any
Vice President, Secretary, or Treasurer, may call a meeting of the Board.
Notice of such meeting need be given only to those Directors whom it is
practicable to reach, and may be given in any practical manner, including by
publication and radio. Such notice shall be given at least six hours prior to
commencement of the meeting.
13.2 TEMPORARY DIRECTORS AND QUORUM. One or more officers of the
Corporation present at the emergency Board meeting, as is necessary to achieve a
quorum, shall be considered to be Directors for the meeting, and shall so serve
in order of rank, and within the same rank, in order of seniority. In the event
that less than a quorum of the Directors are present (including any officers who
are to serve as Directors for the meeting), those Directors present (including
the officers serving as Directors) shall constitute a quorum.
13.3 ACTIONS PERMITTED TO BE TAKEN. The Board as constituted in
Section 13.2, and after notice as set forth in Section 13.1 may:
<PAGE>
44
13.3.1 prescribe emergency powers to any officer of the
Corporation;
13.3.2 delegate to any officer or Director, any of the powers of
the Board;
13.3.3 designate lines of succession of officers and agents, in
the event that any of them are unable to discharge their duties;
13.3.4 relocate the principal place of business, or designate
successive or simultaneous principal places of business; and
13.3.5 take any other convenient, helpful or necessary action to
carry on the business of the Corporation.
ARTICLE 14
AMENDMENTS
These By-laws may be amended or repealed and new By-laws may be
adopted by a vote of the holders of shares entitled to vote in the election of
Directors or by the Board. Any By-laws adopted or amended by the Board may be
amended or repealed by the Stockholders entitled to vote thereon.
<PAGE>
CERTIFICATE OF STOCK
NUMBER [LOGO] SHARES
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
THE NORTH FACE, INC.
CUSIP 659317 10 1
- --------------------------------------------------------------------------------
THIS CERTIFIES that
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.0025 PER
SHARE, OF
----------------------------- --------------------------
- --------------------------------THE NORTH FACE, INC.--------------------------
----------------------------- --------------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the fascimile
signatures of its authorized officers.
Dated:
CERTIFICATE OF STOCK
/s/ [SEAL] /s/
SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _________ Custodian _____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODES OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________________
_____________________________________________
_____________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBER-
SHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
[Letterhead of Paul, Weiss, Rifkind, Wharton & Garrison]
June 24, 1996
The North Face, Inc.
2013 Farallon Drive
San Leandro, California 94577
The North Face, Inc.
Registration Statement on Form S-1
Registration No. 333-04107
----------------------------------
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement (the
"Registration Statement"), filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations promulgated thereunder (the "Rules"), we have been requested by
The North Face, Inc., a Delaware corporation (the "Company"), to furnish our
opinion as to the legality of 2,990,000 shares (including up to 390,000 shares
issuable upon exercise of the underwriters' over-allotment options) of the
Company's common stock, par value $.0025 per share (the "Common Stock"),
registered for sale thereunder.
In connection with the furnishing of this opinion, we have reviewed
(i) the Registration Statement (including all amendments thereto filed on or
prior to the date hereof); (ii) the form of the Underwriting Agreement included
as Exhibit 1.1 to the Registration Statement (the "Underwriting Agreement");
(iii) a specimen of Common Stock certificate included as Exhibit 4.1 to the
Registration Statement; (iv) the proposed form of the Company's Amended and
Restated Certificate of
<PAGE>
Incorporation filed as Exhibit 3.1 to the Registration Statement (the "New
Charter") and the proposed form of Amended and Restated By-laws of the
Corporation filed as Exhibit 3.2 to the Registration Statement; and (vi) records
of certain of the Company's corporate proceedings. We also have examined and
relied upon representations as to factual matters contained in certificates of
officers of the Company, and have made such other investigations of fact and law
and have examined and relied upon the originals, or copies certified or
otherwise identified to our satisfaction, of such documents, records,
certificates or other instruments, and upon such factual information otherwise
supplied to us, as in our judgment are necessary or appropriate to render the
opinion expressed below. In addition, we have assumed, without independent
investigation, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity of original documents
to all documents submitted to us as certified, photostatic, reproduced or
conformed copies, the authenticity of all such latter documents and the legal
capacity of all individuals who have executed any of the documents.
Based upon the foregoing, we are of the opinion that, when the New
Charter is filed with the Secretary of State of Delaware and the Common Stock is
issued, delivered and paid for as contemplated in the Registration Statement and
the Underwriting Agreement, the Common Stock will be duly authorized, validly
issued, fully paid and nonassessable.
Our opinion expressed above is limited to the General Corporation Law
of the State of Delaware. Please be advised that no member of this firm is
admitted to practice in the State of Delaware. Our opinion is rendered only
with respect to laws, and the rules, regulations and orders thereunder, which
are currently in effect.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" contained in the Prospectus included in the Registration Statement. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required by the Act or the Rules.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
DRAFT
AMENDMENT NO. 3 DATED AS OF _____________, 1996 ("AMENDMENT NO. 3") TO
SUBORDINATED NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED AS OF JUNE 7, 1994
BETWEEN THE NORTH FACE, INC. AND
WHITNEY SUBORDINATED DEBT FUND, L.P.
This Amendment No. 3, dated as of ____________, 1996, is entered into
between THE NORTH FACE, INC., a Delaware corporation (the "Company"), and
WHITNEY SUBORDINATED DEBT FUND, L.P., a Delaware limited partnership ("Whitney
Debt Fund"), in its capacity as sole holder of the Securities as defined in, and
issued and sold to the Whitney Debt Fund pursuant to, the provisions of the
Subordinated Note and Common Stock Purchase Agreement dated as of June 7, 1994,
between the Company and Whitney Debt Fund, as amended by Amendment No. 1 thereto
dated as of March 1, 1995 and Amendment No. 2 thereto dated as of March 27, 1996
(collectively, the "Note Agreement").
WHEREAS, the Company has filed a registration statement on Form S-1 on May
20, 1996, with the Securities and Exchange Commission in contemplation of the
Company's initial public offering of its Common Stock (as described in the
registration statement as the same may be amended from time to time, the
"Initial Public Offering");
WHEREAS, the Company desires to enter into that certain Second Amended and
Restated Loan and Security Agreement dated as of ____________, 1996, among
Heller Financial, Inc. as a lender and as agent ("Agent") for the financial
institutions parties thereto ("Lenders") and the Company (the "Senior Loan
Agreement"), which amends and restates the Amended and Restated Loan and
Security Agreement dated as of March 1, 1995, as amended by certain First,
Second, Third and Fourth Amendments thereto, among the same parties;
WHEREAS, the Senior Loan Agreement will become effective only upon
consummation of the Initial Public Offering and satisfaction of other conditions
stated therein, and provides for (i) a prepayment of outstanding term and
certain revolving indebtedness upon the Company's completion of its Initial
Public Offering, restatement of certain revolving and term debt facilities, and
adjustments in interest rates and borrowing base calculations, and (ii) other
related amendments, loan documents and exhibits as described in the Senior Loan
Agreement; and
WHEREAS, the Whitney Investors (as described in the Amended Loan Agreement)
desire to consent to the Senior Loan Agreement; and
WHEREAS, the parties hereto desire, effective upon consummation of the
Initial Public Offering and effectiveness of the Senior Loan Agreement, to (i)
restate and further amend certain provisions of the Note Agreement and to use
$10 million or more from proceeds of the Company's initial public offering to
prepay a portion of the outstanding principal under the Subordinated Promissory
Note dated as of June 7, 1994, issued pursuant to the Note Agreement
1
<PAGE>
(the "Original Note"), and (ii) issue and deliver to Whitney Debt Fund the
Amended and Restated Subordinated Promissory Note in the form attached hereto as
Exhibit A (the "Restated Note") against delivery to the Company, and
cancellation, of the Original Note.
NOW, THEREFORE, in consideration of the foregoing, the agreements set forth
herein and for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
1. PREPAYMENT OF PRINCIPAL AND RESTATED NOTE. On or within five (5) Business
Days after the date this Amendment No. 3 becomes effective under Section 2
below, (i) the Company shall pay Whitney Debt Fund (by wire transfer of
immediately available dollars of the United States of America) not less than ten
million dollars ($10,000,000) from the proceeds of the Initial Public Offering
to be applied as a mandatory prepayment of a portion of the outstanding
principal under the Original Note, plus accrued and unpaid interest thereon, and
shall issue, duly execute and deliver to Whitney Debt Fund the Amended and
Restated Subordinated Note in the form attached hereto as Exhibit A setting
forth the date of such prepayment as the date of the Restated Note and the
outstanding principal amount of the Original Note reduced by the amount of such
prepayment as the principal amount of the Restated Note; and (ii) Whitney Debt
Fund shall deliver the executed original of the Original Note to the Company for
cancellation against delivery to Whitney Debt Fund of the prepayment amount and
Restated Note required by this Section 3.
2. EFFECTIVENESS. This Amendment No. 3 and the prepayment requirements,
amendments and other provisions hereof, shall become and be effective upon the
prior or concurrent satisfaction of all of the following conditions not later
than December 31, 1996:
(a) The Company shall have consummated the Initial Public Offering and
shall have received therefrom offering proceeds of twenty seven million dollars
($27,000,000) or more after deducting underwriting discounts and commissions and
expenses of the offering.
(b) The Closing Date under and as defined in the Senior Loan Agreement
shall have occurred.
3. CONSENTS AND AMENDMENTS RELATING TO ORIGINAL NOTE AND NOTE AGREEMENT
(a) Whitney Debt Fund hereby (i) consents to the Company's entering into
the Senior Loan Agreement as defined herein, and (ii) agrees to accept a
prepayment under the Original Note in the amount stated in Section 1 above in
place of the mandatory prepayment amount otherwise stated to be due under the
Original Note upon the Initial Public Offering and further agrees that upon the
prepayment stated in Section 1 hereof, no further sums shall be due under
Section 3 (concerning mandatory prepayment) of the Original Note.
2
<PAGE>
(b) The following definitions are hereby variously restated, amended or
added to Article 1 of the Note Agreement (and all other definitions set forth
therein as of June 7, 1994, shall also continue to apply):
"AGENT" means Heller Financial, Inc. as Agent under the Senior Loan
Agreement, any successor agent under the Senior Loan Agreement and any agent
under any agreement refinancing the Senior Loan Agreement.
"DOMESTIC SUBSIDIARY" shall include TNF Canada and its Subsidiaries until
TNF Canada enters into a Permitted Canadian Financing, and thereafter TNF Canada
and its Subsidiaries shall no longer be Domestic Subsidiaries.
"FISCAL YEAR" means each twelve-month period ending on December 31 in each
year (or for the first fiscal year following the Closing Date, the period from
the Closing Date to December 31, 1994).
"FIXED CHARGES" : the word "LESS" before clause (d) is changed to "PLUS".
"LENDERS" means those financial institutions parties to the Senior Loan
Agreement.
"MANAGEMENT STOCK PLANS" means any existing or future stock purchase,
savings, option, bonus, stock appreciation, profit sharing, thrift, incentive,
pension or similar plan or contract approved by the Company's Board of Directors
for the benefit of any of the Company's employees, officers, directors, or
consultants.
"NOTE" means the Note described in the third Whereas clause as the same may
be amended from time to time, or any note or notes issued by the Company in
exchange therefor or in replacement thereof.
"PERMITTED CANADIAN FINANCING" has the meaning set forth in the Senior Loan
Agreement.
"PERMITTED ENCUMBRANCES" is amended to add the following clauses (i) and
(j): (i) Liens in favor of the Company granted by TNF Canada, which may be
assigned to Agent, and (j) Liens securing Indebtedness of TNF Canada permitted
under the Senior Loan Agreement.
"SENIOR DEBT" shall mean Senior Indebtedness as defined in the Note.
"SENIOR LOAN AGREEMENT" shall mean that certain Second Amended and Restated
Loan and Security Agreement dated as of ____________, 1996, among Heller
Financial, Inc. as a lender and as agent ("Agent") for the financial
institutions parties thereto ("Lenders") and the Company, which amends and
restates the Amended and Restated Loan and Security Agreement dated as of
March 1, 1995, as amended by certain First, Second, Third and Fourth Amendments
thereto, among the same parties.
3
<PAGE>
"TNF CANADA" means The North Face (Canada), Inc.
"TNF SCOTLAND" shall be redesignated TNF Europe (with corresponding changes
to each reference to TNF Scotland) and shall mean The North Face (Europe)
Limited, a private limited company incorporated in Scotland under the Companies
Act.
(c) Certain provisions of Article 8 of the Note Agreement are hereby
amended as follows:
(i) In Section 8.1(a) concerning delivery of monthly financial
reports, the reference to "twenty-five (25) days" shall be amended to be "thirty
(30) days."
(ii) The first clause of Section 8.1(g) relating to delivery of
budgets shall be deleted and replaced with the following: "As soon as available
and in any event no later than the end of each Fiscal Year of the Company, . . .
."
(iii) Section 8.1(d) is amended by deleting the words "as in effect
on the date hereof" from clause (4) thereof.
(d) Article 9 of the Note Agreement is hereby amended and restated in its
entirety as follows:
ARTICLE 9
NEGATIVE COVENANTS
Until the payment by the Company of all principal of and interest on the
Notes and all other amounts due at the time of payment of such principal and
interest to the Holders under this Agreement and the Notes, including, without
limitation, all fees, expenses and amounts due at such time in respect of
indemnity obligations under Article 7, the Company hereby covenants and agrees
with the Holders of the Notes as follows:
9.1 INDEBTEDNESS AND LIABILITIES. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly create, incur, assume,
guaranty, or otherwise become or remain directly or indirectly liable, on a
fixed or contingent basis, with respect to any Indebtedness except: (a) the
Obligations and any refinancings set forth in the definition of "Senior
Indebtedness" in the Note; (b) Indebtedness not to exceed $250,000 in the
aggregate at any time outstanding secured by purchase money Liens;
(c) Indebtedness with respect to Capital Leases not otherwise prohibited
hereunder; (d) Indebtedness existing on the Closing Date and identified on
Schedule 9.1(c) and refinancings thereof in amounts not in excess of that set
forth on such Schedule 9.1(c); PROVIDED, that in no event may any refinancing of
the Indebtedness of TNF Scotland require any guaranty of payment or other credit
support by the Company; (e) Subordinated Debt in an amount not in excess of
$25,200,000; (f) intercompany Indebtedness and accounts receivable of TNF Canada
to the Company; and (g) Indebtedness of TNF Canada
4
<PAGE>
permitted under the Senior Loan Agreement. Except for Indebtedness and
intercompany liabilities described in the preceding sentence, the Company will
not, and will not permit any of its Subsidiaries to, incur any indebtedness or
liabilities except for trade payables, operating leases and other liabilities
not constituting Indebtedness in the ordinary course of business not delinquent
or with respect to which the Company or any of its Subsidiaries is contesting in
good faith the amount or validity thereof by appropriate proceedings and then
only to the extent that the Company or any of its Subsidiaries has established
adequate reserves therefor, if appropriate under GAAP.
9.2 GUARANTIES. Except for guaranties issued to the Purchaser or under
the Loan Documents or endorsements of instruments or items of payment for
collection in the ordinary course of business, customary indemnities to agents,
officers and directors, and any guaranty by the Company of the obligations of
TNF Canada under its lease, the Company shall not, and shall not permit any of
its Subsidiaries to, guaranty, endorse, or otherwise in any way become or be
responsible for any obligations of any other Person, whether directly or
indirectly by agreement to purchase the indebtedness of any other Person or
through the purchase of goods, supplies or services, or maintenance of working
capital or other balance sheet covenants or conditions, or by way of stock
purchase, capital contribution, advance or loan for the purpose of paying or
discharging any indebtedness or obligation of such other Person or otherwise.
The foregoing shall not prohibit Subsidiaries from guarantying the Obligations.
9.3 TRANSFERS, LIENS AND RELATED MATTERS.
(a) TRANSFERS. The Company shall not, and shall not permit any of
its Subsidiaries to, sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to the assets of such
Person, except that the Company and its Subsidiaries may (i) sell Inventory in
the ordinary course of business; (ii) sell the trademarks listed on
Schedule 9.3(a)(ii) pursuant to the Goldwin Purchase Agreement; (iii) with the
prior written consent of the Purchaser not to be unreasonably withheld or
delayed, license trademarks and tradenames in the ordinary course of business
consistent with past practices of Old TNF prior to the Closing Date; (iv)
terminate the leases described on Schedule 9.3(a)(iv); and (v) make voluntary
Asset Dispositions if all of the following conditions are met: (1) the market
value of assets sold or otherwise disposed of in any single transaction or
series of related transactions does not exceed $50,000 and the aggregate market
value of assets sold or otherwise disposed of in any Fiscal Year does not exceed
$150,000; (2) the consideration received is at least equal to the fair market
value of such assets; (3) the sole consideration received is cash; (4) the net
proceeds of such Asset Disposition are applied as required by subsection 2.4(B)
of the Senior Loan Agreement; (5) after giving effect to the sale or other
disposition of the assets included within the Asset Disposition and the
repayment of the Obligations with the proceeds thereof, the Company is in
compliance on a pro forma basis with the covenants set forth in Section 9.16
recomputed for the most recently ended month for which information is available
and is in compliance with all other terms and conditions contained in this
Agreement; and (6) no Event of Default shall result from such sale or other
disposition.
5
<PAGE>
(b) LIENS. Except for Permitted Encumbrances, the Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly create,
incur, assume or permit to exist any Lien on or with respect to any of the
assets of such Person or any proceeds, income or profits therefrom.
(c) NO NEGATIVE PLEDGES. Neither the Company nor any Subsidiary of
the Company shall enter into or assume any agreement (other than this Agreement
and the Loan Documents) prohibiting the creation or assumption of any Lien upon
its properties or assets, whether now owned or hereafter acquired, other than
any such agreement entered into by TNF Scotland prior to the Closing Date or in
connection with a refinancing of Indebtedness of TNF Scotland permitted by
subsection 9.1.
(d) NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO THE COMPANY.
Except as provided herein, the Company will not and will not permit any of its
Subsidiaries directly or indirectly to create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Subsidiary to: (1) pay dividends or make any other
distribution on any of such Subsidiary's capital stock owned by the Company or
any Subsidiary of the Company, other than any such agreement entered into by TNF
Scotland prior to the Closing Date; or (2) subject to subordination provisions,
pay any indebtedness owed to the Company or any other Subsidiary; (3) make loans
or advances to the Company or any other Subsidiary; or (4) transfer any of its
property or assets to the Company or any other Subsidiary.
(e) PERMITTED CANADIAN FINANCING. Notwithstanding the other
provisions of this Section 9.3, TNF Canada may enter into a Permitted Canadian
Financing.
9.4 INVESTMENTS AND LOANS. The Company shall not, and shall not permit
any of its Subsidiaries to, make or permit to exist investments in or loans to
any other Person, except: (a) Cash Equivalents; (b) loans and advances to
employees for moving, entertainment, travel and other similar expenses in the
ordinary course of business in an aggregate outstanding amount not in excess of
$200,000 at any time; (c) the investment of the Company in the stock of TNF
Scotland existing on the Closing Date (but excluding any additional investments,
by capital contribution or otherwise, or loans); and (d) the investment (by
loan, advance, capital contribution or otherwise) of the Company in TNF Canada
to the extent not prohibited by the Senior Loan Agreement or by any amendment or
restatement thereof.
9.5 RESTRICTION ON FUNDAMENTAL CHANGES. Neither the Company nor any of
its Subsidiaries will: (a) enter into any transaction of merger or
consolidation; (b) liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution); (c) convey, sell, lease, sublease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business or assets, or the capital stock of any of its
Subsidiaries, whether now owned or hereafter acquired; or (d) acquire by
purchase or otherwise all or any substantial part of the business or assets of,
or stock or other evidence of beneficial ownership of, any Person.
6
<PAGE>
9.6 TRANSACTIONS WITH AFFILIATES. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, enter into or permit
to exist any transaction (including the purchase, sale or exchange of property
or the rendering of any service) with any Affiliate or with any officer,
director or employee of the Company or any of its Subsidiaries, except for
(a) transactions in the ordinary course of, and pursuant to the reasonable
requirements of, the Company's or a Subsidiary's business and upon fair and
reasonable terms which are fully disclosed to the Purchaser and which are no
less favorable to the Company or such Subsidiary than it would obtain in a
comparable arm's length transaction with an unaffiliated Person; (b) the
transactions set forth in the Goldwin Purchase Agreement; (c) awards under the
Management Stock Plans and repurchases of securities thereunder as provided for
in such plans; and (d) the payment of fees pursuant to this Agreement to the
extent permitted under subsection 7.8 of the Senior Loan Agreement. The
foregoing shall not prohibit the transactions contemplated by the Preferred
Stock Purchase Agreement, the Restated Certificate of Incorporation or the
Management Options
9.7 ENVIRONMENTAL LIABILITIES. The Company will not, and will not permit
any of its Subsidiaries to: (a) violate in any material respect any applicable
Environmental Law; (b) dispose of any Hazardous Materials (except in accordance
with applicable law) into or onto or from, any real property owned, leased or
operated by any of its Subsidiaries; or (c) permit any Lien imposed pursuant to
any Environmental Law to be imposed or to remain on any real property owned,
leased or operated by the Company or any of its Subsidiaries.
9.8 CONDUCT OF BUSINESS. From and after the Closing Date, the Company
will not, and will not permit any of its Subsidiaries to, engage in any business
other than businesses of the type engaged in by the Company as of June 1, 1996.
9.9 COMPLIANCE WITH ERISA. The Company will not, and will not permit any
of its Subsidiaries to, establish any new Employee Benefit Plan or amend any
existing Employee Benefit Plan if the liability or increased liability resulting
from such establishment or amendment is material. Neither the Company nor any
Subsidiary shall fail to establish, maintain and operate each Employee Benefit
Plan in compliance in all material respects with the provisions of ERISA, the
Code and all other applicable laws and the regulations and interpretations
thereof.
9.10 TAX CONSOLIDATIONS. The Company will not, and will not permit any of
its Subsidiaries to, file or consent to the filing of any consolidated income
tax return with any Person other than the Company or any of its Subsidiaries.
9.11 SUBSIDIARIES. The Company will not and will not permit any of its
Subsidiaries to, establish, create or acquire any new Subsidiaries without the
Purchaser's prior written consent. TNF Canada will remain a wholly-owned
Subsidiary of the Company.
9.12 FISCAL YEAR. Neither the Company nor any Subsidiary of the Company
shall change its Fiscal Year.
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9.13 PRESS RELEASE; PUBLIC OFFERING MATERIALS. The Company will not, and
will not permit any of its Subsidiaries to, disclose the name of the Purchaser
in any press release or in any prospectus, proxy statement or other materials
filed with any governmental entity relating to a public offering of the capital
stock of the Company or any of its Subsidiaries without prior notice to the
Purchaser and the Purchaser's approval of the disclosure.
9.14 RESTRICTION ON CERTAIN AMENDMENTS. The Company shall not agree to or
permit any alteration, amendment or supplement to the Senior Loan Agreement if,
as a result of or in connection with such alteration, amendment or supplement,
(i) the principal amount of Senior Debt outstanding (including the maximum
commitment for any revolving credit, letter of credit or similar commitment for
any revolving credit, letter of credit or similar credit facility) would exceed
$77,000,000, (ii) the annual rate of interest applicable in connection with the
Senior Debt would be increased, (iii) the fees, prepayment charges or other
amounts (other than interest) due in connection with the Senior Debt would be
increased, (provided that this shall not prohibit payment of reasonable fees in
connection with any amendment or waiver of the Senior Loan Agreement) (iv) the
final maturity date of any Senior Debt or the maturity date of any regular or
scheduled payment or prepayment of principal of the Senior Debt would be
advanced to an earlier date, or (v) any of the covenants contained in Section 6
of the Senior Loan Agreement, or any of the related definitions contained in
Section 1.1 thereof, shall be made more restrictive, nor shall any covenants not
present in the Loan Documents as of the date hereof, if based on the financial
condition of the Company or its Subsidiaries, be added.
9.15 NO INCONSISTENT AGREEMENTS. Except as contemplated in the Note, the
Senior Loan Agreement or any other Transaction Document (the "CONTEMPLATED
RESTRICTIONS"), neither the Company nor any of its Subsidiaries shall enter into
any Contractual Obligation or enter into any amendment or other modification to
any currently existing Contractual Obligation or to the Restated Certificate of
Incorporation or By-laws of the Company which by its terms restricts or
prohibits the ability of the Company, to a greater extent than the Contemplated
Restrictions, to pay the principal of or interest on the Note.
9.16 FINANCIAL COVENANTS.
(a) MINIMUM EBITDA. Minimum EBITDA at the end of each fiscal quarter
set forth below for the rolling four (4) quarter period (or such lesser period
as may equal the number of fiscal quarters elapsed since the Closing Date)
ending on the last day of each fiscal quarter set forth below shall not be less
than the amount set fort below opposite such date.
FISCAL QUARTER ENDING AMOUNT
--------------------- ------
9/30/94 $3,600,000
12/31/94 $5,400,000
3/31/95 $6,800,000
6/30/95 $6,100,000
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9/30/95 $6,300,000
12/31/95 $6,500,000
3/31/96 $6,500,000
6/30/96 $5,200,000
9/30/96 $7,200,000
12/31/96 $7,800,000
3/1/97 $7,900,000
(b) FIXED CHARGE COVERAGE. Fixed Charge Coverage at the end of each
fiscal quarter for the rolling four (4) quarter period (or such lesser period as
may equal the number of fiscal quarters which have elapsed since June 30, 1994,
not including the quarter ended June 30, 1994) ending on the last day of each
fiscal quarter shall not be less than 1.0.
(c) TOTAL INTEREST COVERAGE. Total Interest Coverage at the end of
each fiscal quarter for the rolling four (4) quarter period (or such lesser
period as may equal the number of fiscal quarters which have elapsed since June
30, 1994, not including the quarter ended June 30, 1994) ending on the last day
of each fiscal quarter shall not be less than 1.4.
(d) LEVERAGE RATIO. Commencing with the fiscal quarter ending March
31, 1995, the Leverage Ratio at the end of each fiscal quarter for the rolling
four (4) quarter period (or three (3) fiscal quarters as of March 31, 1995)
ending on the last day of each fiscal quarter shall not exceed 7.00.
(e) PERMITTED CANADIAN FINANCING. If TNF Canada enters into a
Permitted Canadian Financing, the Company and the Holders agree to negotiate in
good faith in order to amend the covenants contained in this Section 9.16 and
the related definitions to exclude TNF Canada and provide criteria for
evaluating the Company's performance and financial condition which shall be the
same after such exclusion and consistent with corresponding amendments to the
Senior Loan Agreement.
4. EFFECT OF AMENDMENT. This Amendment No. 3 is duly executed in accordance
with Sections 11.4 and 11.5 of the Note Agreement and Section 6 of the Original
Note, and, except as specifically set forth above, all covenants, terms,
provisions and conditions of the Note Agreement as amended and the Note are, and
shall remain, in full force and effect. If this Amendment No. 3 does not become
effective in accordance with the provisions of Section 2 hereof, then this
Amendment No. 3 shall have no effect, and the Purchase Agreement as heretofore
amended and the Original Note shall continue in full force and effect.
5. GOVERNING LAW. This Amendment No. 3 shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
principles of conflict of laws of such state.
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6. COUNTERPARTS. This Amendment No. 3 may be executed in any number of
counterparts evidenced by manual signatures hereto delivered directly or sent by
facsimile transmission, and by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute one and the same agreement.
THE NORTH FACE, INC. WHITNEY SUBORDINATED DEBT FUND, L.P.
By ________________________ By ____________________________
Marsden S. Cason Ray E. Newton, III
Chief Executive Officer a General Partner
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DRAFT
EXHIBIT A TO AMENDMENT NO. 3
TO SUBORDINATED NOTE PURCHASE AGREEMENT
BETWEEN THE NORTH FACE, INC. AND
WHITNEY SUBORDINATED DEBT FUND, L.P.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT IN THE MANNER PROVIDED
IN SECTION 8 HEREOF.
THE NORTH FACE, INC.
AMENDED AND RESTATED SUBORDINATED PROMISSORY NOTE
DUE JUNE 7, 2001
New York, New York
____________, 1996
FOR VALUE RECEIVED, the undersigned, THE NORTH FACE, INC., a Delaware
corporation (the "COMPANY"), promises to pay to the order of WHITNEY
SUBORDINATED DEBT FUND, L.P., or its registered assigns (the "HOLDER"), the
principal sum of ________________
__________________________________________________________________ on June 7,
2001, with interest thereon from time to time as provided herein.
1. PURCHASE AGREEMENT. This Amended and Restated Subordinated Promissory
Note (this "NOTE") is issued in exchange for that certain Subordinated
Promissory Note (the "ORIGINAL NOTE") dated as of June 7, 1994, issued in the
original principal amount of $24,333,333 pursuant to the Subordinated Note and
Common Stock Purchase Agreement, dated as of June 7, 1994, between the Company
and the initial Holder, as amended (the "PURCHASE AGREEMENT"). This Note states
a reduced principal balance of the Subordinated Indebtedness following a certain
partial prepayment of ten million dollars or more of principal under the
Original Note in connection with the Company's Initial Public Offering (as
defined in Section 4 hereof) and amends and restates the other provisions of the
Original Note. The Original Note has been returned to the Company and canceled
concurrently with the issuance and delivery of this Note. The Holder is and
shall be entitled to the benefits of this Note and the Purchase Agreement and
may enforce the agreements of the Company contained herein and therein and
exercise the remedies provided for hereby and thereby or otherwise available in
respect hereto and thereto. Capitalized terms used herein
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without definition are used herein with the meanings ascribed to such term in
the Purchase Agreement.
2. INTEREST. The Company promises to pay interest on the principal
amount of this Note at the rate of 10.101% per annum. The Company shall pay
accrued interest quarterly on each March 20, June 20, September 20, and December
20 of each year or, if any such date shall not be a Business Day, on the next
succeeding Business Day to occur after such date (each date upon which interest
shall be so payable, an "INTEREST PAYMENT DATE"), beginning on September 20,
1996. Interest on this Note shall be paid by wire transfer of immediately
available funds to an account designated by the Holder. Interest on this Note
shall accrue from the date of issuance until repayment of the principal and
payment of all accrued interest in full. Interest shall be computed on the
basis of a 360 day year of twelve 30-day months. Notwithstanding the foregoing
provisions of this Section 2, but subject to applicable law, upon the occurrence
and during the continuance of an Event of Default, principal of and overdue
interest on this Note shall bear interest, from the date of the occurrence of
such Event of Default until such Event of Default is cured or waived payable on
demand in immediately available funds, at a rate equal to the rate of interest
otherwise in effect pursuant to this Section 2, PLUS 2% per annum. Subject to
applicable law, any interest that shall accrue on overdue interest on this Note
as provided in the preceding sentence and shall not have been paid in full on or
before the next Interest Payment Date to occur after the Interest Payment Date
on which the overdue interest became due and payable shall itself be deemed to
be overdue interest on this Note to which the preceding sentence shall apply.
3. MANDATORY PREPAYMENT. [Intentionally deleted.]
4. OPTIONAL PREPAYMENT.
(a) Upon notice given to the Holder as provided in subsection (b) of
this Section 4, the Company, at its option, may:
(i) use all or a portion of the Gross Cash Proceeds in excess of
thirty million dollars ($30,000,000) from the Initial Public Offering to prepay
principal outstanding under this Note to the extent the Company elects to use
such proceeds therefor in addition to the prepayment of the Subordinated
Indebtedness referred to in Section 1 hereof, without penalty or premium and
whether or not any Senior Indebtedness is then outstanding; or
(ii) use all or a portion of the Gross Cash Proceeds from a
Secondary Public Offering to prepay all or any portion of this Note, pro rata
with the prepayment of all other Notes issued pursuant to the Purchase
Agreement, at any time, by paying an amount equal to the outstanding principal
amount of this Note, or the portion of this Note called for prepayment, together
with interest accrued and unpaid thereon to the date fixed for prepayment and
all other amounts due under this Note and the Purchase Agreement, without
penalty or premium and whether or not any Senior Indebtedness is then
outstanding, provided that neither a Blockage
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Period nor a Remedy Standstill Period as defined in Section 8 hereof is in
effect on the date of any such prepayment hereof; or
(iii) at any time (A) AFTER the prior payment in full in cash of
the Senior Indebtedness and termination of all commitments to extend financing
for Senior Indebtedness, or (B) with the prior written consent of the Lenders to
the extent required therefor under the Senior Loan Agreement (as defined in
Section 8 hereof), prepay all or any portion of this Note, pro rata with the
prepayment of all other Notes issued pursuant to the Purchase Agreement, at any
time, by paying an amount equal to the outstanding principal amount of this
Note, or the portion of this Note called for prepayment, together with interest
accrued and unpaid thereon to the date fixed for prepayment and all other
amounts due under this Note and the Purchase Agreement, without penalty or
premium.
For the purposes of this Section 4, "PUBLIC OFFERING" means the sale by
the Company of its capital stock upon the closing of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act (or any substitute procedure for public offerings of securities under the
Securities Act as the same may be amended in the future); "INITIAL PUBLIC
OFFERING" means the first Public Offering by the Company; "SECONDARY PUBLIC
OFFERING" means any Public Offering subsequent to the Initial Public Offering;
and "GROSS CASH PROCEEDS" means the gross cash proceeds received by the Company
from a Public Offering.
(b) The Company shall give written notice of prepayment of this Note
or any portion thereof not less than 10 nor more than 60 days prior to the date
fixed for such prepayment. Such notice of prepayment shall be given in the
manner specified in Section 11.2 of the Purchase Agreement. Upon notice of
prepayment being given by the Company, the Company covenants and agrees that it
will prepay, on the date therein fixed for prepayment, this Note or the portion
hereof so called for prepayment, at the outstanding principal amount thereof or
the portion thereof so called for prepayment together with interest accrued and
unpaid thereon to the date fixed for such prepayment.
5. APPLICATION OF PREPAYMENTS. All prepayments under this Note shall
include payment of accrued interest on the principal amount so prepaid and all
other amounts due under this Note and the Purchase Agreement and shall be
applied first to such other amounts, including all Costs, expenses and
indemnities payable under the Purchase Agreement, then to payment of default
interest, if any, then to payment of accrued interest, and thereafter to
principal.
6. AMENDMENTS. Amendments and modifications of this Note may be made
only in the manner provided in Section 11.4 of the Purchase Agreement.
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7. DEFAULTS AND REMEDIES.
(a) EVENTS OF DEFAULT. An Event of Default shall occur if:
(i) the Company shall default in the payment of the principal
of this Note, when and as the same shall become due and payable, whether at
maturity or at a date fixed for prepayment or by acceleration or otherwise; or
(ii) the Company shall default in the payment of any
installment of interest on this Note according to its terms, when and as the
same shall become due and payable and such default shall continue for a period
of 5 days; or
(iii) the Company shall default in the due observance or
performance of any covenant, condition or agreement contained in Sections
8.1(a), (b) and (c), 8.3, 8.4 or 9.6 of the Purchase Agreement; or
(iv) the Company shall default in the due observance or
performance of any covenant, condition or agreement on the part of the Company
to be observed or performed pursuant to the terms hereof or pursuant to the
terms of the Purchase Agreement (other than those referred to in clauses (i),
(ii) or (iii) of this Section 7(a)), and such default is not remedied or waived
within fifteen (15) days after receipt by the Company of notice from the Holder
of such default; or
(v) any representation, warranty, certification or statement
made by or on behalf of the Company in the Purchase Agreement, the Note, or in
any certificate or other document delivered pursuant hereto or thereto shall
have been incorrect in any material respect when made; or
(vi) the Company shall default (as principal or guarantor) in
the payment of principal of any Indebtedness (other than the Notes) in a
principal amount, individually or in the aggregate, in excess of $500,000 (other
than the Notes), when and as they shall become due and payable whether at stated
maturity, by acceleration or otherwise; or
(vii) any event or condition shall occur that results in the
acceleration of the maturity of any Indebtedness of the Company or any of its
Subsidiaries (other than the Notes), in a principal amount, individually or in
the aggregate, in excess of $500,000; or
(viii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Company or any Subsidiary, or of a substantial part
of its property or assets, under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (b) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Company or any Subsidiary, or for a
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substantial part of its property or assets, or (c) the winding up or liquidation
of the Company or any Subsidiary; and such proceeding or petition shall continue
undismissed for 60 days, or an order or decree approving or ordering any of the
foregoing shall be entered; or
(ix) the Company or any Subsidiary shall (a) voluntarily
commence any proceeding or file any petition seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law, (b)
consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in paragraph
(viii) of this Section 7(a), (c) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or any Subsidiary, or for a substantial part of its property or
assets, (d) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (e) make a general assignment for the
benefit of creditors, (f) become unable, admit in writing its inability or fail
generally to pay its debts as they become due or (g) take any action for the
purpose of effecting any of the foregoing; or
(x) one or more judgments for the payment of money in an
aggregate amount in excess of $500,000 (to the extent not covered by insurance)
shall be rendered against the Company, any Subsidiary or both and the same shall
remain undischarged for a period of 60 days during which execution shall not be
effectively stayed by appeal or otherwise, or any action shall be legally taken
by a judgment creditor to levy upon assets or properties of the Company or any
Subsidiary to enforce any such judgment.
(b) ACCELERATION. If an Event of Default occurs under clauses (a)
(viii) or (ix) (other than subclauses (f) or (g)) of this Section 7, then the
outstanding principal of and all accrued interest on this Note shall
automatically become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are expressly waived. If any other
Event of Default occurs and is continuing, Holders of a majority of the then
outstanding principal amount of the Notes, by written notice to the Company, may
(subject to Section 8(d) hereof) declare the principal of and accrued interest
on all the Notes to be due and payable immediately. Upon such declaration, such
principal and interest shall become immediately due and payable. The Holders of
a majority of the then outstanding principal amount of the Notes may rescind an
acceleration and its consequences if all existing Events of Default have been
cured or waived, if all arrears of interst and other sums payable under the
Notes and the Purchase Agreement, except nonpayment of principal or interest
that has become due solely because of the acceleration, shall have been duly
paid, and if the rescission would not conflict with any judgment or decree. Any
notice of rescission shall be given in the manner specified in Section 11.2 of
the Purchase Agreement.
8. SUBORDINATION. The initial Holder of this Note covenants and agrees,
and each subsequent Holder of this Note, by its acceptance hereof, shall be
deemed to have covenanted and agreed, that the payment of the Subordinated
Indebtedness shall be subordinate and subject in right of payment, to the extent
and in the manner hereinafter set forth, and that each holder of
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Senior Indebtedness shall be deemed to have acquired Senior Indebtedness in
reliance upon the provisions of this Section 8. The provisions of this Section
8 shall be reinstated if at any time any payment of any of the Senior
Indebtedness is rescinded or must otherwise be returned by any holder of Senior
Indebtedness or any representative of such holder upon the insolvency,
bankruptcy or reorganization of any Loan Party (as defined in the Senior Loan
Agreement). Except as expressly provided in this Section 8 or in Section 4
hereof, no Holder shall accept, demand or retain (by set off, redemption,
repurchase or in any other manner) any payment or prepayment of principal of
Subordinated Indebtedness.
(a) DEFINITIONS. As used in this Section 8, the following terms
shall have the following meanings:
"LENDER" shall mean the Agent as defined in the Senior Loan
Agreement, or if there is no Agent, the Lender(s) under the Senior Loan
Agreement.
"MATERIAL SENIOR COVENANT DEFAULT" shall mean (i) any default
under the provisions of subsections 5.1(A) through (C), 5.1(E) through (G), 5.3,
5.8, 5.9, 5.10, 5.13, or Section 6 or 7 of the Senior Loan Agreement, or (ii)
the existence of an Event of Default under subsections 8.1(B) (excluding a
default on this Note unless and until the Holder has delivered a notice pursuant
to 8(d) hereof with respect to such default), 8.1(G), 8.1(H), 8.1(K), 8.1(M) or
8.1(N), 8.1(O) or 8.1(P) of the Senior Loan Agreement.
"SENIOR DEFAULT" shall mean a Senior Payment Default or a
Material Senior Covenant Default.
"SENIOR INDEBTEDNESS" shall mean the Obligations under and as
defined in the Senior Loan Agreement (including without limitation any interest
that accrues after the commencement of any case, proceeding or other legal
action relating to the bankruptcy, insolvency or reorganization of the Company
whether or not such interest constitutes an allowed claim) and any renewal,
extension or refinancing thereof; PROVIDED, HOWEVER, that the principal amount
of Senior Indebtedness shall not exceed $65,000,000 LESS the amount of any
payment or prepayment of principal on the Term Loan (as defined in the Senior
Loan Agreement), LESS any permanent reductions of the aggregate amount of all
Revolving Loan Commitments (as defined in the Senior Loan Agreement) PLUS
$12,000,000; and PROVIDED further that any such refinancing shall not (i) result
in any increase in the amount of, or any earlier scheduled maturity date or
payment date of, any required payment or prepayment of the principal amount of
Senior Indebtedness of the Company or its Subsidiaries, nor (ii) result in any
increase in the rate of interest under the Senior Loan Agreement, nor
(iii) result in any material increase in the prepayment charges, fees or other
amounts payable with respect to such Senior Indebtedness, taken as a whole in
relation to the comparable terms and provisions of the Senior Loan Agreement as
in effect on the date of this Note, and the terms, provisions and conditions of
such renewal, extension or refinancing, taken as a whole, that are comparable to
the terms, provisions and conditions of the Senior Loan Agreement shall not be
materially more burdensome to the
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Company and its Subsidiaries than such terms, provisions and conditions of the
Senior Loan Agreement as in effect on the date of this Note.
"SENIOR PAYMENT DEFAULT" shall mean any default in the payment of
any Senior Indebtedness.
"SENIOR LOAN AGREEMENT" shall mean the Second Amended and
Restated Loan and Security Agreement dated as of __________, 1996, among the
Company, certain financial institutions from time to time parties thereto and
Heller Financial, Inc., as agent for such institutions, as amended,
supplemented, renewed or modified from time to time (in accordance with the
terms thereof) and any agreement restructuring, refunding or refinancing all or
any portion of the obligations under such agreement.
"SUBORDINATED INDEBTEDNESS" shall mean (i) the principal of and
interest (including, without limitation, interest that accrues but is not paid
pursuant to Section 2) on this Note; and (ii) any other obligations of the
Company arising out of or under the Purchase Agreement or this Note.
(b) GENERAL. Subject to the rights of the Holder to receive any
distribution of subordinated securities provided in Section 8(e)(ii), upon the
maturity of any Senior Indebtedness by lapse of time, acceleration, required
prepayment or otherwise, all Senior Indebtedness shall first be paid in full, in
cash or in a manner satisfactory to the holders of such Senior Indebtedness,
before any payment is made on account of the Subordinated Indebtedness or to
acquire this Note.
(c) LIMITATION ON PAYMENT.
(i) Upon the giving by Lender of a Blockage Notice (as defined
below), then unless and until (1) all Senior Defaults that existed on the date
of such Blockage Notice shall have been cured to the satisfaction of Lender or
effectively waived in writing, or (2) the Senior Indebtedness in respect of
which such Senior Defaults shall have occurred shall have been paid in full in
cash or in a manner satisfactory to the holders of the Senior Indebtedness, no
direct or indirect payment (in cash, property, securities or by set-off or
otherwise) of or on account of any Subordinated Indebtedness or as a sinking
fund for this Note or in respect of any redemption, retirement, purchase or
other acquisition of this Note shall be made during any period prior to the
expiration of the Blockage Period (as defined below).
(ii) For purposes of this Section 8, a "BLOCKAGE NOTICE" is a
notice of a Senior Default, given to the Company and the Holder (or if more than
one Holder, to a designated agent for the Holders, which shall be the initial
Holder until the Lender is otherwise notified in writing) by the holder or
holders of a majority in principal amount of the Senior Indebtedness then
outstanding (or their authorized agent); PROVIDED, HOWEVER, that (i) in any 360-
day period, no more than four effective Blockage Notices may be given and (ii)
no Blockage Notice may be
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given by reason of any Senior Default which existed at the time of the giving of
a prior Blockage Notice and which was known at such time to any holder of Senior
Indebtedness.
(iii) For purposes of this Section 8, a "BLOCKAGE PERIOD" with
respect to a Blockage Notice is the period commencing upon the date on which a
Blockage Notice is given by Lender and having a duration as follows:
(1) 180 days if the Senior Default to which the
Blockage Notice refers is a Senior Payment Default; or
(2) 120 days if the Senior Default to which the
Blockage Notice refers is a Material Senior Covenant Default.
Notwithstanding anything to the contrary in this Section 8, no Blockage
Period or Periods may be in effect for more than 180 days in any period of 360
consecutive days; and PROVIDED FURTHER, that no Blockage Period or Periods
resulting from a Material Senior Covenant Default may be in effect for more than
120 days in any period of 360 consecutive days.
(d) LIMITATION ON REMEDIES. As long as any Senior Indebtedness
remains outstanding, upon the occurrence of an Event of Default under this Note,
no Holder shall declare or join in any declaration of this Note to be due and
payable by reason of such Event of Default or otherwise take or cause to be
taken any action against the Company (including, without limitation, commencing
any legal action against the Company or filing or joining in the filing of any
insolvency petition against the Company) prior to the expiration of 10 Business
Days after a notice of intention to accelerate on account of the occurrence of
such Event of Default shall have been given by Holders entitled to cause such
acceleration pursuant to Section 7(b) of this Note to, and received by, the
Company and the holders of the Senior Indebtedness (a "REMEDY STANDSTILL
PERIOD"); PROVIDED, HOWEVER, that in the case of the existence, at the time the
Remedy Standstill Period would otherwise expire, of an effective Blockage
Period, such Remedy Standstill Period shall be extended to the end of such
Blockage Period; PROVIDED FURTHER, that any Remedy Standstill Period shall
expire immediately in the event the holders of any Senior Indebtedness shall
have caused such Senior Indebtedness to become due prior to its stated maturity.
Notwithstanding the foregoing, the Blockage Period and Remedy Standstill
Period shall be inapplicable or cease to be effective if an Event of Default
pursuant to Section 7(a)(viii) or (ix) (other than under clauses (f) or (g)
thereof) shall have occurred and is continuing. In addition, any existing
Remedy Standstill Period shall cease to be effective if at any time during such
period, any holder of Senior Indebtedness seeks to foreclose upon, attach,
seize, take control of or otherwise exercise remedies under the Senior Loan
Agreement or any Security Document (as defined in the Senior Loan Agreement) on
or with respect to a material portion of the assets of the Loan Parties (as
defined in the Senior Loan Agreement) taken as a whole.
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Upon the expiration or termination of any Remedy Standstill Period, the
Holder shall be entitled to exercise any of its rights with respect to this Note
other than any right to accelerate the maturity date of this Note based upon the
occurrence of any Event of Default in respect thereto which has been cured or
otherwise remedied during the Remedy Standstill Period.
(e) SUBORDINATION UPON CERTAIN EVENTS. Upon the occurrence of any
Event of Default under Sections 7(a)(viii) or (ix) of this Note:
(i) Upon any payment or distribution of assets of the Company
to creditors of the Company, holders of Senior Indebtedness shall be entitled to
receive indefeasible payment in full in cash of all obligations with respect to
the Senior Indebtedness before the holder of this Note shall be entitled to
receive any payment in respect of the Subordinated Indebtedness.
(ii) Until all Senior Indebtedness is paid in full, any
distribution to which the Holder would be entitled but for this Section 8 shall
be made to the holders of Senior Indebtedness, as their interests may appear,
except that the Holder may, pursuant to a plan of reorganization under Chapter
11 of the Bankruptcy Code of 1978, as amended, or any similar provision of any
successor legislation thereto, receive securities that are subordinate to the
Senior Indebtedness to at least the same extent as this Note if pursuant to such
plan the aggregate distributions to the holders of the Senior Indebtedness in
the form of cash, securities or other property, by set-off or otherwise, is
equal in value to the full amount of the allowed claim, whether secured or
unsecured, of the holders of the Senior Indebtedness in the manner provided
under Section 8(e)(i) hereof.
(iii) For purposes of this Section 8, a distribution may consist
of cash, securities or other property, by set-off or otherwise.
(iv) Upon any distribution of assets of the Company, the
Holders shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceeding is pending, or a certificate of the liquidating
trustee or the holders of Senior Indebtedness (or their agent) or other Person
making any distribution to such Holders, for the purpose of ascertaining the
Persons entitled to participate in such distribution (subject in all events in
the case of the Holders to the provisions of this Section 8(e)), the holders of
the Senior Indebtedness, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Section 8.
(f) PAYMENTS AND DISTRIBUTIONS RECEIVED. If the Holder shall have
received any payment from or distribution of assets of the Company in respect of
the Subordinated Indebtedness in contravention of the terms of this Section 8
before all Senior Indebtedness is paid in full in cash, then and in such event
such payment or distribution shall be received and held in trust for and shall
be paid over or delivered to the holders of Senior Indebtedness to the extent
necessary to pay all such Senior Indebtedness in full.
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(g) PROOFS OF CLAIM. If, while any Senior Indebtedness is
outstanding, any Event of Default under Section 7(a)(viii) or (ix) of this Note
occurs, the Holder shall duly and promptly take such action as any holder of
Senior Indebtedness may reasonably request to collect any payment with respect
to this Note for the account of the holders of the Senior Indebtedness and to
file appropriate claim or proofs of claim in respect of this Note. Upon the
failure of the Holder to take any such action, each holder of Senior
Indebtedness is hereby irrevocably authorized and empowered (in its own name or
otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution referred to in respect of this Note and to
file claims and proofs of claim and take such other action as it may deem
necessary or advisable for the exercise or enforcement of any of the rights or
interests of the Holder with respect to this Note and the Holder hereby appoints
each holder of Senior Indebtedness or its representative as attorney-in-fact for
such Holder to take any and all actions permitted by this paragraph to be taken
by such Holder.
(h) SUBROGATION. After all amounts payable under or in respect of
Senior Indebtedness are paid in full in cash, the holder of this Note shall be
subrogated to the rights of holders of Senior Indebtedness to receive payments
or distributions applicable to Senior Indebtedness to the extent that
distributions otherwise payable to the holder of this Note have been applied to
the payment of Senior Indebtedness. A distribution made under this Section 8 to
a holder of Senior Indebtedness which otherwise would have been made to the
Holder is not, as between the Company and the Holder, a payment by the Company
on Senior Indebtedness.
(i) RELATIVE RIGHTS. This Section 8 defines the relative rights of
the Holder and the holders of Senior Indebtedness. Nothing in this Section 8
shall (i) impair, as between the Company and the Holder, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
(including default interest) on this Note in accordance with its terms; (ii)
affect the relative rights of the Holder and creditors of the Company other than
holders of Senior Indebtedness; or (iii) prevent the Holder from exercising its
available remedies upon a default or Event of Default, subject to the rights, if
any, under this Section 8 of holders of Senior Indebtedness.
(j) SUBORDINATION MAY NOT BE IMPAIRED BY THE COMPANY. No right of
any holder of any Senior Indebtedness to enforce the subordination of the
indebtedness evidenced by this Note shall be impaired by any failure to act by
the Company or such holder of Senior Indebtedness or by the failure of the
Company or such holder to comply with this Note. The provisions of this Section
8 shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by any holder of Senior Indebtedness as a result of the
insolvency, bankruptcy or reorganization of the Company or any of its
Subsidiaries or otherwise, all as though such payment had not been made.
(k) PAYMENTS. A payment with respect to principal of or interest on
the Subordinated Indebtedness shall include, without limitation, payment of
principal of, and interest
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<PAGE>
on this Note, any depositing of funds for the defeasance of the Subordinated
Indebtedness, any sinking fund and any payment on account of mandatory
prepayment or optional prepayment provisions.
(l) SECTION NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a
payment on account of principal of or interest on or other amounts constituting
Subordinated Indebtedness by reason of any provision of this Section 8 shall not
be construed as preventing the occurrence of an Event of Default under Section
7.
(m) SUBORDINATION. The Holder agrees and consents that without
notice to or assent by such Holder, and without affecting the liabilities and
obligations of the Company and any holder of the Notes and the rights and
benefits of the Holders of the Senior Indebtedness set forth in this Section 8:
(i) The obligations and liabilities of the Company and any
other party or parties for or upon the Senior Indebtedness may, from time to
time, be increased, renewed, refinanced, extended, modified, amended, restated,
compromised, supplemented, terminated, waived or released, except as prohibited
by Section 9.14 of the Purchase Agreement;
(ii) The holders of Senior Indebtedness, and any representative
or representatives acting on behalf thereof, may exercise or refrain from
exercising any right, remedy or power granted by or in connection with any
agreements relating to the Senior Indebtedness; and
(iii) Any balance or balances of funds with any holder of Senior
Indebtedness at any time outstanding to the credit of the Company may, from time
to time, in whole or in part, be surrendered or released, all as the holders of
the Senior Indebtedness, and any representative or representatives acting on
behalf thereof, may deem advisable, and all without impairing, abridging,
diminishing, releasing or affecting the subordination of the Subordinated
Indebtedness to the Senior Indebtedness provided for herein.
(n) CERTAIN BENEFICIARIES. The provisions of this Section 8, and
Sections 2 and 4(a) hereof are for the benefit of the holders from time to time
of Senior Indebtedness and, so long as any Senior Indebtedness remains unpaid
and the obligation to make advances under the Revolving Loan Commitment (as
defined in the Senior Loan Agreement) has not terminated, may not be modified,
rescinded or canceled in whole or in part without the prior written consent
thereto of all holders of Senior Indebtedness.
(o) COVENANTS OF HOLDER. Until all of the Senior Indebtedness has
been fully paid and the obligation to make advances under the Revolving Loan
Commitment has terminated:
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<PAGE>
(i) The Holder shall not hereafter (1) give any subordination
in respect of this Note, (2) convert any or all of this Note to capital stock or
other securities of the Company or (3) take any collateral to secure the Note.
(ii) The Holder shall not release, exchange, extend the time of
payment of, compromise, set off or otherwise discharge any part of this Note or
modify or amend this Note unless otherwise permitted pursuant to the Senior Loan
Agreement.
(iii) The Holder hereby undertakes and agrees for the benefit of
the holders of Senior Indebtedness that, upon the occurrence and during the
continuance of a Senior Default, it shall take any actions reasonably requested
by any holder of Senior Indebtedness to effectuate the full benefit of the
subordination contained herein.
(p) MISCELLANEOUS.
(i) To the extent permitted by applicable law, the Holders of
the Notes and the Company hereby waive (1) notice of acceptance hereof by the
holders of the Senior Indebtedness and (2) all diligence in the collection or
protection of or realization upon the Senior Indebtedness.
(ii) The Company and the Holder hereby expressly agree that the
holders of Senior Indebtedness may enforce any and all rights derived herein by
suit, either in equity or law, for specific performance of any agreement
contained in this Section 8 or in Sections 2 or 4(a) hereof or for judgment at
law and any other relief whatsoever appropriate to such action or procedure.
(iii) The Holder acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an inducement and a
consideration to each holder of Senior Indebtedness, whether such Senior
Indebtedness was created or acquired before or after the issuance of this
Agreement, and each holder of Senior Indebtedness shall be deemed conclusively
to have relied upon such subordination provisions in acquiring and continuing to
hold such Senior Indebtedness.
9. SUITS FOR ENFORCEMENT.
(a) Subject to Section 8, upon the occurrence of any one or more
Events of Default, the holders of a majority in principal amount of the
outstanding Notes may proceed to protect and enforce the rights of all holders
of the Notes by suit in equity, action at law or by other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in the Purchase Agreement or the Notes or in aid of the exercise of
any power granted in the Purchase Agreement or the Notes, or may proceed to
enforce the payment of the Notes, or to enforce any other legal or equitable
right of the holders of the Notes.
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<PAGE>
(b) The holders of a majority in principal amount of the outstanding
Notes may direct the time, method and place of conducting any proceeding for any
remedy available to the holders of the Notes.
(c) In case of any default under this Note, the Company will pay to
the Holder such amount as shall be sufficient to cover the costs and expenses of
such Holder due to such default, as provided in Article 7 of the Purchase
Agreement.
10. REMEDIES CUMULATIVE. No remedy herein conferred upon the Holder is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise. To the extent permitted by applicable law, the Company and the
holders of the Notes severally waive presentment for payment, demand, protest
and notice of dishonor.
11. REMEDIES NOT WAIVED. No course of dealing between the Company and the
Holder or any delay on the part of the Holder in exercising any rights hereunder
shall operate as a waiver of any right.
12. HOLDER; TRANSFER.
(a) The term "HOLDER" as used herein shall also include any
transferee of this Note whose name has been recorded by the Company in the
register referred to in Section 12(b) below. Each transferee of this Note
acknowledges that this Note has not been registered under the Securities Act,
and may be transferred only upon receipt by the Company of an opinion of
counsel, which opinion shall be satisfactory in form and substance to the
Company, stating that this Note may be transferred without registration under
the Securities Act in reliance on an exemption therefrom.
(b) The Company shall maintain a register in its office for the
purpose of registering the Notes and any transfer thereof, which register shall
reflect and identify, at all times, the ownership of any interest in the Notes.
Upon the issuance of this Note, the Company shall record the name of the initial
purchaser of this Note in such register as the first Holder. Thereafter, the
Company shall duly record the name of a transferee on such register promptly
after receipt of the opinion referred to in Section 12(a) above.
13. PAYMENTS. All payments and prepayments of principal of and interest
on this Note shall be made in lawful money of the United States of America.
14. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
13
<PAGE>
15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
16. VARIATION IN PRONOUNS. All pronouns and any variation thereof refer
to the masculine, feminine or neuter, singular or plural, as the context may
require.
17. HEADINGS. The headings in this Note are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
THE NORTH FACE, INC.
By: _____________________________
Name: _______________________
Title: _______________________
14
<PAGE>
DRAFT
AMENDMENT NO. 3 DATED AS OF MARCH ____, 1996 ("AMENDMENT NO. 3") TO
PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF JUNE 7, 1994 AMONG THE NORTH
FACE, INC., WHITNEY 1990 EQUITY FUND, L.P. AND J. H. WHITNEY & CO.
This Amendment No. 3, dated as of _____________, 1996, is entered into
between THE NORTH FACE, INC., a Delaware corporation (the "Company"), and
holders of the Company's Series A Convertible Preferred Stock ("Holders") issued
and sold pursuant to the provisions of the Preferred Stock Purchase Agreement
(the "Purchase Agreement") dated as of June 7, 1994, as amended by Amendment No.
1 thereto dated as of March 1, 1995 and Amendment No. 2 thereto dated as of
March 27, 1996.
WHEREAS, the Company has filed a registration statement on Form S-1 on May
20, 1996, with the Securities and Exchange Commission in contemplation of the
Company's initial public offering of its Common Stock (as described in the
registration statement as the same may be amended from time to time, the
"Initial Public Offering");
WHEREAS, the Company desires to enter into that certain Second Amended and
Restated Loan and Security Agreement dated as of ____________, 1996, among
Heller Financial, Inc. as a lender and as agent ("Agent") for the financial
institutions parties thereto ("Lenders") and the Company (the "Senior Loan
Agreement"), which amends and restates the Amended and Restated Loan and
Security Agreement dated as of March 1, 1995, as amended by certain First,
Second, Third and Fourth Amendments thereto, among the same parties;
WHEREAS, the Senior Loan Agreement will become effective only upon
consummation of the Initial Public Offering and satisfaction of other conditions
stated therein, and provides for (i) a prepayment of outstanding term and
certain revolving indebtedness upon the Company's completion of its Initial
Public Offering, restatement of certain revolving and term debt facilities, and
adjustments in interest rates and borrowing base calculations, and (ii) other
related amendments, loan documents and exhibits as described in the Senior Loan
Agreement; and
WHEREAS, the Whitney Investors (as described in the Senior Loan Agreement)
desire to consent to the Senior Loan Agreement; and
NOW, THEREFORE, in consideration of the foregoing, the agreements set forth
herein and for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
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<PAGE>
1. AGREEMENT OF PREFERRED HOLDERS. Each Holder hereby agrees that upon the
date this Amendment No. 3 becomes effective in accordance with Section 2 below,
Articles 8 and 9 of the Purchase Agreement setting forth certain affirmative and
negative covenants shall be deemed deleted in their entirety from the Purchase
Agreement and shall be of no further force or effect.
2. EFFECTIVENESS. This Amendment No. 3 and the amendments and other provisions
hereof shall become and be effective upon the prior or concurrent satisfaction
of all of the following conditions not later than December 31, 1996:
(a) The Company shall have consummated the Initial Public Offering and
shall have received therefrom offering proceeds of twenty seven million dollars
($27,000,000) or more after deducting underwriting discounts and commissions and
expenses of the offering.
(b) The Closing Date under and as defined in the Senior Loan Agreement
shall have occurred.
3. CONSENT AND AMENDMENTS RELATING TO LOAN AGREEMENT. The Holders hereby
consent to the Company's entering into the Senior Loan Agreement and to the
terms thereof.
4. EFFECT OF AMENDMENT. This Amendment No. 3 is duly executed in accordance
with Sections 10.4 and 10.5 of the Purchase Agreement, and, except as
specifically set forth above, all covenants, terms, provisions and conditions of
the Purchase Agreement are, and shall remain, in full force and effect.
5. GOVERNING LAW. This Amendment No. 3 shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
principles of conflict of laws of such state.
6. COUNTERPARTS. This Amendment No. 3 may be executed in any number of
counterparts evidenced by manual signatures hereto delivered directly or by
facsimile transmission and by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute one and the same agreement.
The North Face, Inc. Whitney 1990 Equity Fund, L.P.
By ______________________ By _______________________
Marsden S. Cason Ray E. Newton, III
Chief Executive Officer a General Partner
J.H. Whitney & Co. Corporate Decisions, Inc.
By _______________________ By _______________________
Ray E. Newton, III Name:
a General Partner
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<PAGE>
[EXECUTION COPY]
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
among
TNF HOLDINGS COMPANY INC.,
J.H. WHITNEY & CO.,
WHITNEY 1990 EQUITY FUND, L.P.
WHITNEY SUBORDINATED DEBT FUND, L.P.
and
MARSDEN S. CASON and WILLIAM A. McFARLANE
----------------------------
Dated as of June 7, 1994
----------------------------
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of June 7, 1994, among TNF
HOLDINGS COMPANY, INC., a Delaware corporation (the "Company"), J. H. WHITNEY
& CO., a New York limited partnership ("Whitney"), WHITNEY 1990 EQUITY FUND,
L.P., a Delaware limited partnership ("Whitney Equity Fund"), WHITNEY
SUBORDINATED DEBT FUND, L.P., a Delaware limited partnership ("Whitney Debt
Fund" and, together with Whitney and Whitney Equity Fund, the "Designated
Holders") , MARSDEN S. CASON ("Cason") and WILLIAM A. McFARLANE ("McFarlane"
and, together with Cason, the "Management Holders").
This Agreement is made in connection with (i) the Subordinated Note
and Common Stock Purchase Agreement, dated as of the date hereof, between the
Company and Whitney Debt Fund, relating to the acquisition by Whitney Debt Fund
of a subordinated promissory note (the "Note") and shares of common stock, par
value $.01 per share ("Common Stock"), of the Company; (ii) the Preferred
Stock Purchase Agreement, dated as of the date hereof , among TNF, Whitney and
Whitney Equity Fund, relating to the acquisition by Whitney and Whitney Equity
Fund of shares of Series A Convertible Preferred Stock, par value $1.00 per
share ("Preferred Stock"), of the Company; (iii) the Management Stock Purchase
and Non-Competition Agreement, dated the date hereof, among the Company and the
stockholders named therein, relating to the acquisition by such stockholders of
an aggregate of 127,875 shares of Common Stock; and (iv) the Company's 1994
Stock Incentive Plan and awards to the Management Holders of options and
restricted stock thereunder. In order to induce (i) Whitney Debt Fund to
acquire the Note and shares of Common Stock and (ii) Whitney and Whitney Equity
Fund to acquire shares of Preferred Stock, the Company has agreed to provide
registration rights with respect to the Registrable Securities (as defined
below) as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for good and valuable consideration the receipt and
sufficiency
<PAGE>
of which is hereby acknowledged the parties hereto agree as follows:
1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Act" means the Securities Act of 1933, as amended.
"Approved Underwriter" has the meaning assigned such term in Section
3(e).
"Common Stock" means the Company's Common Stock, par value $.01 per
share, and any class or series of common stock of the Company authorized after
the date of this Agreement, or any other class of stock resulting from
successive changes or reclassification of such Common Stock.
"Company Underwriter" has the meaning assigned such term in Section
4(a).
"Demand Registration" has the meaning assigned such term in Section
3(a).
"Designated Holder" means Whitney, Whitney Equity Fund and Whitney
Debt Fund and any of their respective transferees to whom Registrable Securities
have been transferred other than a transferee to whom such securities have been
transferred pursuant to a registration under the Act or Rule 144 under the Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" has the meaning assigned such term in Section 2(b).
"Inspector" has the meaning assigned such term in Section 6(a)(viii).
"Management Holdings" has the meaning assigned to such term in the
preamble.
"NASD" has the meaning assigned such term in Section 6(a)(xv).
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"Person" shall mean any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, government, (or an agency or political
subdivision thereof) or other entity of any kind, and shall include any
successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning assigned to such term in the second
paragraph of this Agreement.
"Public Offering" means any offer for sale of Common Stock pursuant to
an effective registration statement filed under the Securities Act.
"Registrable Securities" mean each of the following: (a) any shares
of Common Stock issued or issuable upon conversion of or in exchange for shares
of Preferred Stock, (b) any shares of Common Stock held as of the date hereof by
any party hereto, (c) any shares of Common Stock purchased by a Holder upon
exercise of the preemptive rights granted pursuant to Section 7 of the
Securityholders Agreement and (d) any shares of Common Stock issued or issuable
upon in respect of shares of Common Stock contemplated by clause (a), (b) or (c)
above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"Registration Expenses" has the meaning assigned such term in Section
7.
"SEC" means the Securities and Exchange Commission.
"Securityholders Agreement" means the Securityholders Agreement,
dated as of the date hereof, among the securityholders of the Company named
therein.
2. Securities Subject to this Agreement.
(a) Registrable Securities. For the purposes of this Agreement,
Registrable Securities will cease to be Registrable Securities when (i) a
registration statement covering such Registrable Securities has been declared
effective under the Act by the SEC and such Registrable Securities have been
3
<PAGE>
disposed of pursuant to such effective registration statement or (ii) the entire
amount of Registrable Securities proposed to be sold in a single sale are or, in
the opinion of counsel satisfactory to the Company and the holder of such
Registrable Securities, each in their reasonable judgment, may be distributed to
the public in such single sale pursuant to Rule 144 (or any successor provision
then in force) under the Act.
(b) Holders of Registrable Securities. A Person is deemed to be
a holder of Registrable Securities (a "Holder") whenever such Person owns of
record Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such purchase or conversion has actually been effected and
disregarding any legal restrictions upon the exercise of such rights, other than
options which pursuant to their terms have not become exercisable, or shares of
restricted stock which pursuant to its terms are subject to forfeiture. If the
Company receives conflicting instructions, notices or elections from two or more
persons with respect to the same Registrable Securities, the Company may act
upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities
issuable upon exercise of an option or upon conversion of another security shall
be deemed outstanding for the purposes of this Agreement.
3. Demand Registration.
(a) Request for Demand Registration. At any time after the
shorter of (i) 180 days after the initial Public Offering and (ii) the
expiration of any lock-up period required by the underwriters, if any, in
connection with such initial Public Offering, the Designated Holders may make a
written request for registration of Registrable Securities under the Act, and
under the securities or blue sky laws of any jurisdiction designated by such
holder or holders (a "Demand Registration"); provided that, subject to Section
3(d) hereof, the Company will not be required to effect more than three Demand
Registrations in the aggregate at the request of Designated Holders pursuant to
this Section 3; provided, further, that the Company will not be required to
effect a Demand Registration if the aggregate number of shares of Common Stock
to be
4
<PAGE>
registered is less than 5% of the number of outstanding shares of Common Stock
on a fully diluted basis; provided further, that the Company will not be
required to effect a Demand Registration within the period beginning on the
effective date of a registration statement filed by the Company on its behalf or
on behalf of another holder of Common Stock covering a firm commitment
underwritten Public Offering and ending on the later of (A) 90 days thereafter
and (B) the expiration of any lock-up period required by the underwriters, if
any, in connection therewith. For purposes of the preceding sentence, two or
more registration statements filed in response to one demand shall be counted as
one registration statement. Such request for a Demand Registration shall
specify the amount of the Registrable Securities proposed to be sold, the
intended method of disposition thereof and the jurisdictions in which
registration is desired. Upon a request for a Demand Registration, the Company
shall promptly take such steps as are necessary or appropriate to prepare for
the registration of the Registrable Securities to be registered. Within 15 days
after the receipt of such request, and at least 30 days prior to the filing of
the registration statement therefor, the Company shall give written notice
thereof to all Designated Holders holding Registerable Securities and include in
such registration all Registerable Securities held by a Designated Holder with
respect to which the Company has received written requests for inclusion therein
at least 10 days prior to the filing of the registration statement. Each such
request shall also specify the number of Registerable Securities to be
registered, the intended method of disposition thereof and the jurisdictions in
which registration is desired. Other holders of the Company's Common Stock and
the Company shall be permitted to offer securities under any such Demand
Registration.
(b) Effective Demand Registration. A registration shall not
constitute a Demand Registration until it has become effective and remains
continuously effective for not less than 120 days. The Company shall use its
best efforts to cause any such Demand Registration to become effective not later
than 90 days after it receives a request under Section 2(a) hereof.
(c) Expenses. In any registration initiated as a Demand
Registration, the Company shall
5
<PAGE>
pay all Registration Expenses in connection therewith, whether or not such
Demand Registration becomes effective.
(d) Underwriting Procedures. If the Designated Holders holding
a majority of the Registrable Securities to which the Demand Registration
relates so elect, the offering of such Registrable Securities pursuant to such
Demand Registration shall be in the form of a firm commitment underwritten
offering and the managing underwriter or underwriters selected for such offering
shall be the Approved Underwriter selected in accordance with Section 3(e). In
such event, if the Approved Underwriter advises the Company, which advice shall
be confirmed in writing, that in its opinion the aggregate amount of such
Registrable Securities requested to be included in such offering is sufficiently
large to prevent the Company from effecting a successful offering of such
securities, the Company shall include in such registration only the aggregate
amount of Registrable Securities that in the opinion of the Approved Underwriter
may be sold without any such effect on the success of such offering and shall
reduce, pro rata, the amount of Registrable Securities to be included in such
registration by each Holder that participates in such registration. To the
extent Registerable Securities held by the Designated Holders so requested to be
registered are excluded from the offering to be made pursuant to the Demand
Registration (or any additional Demand Registration provided pursuant to this
sentence), then the Designated Holders of such Registerable Securities shall
have the right to one additional Demand Registration under this Section 3 with
respect to such Registerable Securities.
(e) Selection of Underwriters. If any Demand Registration of
Registrable Securities is in the form of an underwritten offering, the
Designated Holders holding a majority of the Registrable Securities to which
the Demand Registration relates shall select and obtain an investment banking
firm of first class national reputation to act as the managing underwriter of
the offering (the "Approved Underwriter"); provided, that the approved
underwriter shall, in any case, be acceptable to the Company in its
reasonable judgment.
4. Piggy-Back Registration
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<PAGE>
(a) Piggy-Back Rights. If the Company proposes to file a
registration statement under the Act with respect to an offering by the Company
for its own account, or an offering for the account of any stockholder of the
Company or any group of such stockholders holding (on a fully diluted basis) an
aggregate of at least 5% of the outstanding shares of any class of security
(other than a registration statement on Form S-4 or S-8 or any successor or
other forms not available for registering capital stock for sale to the public),
then the Company shall give written notice of such proposed filing to each of
the Holders of Registrable Securities at least 30 days before the anticipated
filing date, and such notice shall describe in detail the proposed registration
and distribution (including those jurisdictions where registration under the
securities or blue sky laws is intended) and offer such Holders the opportunity
to register the number of Registrable Securities as each such Holder may
request. The Company shall use its best efforts (within ten days of the notice
provided for in the preceding sentence) to cause the managing underwriter or
underwriters of a proposed underwritten offering (the "Company Underwriter") to
permit the Holders of Registrable Securities who have requested to participate
in the registration for such offering to include such Registrable Securities in
such offering on the same terms and conditions as the securities of the Company
included therein. Notwithstanding the foregoing, if the Company Underwriter
delivers a written opinion to the Holders of Registrable Securities that the
total amount or kind of securities which they, the Company and any other persons
or entities intend to include in such offering (the "Total Securities") is
sufficiently large so as to prevent the Company from effecting a successful
offering of the Total Securities, then the amount of securities in excess of the
amount to be registered for sale by the Company to be offered for the account of
such Holders and such other persons or entities other than the Company shall be
reduced pro rata to the extent necessary to reduce the Total Securities to the
amount recommended by the Company Underwriter.
(b) Priority of Registrations. If the Company proposes to
register securities pursuant to Section 4(a) hereof on the same day that the
Holders request a registration pursuant to Section 3(a) hereof,
7
<PAGE>
then the registration proposed by the Company shall be given priority.
(c) Expenses. The Company shall bear all Registration Expenses
in connection with any registration pursuant to this Section 4.
5. Holdback Agreements.
(a) Restrictions on Public Sale by Holders. In order to
participate in a registration effected hereby, to the extent not inconsistent
with applicable law, each Holder of Registrable Securities agrees not to effect
any public sale or distribution of any Registrable Securities being registered
or of any securities convertible into or exchangeable or exercisable for such
Registrable Securities, including a sale pursuant to Rule 144 under the Act,
during the period beginning on the filing of such registration statement and
ending on the later of (i) 90 days after the effective date of such registration
statement or (ii) the expiration of any lock-up period (not exceeding 180 days)
required by the underwriters, if any, of such offering (except, in any case, as
part of such registration), if and to the extent requested by the Company in the
case of a non-underwritten Public offering or, if and to the extent requested by
the Company Underwriter, in the case of an underwritten Public Offering.
(b) Restrictions on Public Sale by the Company. The Company
agrees not to effect any public sale or distribution of any of its securities or
any securities convertible into or exchangeable or exercisable for such
securities (except pursuant to registrations on Form S-4 or S-8 or any successor
or other forms not available for registering capital stock for sale to the
public) during the period beginning on the filing of any registration statement
in which the Holders of Registrable Securities are participating and ending on
the later of (i) 90 days after the effective date of any such registration
statement or the commencement of a public distribution of the Registrable
Securities pursuant to such registration statement of and (ii) the expiration of
any lock-up period (not exceeding 180 days) required by the underwriters, if
any, of such offering.
8
<PAGE>
6. Registration Procedures.
(a) Obligations of the Company. Whenever registration of
Registrable Securities has been requested pursuant to Section 3 or 4, the
Company shall use its best efforts to effect the registration and sale of such
Registrable Securities in accordance with the intended method of distribution
thereof as quickly as practicable, and in connection with any such request, the
Company shall, as expeditiously as possible:
(i) prepare and file with the SEC (as promptly as
practicable, but in any event not later than 90 business days after receipt of a
request to file a registration statement with respect to Registrable Securities)
a registration statement on any form for which the Company then qualifies, which
counsel for the Company shall deem appropriate and which form shall be available
for the sale of such Registrable Securities in accordance with the intended
method of distribution thereof, and use its best efforts to cause such
registration statement to become effective; provided, however, that before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company shall (A) provide counsel selected by the Designated
Holders holding a majority of the Registrable Securities being registered in
such registration ("Holders' Counsel") with an adequate and appropriate
opportunity to participate in the preparation of such registration statement and
each prospectus included therein (and each amendment or supplement thereto) to
be filed with the SEC, which documents shall be subject to the review of
Holders' Counsel, and (B) notify the Holders' Counsel and each seller of
Registrable Securities of any stop order issued or threatened by the SEC and
take all reasonable action required to prevent the entry of such stop order or
to remove it if entered;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than 24 months or such shorter period which will terminate
when all Registrable Securities covered by such registration statement have been
sold (but not before the expiration of the 90-day period referred to in Section
4 (3) of the Act and Rule 174 thereunder, if applicable), and comply
9
<PAGE>
with the provisions of the Act with respect to the disposition of all securities
covered by such registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;
(iii) as soon as reasonably possible, furnish to each seller of
Registrable Securities, prior to filing a registration statement, copies of such
registration statement as proposed to be filed, and thereafter such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as each such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller of Registrable Securities requests, and to continue such
qualification in effect in such jurisdiction for as long as is permissible
pursuant to the laws of such jurisdiction, or for as long as any such seller
requests or until all of such Registrable Securities are sold, whichever is
shortest, and do any and all other acts and things which may be reasonably
necessary or advisable to enable any such seller to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such seller;
provided, however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 6(a)(iv), (B) subject itself to
taxation in any such jurisdiction or (C) consent to general service of process
in any such jurisdiction;
(v) use its best efforts to cause the Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the seller or sellers of
Registrable Securities to consummate the disposition of such Registrable
Securities;
10
<PAGE>
(vi) notify each seller of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the Act,
upon discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus and furnish to
each seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, after delivery to the purchasers of
such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
(vii) enter into and perform customary agreements (including an
underwriting agreement in customary form with the Approved Underwriter or
Company Underwriter, if any, selected as provided in Sections 3 or 4) and take
such other actions as are reasonably required in order to expedite or facilitate
the disposition of such Registrable Securities;
(viii) make available for inspection by any seller of
Registrable Securities, any managing underwriter participating in any
disposition pursuant to such registration statement, Holders' Counsel and any
attorney, accountant or other agent retained by any such seller or any
managing underwriter (each, an "Inspector" and collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company and its subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's and its subsidiaries'
officers, directors and employees, and the independent public accountants of
the Company, to supply all information reasonably requested
11
<PAGE>
by any such Inspector in connection with such registration statement;
(ix) if such sale is pursuant to an underwritten offering, obtain
a "cold comfort" letter from the Company's independent public accountants in
customary form and covering such matters of the type customarily covered by
"cold comfort" letters as Holders' Counsel or the managing underwriter
reasonably request;
(x) furnish, at the request of any seller of Registrable
Securities on the date such securities are delivered to the underwriters for
sale pursuant to such registration or, if such securities are not being sold
through underwriters, on the date the registration statement with respect to
such securities becomes effective, an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the seller making such request, covering such legal
matters with respect to the registration in respect of which such opinion is
being given as such seller or underwriters may reasonably request and are
customarily included in such opinions;
(xi) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable but no later than 15 months after the effective
date of the registration statement, an earnings statement covering a period of
12 months beginning after the effective date of the registration statement, in a
manner which satisfies the provisions of Section 11(a) of the Act;
(xii) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed, provided, that the applicable listing requirements are satisfied;
(xiii) keep each seller of Registrable Securities advised in
writing as to the initiation and progress of any registration under Section 3 or
4 hereunder;
12
<PAGE>
(xiv) provide officers' certificates and other customary closing
documents;
(xv) cooperate with each seller of Registrable Securities and
each underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD"); and
(xvi) use best efforts to take all other steps necessary to
effect the registration of the Registrable Securities contemplated hereby and
cooperate with the Designated Holders to facilitate the disposition of such
Registrable Securities pursuant thereto.
(b) Seller Information. The Company shall be entitled to require
each seller of Registrable Securities as to which any registration is being
effected to furnish to the Company such information regarding the distribution
of such securities as the Company may from time to time reasonably request in
writing.
(c) Notice to Discontinue. Each Holder of Registrable Securities
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 6(a)(vi), such Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
6(a)(vi) and, if so directed by the Company, such Holder shall deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the
Company shall give any such notice, the Company shall extend the period during
which such registration statement shall be maintained effective pursuant to this
Agreement (including without limitation the period referred to in Section
6(a)(ii)) by the number of days during the period from and including the date of
the giving of such notice pursuant to Section 6(a)(vi) to and including the date
when the Designated
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<PAGE>
Holder shall have received the copies of the supplemented or amended prospectus
contemplated by and meeting the requirements of Section 6(a)(vi).
7. Registration Expenses.
The Company shall pay all expenses (other than underwriting discounts
and commissions) arising from or incident to the performance of, or compliance
with, this Agreement, including without limitation, (i) SEC stock exchange and
NASD registration and filing fees, (ii) all fees and expenses incurred in
complying with securities or blue sky laws (including reasonable fees, charges
and disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) all printing, messenger and delivery expenses,
(iv) the fees, charges and disbursements of counsel to the Company and of its
independent public accountants and any other accounting and legal fees, charges
and expenses incurred by the Company (including without limitation any expenses
arising from any special audits incident to or required by any registration or
qualification), and (v) the reasonable fees, charges and expenses of any special
experts (provided that a seller of Registrable Securities shall give notice to
the Company, as soon as practicable, of the retention of such special experts)
retained in connection with any Demand Registration or piggyback registration
pursuant to the terms of this Agreement, regardless of whether such registration
statement is declared effective. In connection with each registration
hereunder, the Company shall reimburse the Designated Holders of Registrable
Securities being registered in such registration for the reasonable fees,
charges and disbursements of not more than one counsel chosen by the Designated
Holders holding a majority of Registrable Securities being registered in such
registration. All of the expenses described in this Section 7 are referred to
herein as "Registration Expenses."
8. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder, its officers, directors, partners,
employees and agents and each Person who controls (within the meaning of the Act
or the Exchange Act) such Holder, and any investment adviser and counsel thereof
from and against
14
<PAGE>
any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation and, subject to Section 8(c) hereof,
reasonable fees, disbursements and other charges of legal counsel) arising out
of or based upon any untrue, or alleged untrue, statement of a material fact
contained in any registration statement, prospectus or preliminary prospectus or
notification or offering circular (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such Holder expressly for use
therein. The Company shall also indemnify any underwriters of the Registrable
Securities, their officers, directors and employees and each Person who controls
such underwriters (within the meaning of the Act and the Exchange Act) to the
same extent as provided above with respect to the indemnification of the Holders
of Registrable Securities.
(b) Indemnification by Holders. In connection with any registration
statement in which a Holder is participating pursuant to Section 3 or 4 hereof,
each such Holder shall furnish to the Company in writing such information with
respect to such Holder as the Company may reasonably request or as may be
required by law for use in connection with any such registration statement or
prospectus and each Holder agrees to indemnify and hold harmless the Company,
any underwriter retained by the Company and their respective directors,
officers, employees and each Person who controls the Company or such underwriter
(within the meaning of the Act and the Exchange Act) to the same extent as the
foregoing indemnity from the Company to the Holders, but only with respect to
any such information furnished in writing by such Holder and only to the extent
of the net proceeds received by such Holder in the offering to which such
registration statement relates.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party"),after the
receipt by the
15
<PAGE>
Indemnified Party of any written notice of the commencement of any action, suit,
proceeding or investigation or threat thereof made in writing for which the
Indemnified Party intends to claim indemnification or contribution pursuant to
this Agreement; provided, that the failure so to notify the Indemnifying Party
shall not relieve the Indemnifying Party of any liability that it may have to
the Indemnified Party hereunder. If notice of commencement of any such action
is given to the Indemnifying Party as above provided, the Indemnifying Party
shall be entitled to participate in and, to the extent it may wish, jointly with
any other Indemnifying Party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
Indemnified Party. The Indemnified Party shall have the right to employ
separate legal counsel in any such action and participate in the defense
thereof, but the fees, disbursements and other charges of such legal counsel
(other than reasonable costs of investigation) shall be paid by the Indemnified
Party unless (i) the Indemnifying Party agrees to pay the same, (ii) the
Indemnifying Party fails to assume the defense of such action with legal counsel
satisfactory to the Indemnified Party in its reasonable judgment, (iii) the
named parties to any such action (including any impleaded parties) have been
advised by such legal counsel that either (A) representation of such Indemnified
Party and the Indemnifying Party by the same legal counsel would be
inappropriate under applicable standards of professional conduct or (B) there
may be one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Party. In either of such
cases the Indemnifying Party shall not have the right to assume the defense of
such action on behalf of such Indemnified Party. No Indemnifying Party shall be
liable for any settlement entered into without its written consent, which
consent shall not be unreasonably withheld.
(d) Contribution. If the indemnification provided for in this
Section 8 from the Indemnifying Party is unavailable to an Indemnified Party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of
16
<PAGE>
such losses, claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative faults of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to state
a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above shall
be deemed to include, subject to the limitations set forth in Sections 8(a),
8(b) and 8(c), any fees, charges or expenses (including fees, disbursements
and other charges of legal counsel) reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), a Holder shall not be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holder in the offering to which such registration
statement relates exceeds the amount of any damages that such Holder has
otherwise been required to pay. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person.
(e) Survival. The indemnity and contribution covenants contained in
this Section 8 shall remain operative and in full force and effect regardless of
(i) any investigation made by or on behalf of a Holder or any person controlling
a Holder, (ii) any sale of any Registrable Securities pursuant to this Agreement
and receipt by the Holders of the proceeds thereof, or
17
<PAGE>
(iii) any termination of this Agreement after the initial filing of the
registration statement to which these indemnity and contribution covenants
relate.
9. Rule 144.
The Company covenants that it shall duly and timely file any reports
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the SEC thereunder; and that it shall take such further action as
each Holder of Registrable Securities may reasonably request (including
providing any information necessary to comply with Rules 144 and 144A under the
Act), all to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Act within the limitation
of the exemptions provided by (a) Rule 144 or Rule 144A under the Act, as such
rules may be amended from time to time, or (b) any similar rules or regulations
hereafter adopted by the SEC. The Company shall, upon the request of any Holder
of Registrable Securities, deliver to such Holder a written statement as to
whether it has complied with such requirements.
10. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of this
Agreement shall apply, to the full extent set forth herein with respect to the
Common Stock, to any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for or in
substitution of, the Common Stock and shall be appropriately adjusted for any
stock dividends, splits, reverse splits, combinations, recapitalizations and the
like occurring after the date hereof.
(b) No Inconsistent Agreements. The Company shall not enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement.
(c) Remedies. The Holders, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, shall be
entitled to specific performance of their rights under this Agreement.
The Company agrees that monetary damages
18
<PAGE>
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Agreement and hereby agrees to waive in any
action for specific performance the defense that a remedy at law would be
adequate.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or contents to departures from the provisions hereof may not be given
unless the Company has obtained the prior written consent of the Holders holding
at least a majority of the Registrable Securities.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be made by hand delivery,
recognized overnight courier or telecopier:
If to Whitney, Whitney Equity Fund or Whitney Debt Fund:
J.H. Whitney & Co.
630 Fifth Avenue
New York, New York 10011-0302
Telecopier No.: (212) 332-2422
Attention: Daniel J. O'Brien
with a copy to:
Friedman & Kaplan
875 Third Avenue
New York, New York 10022
Telecopier No.: (212) 355-6401
Attention: Marjorie S. White, Esq.
If to the Company:
The North Face
999 Harrison Street
Berkeley, California 94710
Telecopy No.: (510) 525-3346
Attention: President
with a copy to:
Crosby, Heafey, Roach & May
19
<PAGE>
1999 Harrison Street
Oakland, California 94612-3573
Telecopy No.: (510) 273-8832
Attention: Philip L. Bush, Esq.
If to any Management Holder:
The North Face
999 Harrison Street
Berkeley, California 94710
Telecopy No.: (510) 525-3346
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; and when receipt
is acknowledged, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties; provided, however, that the registration rights and the other
obligations of the Company contained in this Agreement shall with respect to any
Registrable Security be automatically transferred from a Holder to any
subsequent holder of Registrable Securities (including any pledgee but excluding
any person who acquires such securities in a transaction with respect to which a
Registration Statement under the Act is effective at the time or pursuant to a
sale complying with Rule 144 under the Act). Notwithstanding any transfer of
such rights, all of the obligations of the Company hereunder shall survive any
such transferred shall continue to inure to the benefit of all transferees.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws
20
<PAGE>
of the State of New York, without regard to the principles of conflicts of law
of such State.
(j) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the Designated Holders shall
be enforceable to the fullest extent permitted by law.
(k) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
21
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
TNF HOLDINGS COMPANY, INC.
By: /s/ Marsden S. Cason
---------------------------
Name: Marsden S. Cason
Title: President
J.H. WHITNEY & CO.
By: /s/ Ray E. Newton, III
---------------------------
Name: Ray E. Newton, III
A General Partner
WHITNEY 1990 EQUITY FUND, L.P.,
By: /s/ Ray E. Newton, III
---------------------------
Name: Ray E. Newton, III
A General Partner
WHITNEY SUBORDINATED DEBT FUND, L.P.
By: /s/ Ray E. Newton, III
---------------------------
Name: Ray E. Newton, III
A General Partner
/s/ Marsden S. Cason
---------------------------
MARSDEN S. CASON
/s/ William A. McFarlane
---------------------------
WILLIAM A. McFARLANE
22
<PAGE>
AMENDMENT NO. 1 DATED AND EFFECTIVE AS OF JUNE 22, 1995 ("Amendment No. 1") TO
REGISTRATION RIGHTS AGREEMENT (the "Agreement") DATED AS OF JUNE 7, 1994, AMONG
THE NORTH FACE, INC. (formerly named "TNF Holdings Company, Inc."), J.H. WHITNEY
& CO., WHITNEY 1990 EQUITY FUND, L.P., WHITNEY SUBORDINATED DEBT FUND, L.P.,
MARSDEN S. CASON, AND WILLIAM A. MCFARLANE.
This Amendment No. 1 is entered into among the parties named above and William
N. Simon. Capitalized terms used but not defined below shall have the meanings
given them in the Agreement.
1. Additional Party. For all purposes of the Agreement, William N. Simon shall
be a Management Holder in addition to Marsden S. Cason and William A. McFarlane
and shall have the rights and obligations of a Management Holder under the
Agreement.
2. Certain Corrections.
(a) The reference in Section 1 of the Agreement to "Management Holdings"
shall instead be to "Management Holders."
(b) Clause (b) of the defineition of Registrable Securities in Section 1 of
the Agreement shall be deleted, and the following shall be inserted in its
place: "(b) any shares of Common Stock held as of the date hereof by any party
hereto or acquired pursuant to restricted stock or option awards made under the
Company's 1994 Stock Incentive Plan,".
3. General. This Amendment No. 1 is duly approved and executed in accordance
with Section 10(d) of the Agreement, and, except as specifically set forth
above, all covenants, terms, provisions and conditions of the Agreement are, and
shall remain, in full force and effect. This Amendment No. 1 shall be governed
by and construed in accordance with the internal laws of the State of Delaware
without regard to principles of conflicts of law of such state, and may be
[The balance of this page is intentionally left blank.]
1
<PAGE>
executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
THE NORTH FACE, INC. J.H. WHITNEY & CO.
By /s/ Marsden S. Cason By /s/ Ray E. Newton, III
--------------------------------- -------------------------------------
Marsden S. Cason, Chairman Ray E. Newton, III, a General Partner
WHITNEY 1990 EQUITY FUND, L.P. WHITNEY SUBORDINATED DEBT
FUND, L.P.
By /s/ Ray E. Newton By /s/ Ray E. Newton
--------------------------------- -------------------------------------
Ray E. Newton, III, a General Partner Ray E. Newton, III, a General Partner
/s/ Marsden S. Cason /s/ William A. McFarlane /s/ William N. Simon
- -------------------- ------------------------- --------------------
MARSDEN S. CASON WILLIAM A. MCFARLANE WILLIAM N. SIMON
2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
DATED as of March 1, 1995
between
THE NORTH FACE, INC.
as Borrower,
and
HELLER FINANCIAL, INC.,
as Agent and as a Lender
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.3 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . 19
SECTION 2 LOANS AND COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . 20
2.1 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(A) Term Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(B) Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . 21
(C) Seasonal Overadvance Facility. . . . . . . . . . . . . . . . . 22
(D) Eligible Collateral. . . . . . . . . . . . . . . . . . . . . . 22
(E) Borrowing Mechanics. . . . . . . . . . . . . . . . . . . . . . 24
(F) Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(G) Lender Letters of Credit and Risk Participation Agreements . . 26
(1) Maximum Amount . . . . . . . . . . . . . . . . . . . . . . 26
(2) Reimbursement. . . . . . . . . . . . . . . . . . . . . . . 26
(3) Conditions of Issuance . . . . . . . . . . . . . . . . . . 27
(4) Request for Letters of Credit. . . . . . . . . . . . . . . 27
(H) Other Letter of Credit and Guaranty Provisions . . . . . . . . 27
(1) Obligations Absolute . . . . . . . . . . . . . . . . . . . 27
(2) Nature of Agent's and Lenders' Duties. . . . . . . . . . . 28
2.2 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(A) Agent's Fee. . . . . . . . . . . . . . . . . . . . . . . . . . 33
(B) Unused Line Fee. . . . . . . . . . . . . . . . . . . . . . . . 33
(C) Letter of Credit and Guaranty Fees . . . . . . . . . . . . . . 33
(D) Prepayment Fees. . . . . . . . . . . . . . . . . . . . . . . . 33
2.4 Payments and Prepayments. . . . . . . . . . . . . . . . . . . . . . 34
(A) Manner and Time of Payment . . . . . . . . . . . . . . . . . . 34
(B) Mandatory Prepayments. . . . . . . . . . . . . . . . . . . . . 34
(1) Overadvance. . . . . . . . . . . . . . . . . . . . . . . . 34
(2) Seasonal Overadvances. . . . . . . . . . . . . . . . . . . 34
(3) Proceeds of Asset Dispositions and Securities Sales. . . . 35
(C) Voluntary Prepayments and Repayments . . . . . . . . . . . . . 35
(D) Payments on Business Days. . . . . . . . . . . . . . . . . . . 35
2.5 Term of this Agreement . . . . . . . . . . . . . . . . . . . . . . 36
2.6 Statements; Application of Payments. . . . . . . . . . . . . . . . 36
2.7 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . 36
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2.8 Capital Adequacy and Other Adjustments . . . . . . . . . . . . . . 37
2.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(A) No Deductions. . . . . . . . . . . . . . . . . . . . . . . . . 37
(B) Changes in Tax Laws. . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3 CONDITIONS TO EFFECTIVENESS; CONDITIONS TO LOANS . . . . . . . . . 41
3.1 Conditions to Effectiveness of this Agreement and to Loans on
the Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . 41
(A) Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . 42
(B) Security Interests . . . . . . . . . . . . . . . . . . . . . . 42
(C) Repayment For Term Loan. . . . . . . . . . . . . . . . . . . . 42
(E) Fees and Costs . . . . . . . . . . . . . . . . . . . . . . . . 42
(F) Corporate Authorization and Opinions . . . . . . . . . . . . . 42
(G) Subordinated Debt Documents. . . . . . . . . . . . . . . . . . 42
3.2 Conditions to all Loans and Lender Letters of Credit . . . . . . . 43
(A) Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . 43
(B) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(C) Representations and Warranties . . . . . . . . . . . . . . . . 43
(D) No Default . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(E) Performance of Agreements. . . . . . . . . . . . . . . . . . . 43
(F) No Prohibition . . . . . . . . . . . . . . . . . . . . . . . . 43
(G) Margin Regulations . . . . . . . . . . . . . . . . . . . . . . 43
(H) No Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 43
(I) No Material Adverse Change . . . . . . . . . . . . . . . . . . 44
SECTION 4 BORROWER'S REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . 44
4.1 Organization, Powers, Capitalization . . . . . . . . . . . . . . . 44
(A) Organization and Powers. . . . . . . . . . . . . . . . . . . . 44
(B) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 44
4.2 Authorization of Borrowing and Acquisition, No Conflict. . . . . . 44
4.3 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . 45
4.4 Indebtedness and Liabilities . . . . . . . . . . . . . . . . . . . 45
4.5 Account Warranties . . . . . . . . . . . . . . . . . . . . . . . . 45
4.6 Names. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.7 Locations; FEIN. . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.8 Title to Properties; Liens . . . . . . . . . . . . . . . . . . . . 46
4.9 Litigation; Adverse Facts. . . . . . . . . . . . . . . . . . . . . 46
4.10 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.11 Performance of Agreements. . . . . . . . . . . . . . . . . . . . . 47
4.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . 47
4.13 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . 47
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4.14 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.15 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . 47
4.16 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.17 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.18 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.19 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 48
4.20 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.21 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.22 Use of Proceeds and Margin Security. . . . . . . . . . . . . . . . 49
4.23 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.24 Governmental Regulation. . . . . . . . . . . . . . . . . . . . . . 49
4.25 Purchase Agreement; Transaction Documents;
Existing Credit Agreement. . . . . . . . . . . . . . . . . . . . . 49
4.26 TNF Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 5 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . 50
5.1 Financial Statements and Other Reports. . . . . . . . . . . . . . . 50
(A) Monthly Financials . . . . . . . . . . . . . . . . . . . . . . 50
(B) Quarterly Financials . . . . . . . . . . . . . . . . . . . . . 50
(C) Year-End Financials. . . . . . . . . . . . . . . . . . . . . . 51
(D) Accountants' Certification and Reports . . . . . . . . . . . . 51
(E) Compliance Certificate . . . . . . . . . . . . . . . . . . . . 51
(F) Borrowing Base Certificates, Registers and Journals. . . . . . 51
(G) Reconciliation Reports, Inventory Reports and Listings
and Agings . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(H) Management Report. . . . . . . . . . . . . . . . . . . . . . . 52
(I) Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(J) Government Notices . . . . . . . . . . . . . . . . . . . . . . 53
(K) Events of Default, etc. . . . . . . . . . . . . . . . . . . . 53
(L) Trade Names. . . . . . . . . . . . . . . . . . . . . . . . . . 53
(M) Locations. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(N) Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 53
(0) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(P) Budgets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(Q) Subordinated Debt and Equity Notices . . . . . . . . . . . . . 54
(R) Other Information. . . . . . . . . . . . . . . . . . . . . . . 54
5.2 Access to Accountants. . . . . . . . . . . . . . . . . . . . . . . 54
5.3 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.4 Collateral Records . . . . . . . . . . . . . . . . . . . . . . . . 54
5.5 Account Covenants; Verification. . . . . . . . . . . . . . . . . . 54
5.6 Collection of Accounts and Payments. . . . . . . . . . . . . . . . 55
5.7 Endorsement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.8 Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . 56
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5.9 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.10 Maintenance of Properties; Insurance . . . . . . . . . . . . . . . 56
5.11 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 56
5.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 56
5.13 Collateral Locations . . . . . . . . . . . . . . . . . . . . . . . 57
5.14 Bailees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.15 Mortgages; Title Insurance; Surveys. . . . . . . . . . . . . . . . 57
(A) Mortgaged Property . . . . . . . . . . . . . . . . . . . . . . 57
(B) Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . 58
(C) Surveys. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.16 Canadian Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 58
5.17 [Intentionally omitted]. . . . . . . . . . . . . . . . . . . . . . 58
5.18 [intentionally omitted]. . . . . . . . . . . . . . . . . . . . . . 58
5.19 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.20 Post-Closing Deliveries. . . . . . . . . . . . . . . . . . . . . . 58
SECTION 6 FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 59
6.1 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . 59
6.2 Minimum EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.3 Capital Expenditure Limits . . . . . . . . . . . . . . . . . . . . 60
6.4 Fixed Charge Coverage. . . . . . . . . . . . . . . . . . . . . . . 60
6.5 Total Interest Coverage. . . . . . . . . . . . . . . . . . . . . . 60
6.6 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.7 Adjustment of Financial Covenants. . . . . . . . . . . . . . . . . 61
SECTION 7 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 61
7.1 Indebtedness and Liabilities . . . . . . . . . . . . . . . . . . . 61
7.2 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.3 Transfers, Liens and Related Matters . . . . . . . . . . . . . . . 62
(A) Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(B) Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(C) No Negative Pledges. . . . . . . . . . . . . . . . . . . . . . 63
(D) No Restrictions on Subsidiary Distributions to Borrower. . . . 63
7.4 Investments and Loans. . . . . . . . . . . . . . . . . . . . . . . 63
7.5 Restricted Junior Payments . . . . . . . . . . . . . . . . . . . . 64
7.6 Restriction on Fundamental Changes . . . . . . . . . . . . . . . . 64
7.7 Changes Relating to Subordinated Debt and Series A
Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.8 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . 65
7.9 Environmental Liabilities. . . . . . . . . . . . . . . . . . . . . 65
7.10 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . 65
7.11 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . . 65
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7.12 Tax Consolidations . . . . . . . . . . . . . . . . . . . . . . . . 66
7.13 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.14 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.15 Press Release; Public Offering Materials . . . . . . . . . . . . . 66
7.16 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 8 DEFAULT, RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . 66
8.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . 66
(A) Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(B) Default in Other Agreements. . . . . . . . . . . . . . . . . . 66
(C) Breach of Certain Provisions . . . . . . . . . . . . . . . . . 67
(D) Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . 67
(E) Other Defaults Under Loan Documents. . . . . . . . . . . . . . 67
(F) Change in Control. . . . . . . . . . . . . . . . . . . . . . . 67
(G) Involuntary Bankruptcy; Appointment of Receiver, etc. . . . . 67
(H) Voluntary Bankruptcy; Appointment of Receiver, etc. . . . . . 67
(I) Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(J) Judgment and Attachments . . . . . . . . . . . . . . . . . . . 68
(K) Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . 68
(L) Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(M) Invalidity of Loan Documents . . . . . . . . . . . . . . . . . 68
(N) Failure of Security. . . . . . . . . . . . . . . . . . . . . . 68
(0) Damage, Strike, Casualty . . . . . . . . . . . . . . . . . . . 68
(P) Licenses and Permits . . . . . . . . . . . . . . . . . . . . . 69
8.2 Suspension of Commitments. . . . . . . . . . . . . . . . . . . . . 69
8.3 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.5 Appointment of Attorney-in-Fact. . . . . . . . . . . . . . . . . . 70
8.6 Limitation on Duty of Agent and Lenders with Respect
to Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.7 Application of Proceeds. . . . . . . . . . . . . . . . . . . . . . 70
8.8 Waivers, Non-Exclusive Remedies. . . . . . . . . . . . . . . . . . 71
SECTION 9 ASSIGNMENTS; AGENCY PROVISIONS . . . . . . . . . . . . . . . . . . 71
9.1 Assignments and Participations . . . . . . . . . . . . . . . . . . 71
SECTION 10 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.1 Expenses and Attorneys' Fees . . . . . . . . . . . . . . . . . . . 81
10.2 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.3 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 82
10.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.5 Survival of Warranties and Certain Agreements. . . . . . . . . . . 84
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10.6 Indulgence Not Waiver. . . . . . . . . . . . . . . . . . . . . . . 84
10.7 Marshaling; Payments Set Aside . . . . . . . . . . . . . . . . . . 84
10.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.9 Independence of Covenants. . . . . . . . . . . . . . . . . . . . . 84
10.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.13 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.14 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 85
10.15 No Fiduciary Relationship; Limitation of Liabilities . . . . . . . 85
10.16 CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . . . . . . . 86
10.17 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . 86
10.18 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
10.19 Counterparts; Effectiveness. . . . . . . . . . . . . . . . . . . . 86
10.20 No Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
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EXHIBITS
Exhibit A Borrowing Base Certificate
Exhibit B Closing Certificate
Exhibit C Compliance Certificate
Exhibit D Inventory Report
Exhibit E Reconciliation Report
Exhibit F Term Note
Exhibit G Lender Addition Agreement
Exhibit H Revolving Note
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SCHEDULES
Schedule 1.1(B) Liens
Schedule 1.2 Accounting Adjustments
Schedule 3.1(A) Closing Deliveries
Schedule 4.1(B) Capitalization
Schedule 4.6 Names
Schedule 4.7 Locations; FEIN
Schedule 4.9 Litigation; Adverse Facts
Schedule 4.10 Taxes
Schedule 4.11 Performance of Agreements
Schedule 4.13 Intellectual Property
Schedule 4.20 Bank Accounts
Schedule 4.23 Employee Matters
Schedule 5.20 Foreign Lien Filings; Post-Closing Matters
Schedule 7.1(C) Indebtedness and Liabilities
Schedule 7.3(B) Leases to be Terminated
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AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated as of March
1, 1995 and entered into by and between THE NORTH FACE, INC. (formerly known as
TNF HOLDINGS COMPANY, INC.), a Delaware corporation ("Borrower"), with its
principal place of business at 999 Harrison Street, Berkeley, California 94710,
and HELLER FINANCIAL, INC., a Delaware corporation (in its individual capacity,
"Heller") with offices at 101 Park Avenue, New York, New York 10178, for itself
as a Lender and as agent for any other Lender (in such capacity, "Agent"). All
capitalized terms used herein are defined in Section 1 of this Agreement.
WHEREAS, Borrower and Heller have entered into that certain Loan and
Security Agreement dated as of June 7, 1994 (as amended, supplemented or
otherwise modified prior to the date hereof, the "Existing Loan Agreement");
WHEREAS, Borrower has requested that Lender increase the revolving line of
credit under the Existing Loan Agreement and provide to Borrower term loans for
certain proposed Capital Expenditures, and Lender was willing to do so on the
terms and conditions set forth herein;
WHEREAS, Borrower has established a new Subsidiary to conduct business in
Canada and has requested consent therefor and requested that Lender make certain
revisions in the Existing Loan Agreement for the activities of such Subsidiary;
WHEREAS, Borrower, Agent and Lender desire to amend and restate the
Existing Loan Agreement as provided herein;
WHEREAS, upon the effectiveness of this Agreement as provided herein, this
Agreement shall amend and restate the Existing Loan Agreement in its entirety,
and the security interests and pledges granted to Heller, as the lender under
the Existing Loan Agreement and the other "Loan Documents" (as defined in the
Existing Loan Agreement), and the perfection thereof, shall remain in full force
and effect and Heller shall hold such security interests and pledges as Agent
for the benefit of Lenders;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower and Lender agree as follows:
SECTION 1 DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement shall
have the following meanings:
1
<PAGE>
"Account(s)" means, as to the relevant Person, all "accounts" (as defined
in the UCC) now owned or hereafter created or acquired by such Person, including
all accounts receivable, contract rights and general intangibles relating
thereto, notes, drafts and other forms of obligations owed to or owned by such
Person arising or resulting from the sale of goods or the rendering of services,
all proceeds thereof, all guaranties and security therefor, and all goods and
rights represented thereby or arising therefrom including the right of stoppage
in transit, replevin and reclamation.
"Acquisition" means the acquisition by Borrower of substantially all of the
assets and certain liabilities of Old TNF pursuant to the Purchase Agreement.
"Acquisition Documents" means the Purchase Agreement, the documents listed
on Schedule 1.1(A) to the Existing Loan Agreement, and all other agreements and
instruments executed and delivered to transfer to Borrower all of the Purchased
Assets (as defined in the Purchase Agreement).
"Affiliate" means any Person (other than Agent or any Lender): (a) directly
or indirectly controlling, controlled by, or under common control with,
Borrower; (b) directly or indirectly owning or holding five percent (5%) or more
of any equity interest in Borrower; or (c) five percent (5%) or more of whose
voting stock or other equity interest was directly or indirectly owned or held
by Borrower; PROVIDED, HOWEVER, that "Affiliate" shall not include a Whitney
Investor or any general or limited partner of a Whitney Investor or any Person
controlled by a Whitney Investor, other than Borrower and its Subsidiaries. For
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling", "controlled by" and "under common control with") means the
possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities or by contract or otherwise.
"Agent" means Heller in its capacity as agent for Lenders under this
Agreement and the other Loan Documents and any successor in such capacity
appointed pursuant to subsection 9.2(G).
"Agent's Account" has the meaning assigned to that term in subsection
2.4(A).
"Agreement" means this Amended and Restated Loan and Security Agreement, as
it may be amended, supplemented or otherwise modified from time to time.
"Asset Disposition" means the disposition, whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise, of any of the
following: (a) any of the capital stock of any of Borrower's Subsidiaries, or
(b) any or all of the assets of Borrower or any of its Subsidiaries other than
sales of Inventory in the ordinary course of business.
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"Assigned Agreements" means, collectively, the Acquisition Documents, the
Agreement dated as of February 18, 1994 among Old TNF, TNF Scotland, Sophia
Limited and Jean-Luc Derclaye, and the Trademark License Agreement dated as of
August 1, 1992 between Old TNF and TNF Scotland.
"Bankruptcy Plan" means the Second Amended Joint Plan of Reorganization
dated as of April 8, 1994 as filed by; the Odyssey Bankruptcy Debtors in April,
1994, with the amendments thereto set forth on the Confirmation Order.
"Blocked Account" has the meaning assigned to that term in subsection 5.6.
"Borrower" means the Delaware corporation known as TNF Holdings Company,
Inc. prior to consummation of the Acquisition and The North Face, Inc.
thereafter.
"Borrower Stock" means Common Stock and Series A Preferred Stock.
"Borrowing Base" has the meaning assigned to that term in subsection 2.1(B).
"Borrowing Base Certificate" means a certificate and assignment schedule
duly executed by an officer of Borrower appropriately completed and in
substantially the form of Exhibit A.
"Budget" means the annual budget for Borrower and its Subsidiaries prepared
by the management of Borrower for the Board of Directors, including consolidated
and consolidating: (a) balance sheets; (b) statements of income; (c) cash flow
statements; and (d) statements of stockholder's equity, all prepared on a
division by division and Subsidiary by Subsidiary basis and otherwise consistent
with Old TNF's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
"Business Day" means any day excluding Saturday, Sunday and any day which
was a legal holiday under the laws of the States of Illinois, Pennsylvania, New
York, or California or was a day on which banking institutions located in any
such states are closed.
"Canadian Documents" means, collectively, the Distribution and License
Agreement dated as of January 1, 1995 between TNF Canada and Borrower, the
Security Agreement between TNF Canada and Borrower granting liens to Borrower to
secure all liabilities of TNF Canada to Borrower, all documents necessary to
perfect the Liens thereunder in favor of Borrower and the assignment of the
liens and Borrower's rights against TNF Canada to Agent for the benefit of
Lenders.
"Capital Expenditures" means all expenditures for (including deposits), or
contracts for expenditures (excluding contracts for expenditures under or with
respect to Capital Leases but including any cash down payments for assets
acquired under Capital Leases) with respect to, any fixed assets or
improvements, or for replacements, substitutions or
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additions thereto, which have a useful life of more than one year, including the
direct or indirect acquisition of such assets by way of increased product or
service charges, offset items or otherwise.
"Capital Lease" means any lease of any property (whether real, personal or
mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"Cash Equivalents" means: (a) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six (6) months from the date of acquisition thereof,
(b) commercial paper maturing no more than six (6) months from the date issued
and, at the time of acquisition, having a rating of at least A-I from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; and (c)
certificates of deposit or bankers' acceptances maturing within six (6) months
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $250,000,000 and not subject to
setoff rights in favor of such bank.
"Change in Control" means (a) prior to the completion of an IPO (i) the
Investor Group ceases to own beneficially and control in the aggregate shares of
Borrower Stock equal to at least seventy-five percent (75%) of the sum of (x)
the shares of Borrower Stock owned on the Original Closing Date PLUS (y) any
additional shares of Borrower Stock issued as dividends on the Series A
Preferred Stock, or in respect of conversion of the Series A Preferred Stock or
the exercise of Management Options (adjusted for any stock splits, combinations
or reclassifications); or (ii) the Investor Group ceases to own beneficially and
control at least fifty-one percent (51%) of the Borrower Stock entitled to vote
for the election of a majority of members of the Board of Directors or other
matters on which shareholders are entitled to vote under the General Corporation
Law of the State of Delaware or the Securityholders Agreement, ("voting stock")
and (b) after completion of an IPO, the Investor Group ceases to own
beneficially and control at least thirty percent (30%) of the voting stock or
any Person or "group" (as defined under Section l3d-3 and Regulation 13D of the
Securities and Exchange Act) becomes the beneficial owner, directly or
indirectly, of voting stock with voting power greater than the voting power of
the voting stock held by the Investor Group.
"Closing Certificate" means a certificate duly executed by the chief
executive officer or chief financial officer of Borrower appropriately completed
and in substantially the form of Exhibit B.
"Closing Date" means the date on which all conditions set forth in Section
3.1 hereof are satisfied or waived by all Lenders.
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"Collateral" means, collectively, (a) all capital stock pledged to Agent
for the benefit of Lenders pursuant to the Pledge Agreement; (b) all property
of Borrower, now owned or hereafter acquired, in which a Lien was granted to
Agent for the benefit of Lenders pursuant to the Existing Loan Agreement, this
Agreement and any other Loan Document; (c) all property of Borrower or any of
its Subsidiaries, now owned or hereafter acquired, in which a Lien was granted
to Agent for the benefit of Lenders pursuant to any Loan Document, including the
property of TNF Canada in which Borrower has been granted a security interest
and assigned such security interest to Agent for the benefit of Lenders; (d) any
property or interest provided in addition to or in substitution for any of the
foregoing; and (e) all proceeds thereof.
"Commitment" or "Commitments" means the commitment or commitments of
Lenders to make Loans as set forth in subsections 2.1(A) and/or 2.1(B) and of
Agent to issue Lender Letters of Credit and purchase risk participations in
Underlying L/C's as set forth in subsection 2.1(G).
"Common Stock" means the Common Stock, par value $.01 per share, of
Borrower, or any other capital stock of Borrower into which such stock was
reclassified or reconstituted.
"Compliance Certificate" means a certificate duly executed by the chief
executive officer or chief financial officer of Borrower appropriately completed
and in substantially the form of Exhibit C.
"Confirmation Order" means the order of the Bankruptcy Court for the
Northern District of California which was duly entered in that certain Chapter
11 case, Case No. 93-40358-N (jointly administered) of the Odyssey Bankruptcy
Debtors, in the form and on the terms set forth in the draft attached as Exhibit
L to the Existing Loan Agreement.
"Default" means a condition or event that, after notice or lapse of time or
both, would constitute an Event of Default if that condition or event were not
cured or removed within any applicable grace or cure period.
"Domestic Subsidiary" means any Subsidiary of Borrower or any of its
Subsidiaries organized in the United States or Canada or having any business
operations in the United States or Canada, including TNF Canada; PROVIDED that
if TNF Canada enters into a Permitted Canadian Financing, TNF Canada and its
Subsidiaries shall no longer be Domestic Subsidiaries.
"Dollars" and "$" means the lawful money of the United States of America.
"Default Rate" has the meaning assigned to that term in subsection 2.2.
"EBITDA" means, for any period, without duplication, the total of the
following for Borrower and its Domestic Subsidiaries on a consolidated basis,
each calculated for such
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period: (1) net income determined in accordance with GAAP PLUS, to the extent
included in the calculation of net income, (2) the sum of (a) taxes paid or
accrued; (b) Interest Expenses, net of interest income, paid or accrued; (c)
depreciation and amortization; and (d) other non-cash charges (excluding
accruals for cash expenses made in the ordinary course of business), LESS (or
PLUS in the case of non-cash losses), to the extent included in the calculation
of net income, (3) the sum of (e) the income of any Person (other than wholly
owned Domestic Subsidiaries of Borrower) in which Borrower or any of its wholly-
owned Domestic Subsidiaries has an ownership interest unless such income was
received by Borrower or such wholly-owned Domestic Subsidiary in a cash
distribution; (f) gains or losses from sales or other dispositions of assets
(other than Inventory in the normal course of business); and (g) extraordinary
or non-recurring gains or non-cash losses, but not net of extraordinary or non-
recurring "cash" losses.
"Eligible Accounts" has the meaning assigned to that term in subsection
2.1(D).
"Eligible Canadian Accounts" means all Accounts owned by TNF Canada that
would be "Eligible Accounts" if owned by Borrower.
"Eligible Inventory" has the meaning assigned to that term in subsection
2.1(D).
"Employee Benefit Plan" means any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) was maintained for employees of any Loan
Party or any ERISA Affiliate or (b) has at any time within the preceding six (6)
years been maintained for the employees of any Loan Party or any Seller or any
current or former ERISA Affiliate.
"Environmental Laws" means any present or future federal, foreign, state or
local law, rule, regulation or order relating to pollution, waste disposal,
industrial hygiene or the protection of human health or safety, plant life or
animal life, natural resources or the environment.
"Equipment" means, as to the relevant Person, all "equipment" (as defined
in the UCC now owned or hereafter acquired by such Person including, without
limitation, all machinery, motor vehicles, trucks, trailers, vessels, aircraft
and rolling stock and all parts thereof and all additions and accessions thereto
and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party or any Seller, means any
Person who was a member of a group which was under common control with such
Person, who together with such Person was treated as a single employer within
the meaning of Section 414(b) and (c) of the IRC.
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"Event of Default" means each of the events set forth in subsection 8.1.
"Existing Loan Agreement" has the meaning set forth in the recitals to this
Agreement.
"Federal Funds Effective Rate" means, for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Federal Reserve Bank of New York or,
if such rate was not published for any Business Day, the average of the
quotations for the day of the requested Loan received by Agent from three
Federal funds brokers of recognized standing selected by Agent.
"Fiscal Year" means each twelve month period ending on the last day of
December in each year (or for the first fiscal year following the Original
Closing Date, the period from the Original Closing Date to the last day of
December, 1994).
"Fixed Charge Coverage" means, for any period, Operating Cash Flow DIVIDED
BY Fixed Charges.
"Fixed Charges" means, for any period, without duplication, for Borrower
and its Domestic Subsidiaries on a consolidated basis, and each calculated for
such period, (a) Interest Expenses; PLUS (b) scheduled payments of principal
with respect to all Indebtedness; PLUS (c) any provision for (to the extent it
was greater than zero) income or franchise taxes included in the determination
of net income, excluding any provision for deferred taxes included in net
income; PLUS (d) payment of deferred taxes accrued in any prior period.
"Funding Date" means the date of each funding of a Loan or issuance of a
Lender Letter of Credit or an Underlying L/C.
"GAAP" means generally accepted accounting principles in effect in the
United States of America and set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board that are applicable to the circumstances as of the date of
determination.
"Goldwin" means Kabushiki Kaisha Goldwin, a Japanese corporation.
"Goldwin Stock Purchase Agreement" means that certain Stock Purchase
Agreement dated as of December 28, 1993 between Borrower and Goldwin, as amended
prior to the Original Closing Date, and as it may be further amended with the
prior written approval of Lender.
"Hazardous Material" means all or any of the following: (a) substances that
are defined or listed in, or otherwise classified pursuant to, any applicable
laws or regulations
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as "hazardous substances", "hazardous materials", "hazardous wastes", "toxic
substances" or any other formulation intended to define, list or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity or "EP
toxicity"; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million.
"Indebtedness", as applied to any Person, means, without duplication: (a)
all indebtedness for borrowed money; (b) obligations under leases which in
accordance with GAAP constitute Capital Leases; (c) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money, including reimbursement obligations in respect
of letters of credit; (d) any obligation owed for all or any part of the
deferred purchase price of property or services if the purchase price was due
more than six months from the date the obligation was incurred or was evidenced
by a note or similar written instrument (but excluding any operating leases);
and (e) all indebtedness secured by any Lien on any property or asset owned or
held by that Person regardless of whether the indebtedness secured thereby shall
have been assumed by that Person or was nonrecourse to the credit of that Person
(but, only as to indebtedness which was non-recourse to the credit of such
Person, not in excess of the value of the asset so secured).
"Intangible Assets" means the amount of intangible assets (determined in
conformity with GAAP) of Borrower and its Subsidiaries, including, without
limitation, goodwill, trademarks, tradenames, licenses, organizational costs,
deferred amounts, covenants not to compete, unearned income and restricted
funds.
"Intellectual Property" means, with respect to the applicable Person, all
of such Person's present and future designs, patents, patent rights and
applications therefor, trademarks and registrations or applications therefor,
trade names, trade styles, logos, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights, trade
secrets, methods, processes, knowhow, drawings, specifications, descriptions,
and all memoranda, notes and records with respect to any research and
development, whether now owned or hereafter acquired by such Person, all
goodwill associated with any of the foregoing, and proceeds of all of the
foregoing, including, without limitation, proceeds of insurance policies
thereon.
"Intercompany Inventory Account" means the aggregate amounts (denominated
in Dollars) due to Borrower from TNF Canada for the purchase of Inventory in
accordance with the Canadian Documents.
"Interest Expenses" means, without duplication, for any period, the
following for Borrower and its Domestic Subsidiaries, each calculated for such
period: interest expenses
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deducted in the determination of net income (excluding (i) the amortization of
fees and costs with respect to the transactions contemplated hereunder on the
Original Closing Date which have been capitalized as transaction costs; and (ii)
interest paid in kind).
"Interest Period" means any interest period applicable to a Loan as
determined pursuant to subsection 2.2(B).
"Interest Rate Determination Date" means each date for calculating the
LIBOR Rate for purposes of determining the interest rate applicable to any LIBOR
Rate Loan pursuant to subsection 2.2(A). The Interest Rate Determination Date
shall be the second Business Day prior to the first day of the related Interest
Period for a LIBOR Rate Loan.
"Inventory" means, with respect to the applicable Person, all "inventory"
(as defined in the UCC) now owned or hereafter acquired by such Person, wherever
located including finished goods, raw materials, work in process and other
materials and supplies used or consumed in its business and goods which are
returned to or repossessed by such Person.
"Inventory Report" means a report duly executed by an officer of Borrower
and each of its Subsidiaries appropriately completed and in substantially the
form of Exhibit D.
"Inventory Sublimit" means $20,000,000 in 1995, $25,000,000 in 1996,
$30,000,000 in 1997 and $35,000,000 thereafter.
"Investor Group" means, collectively, the Whitney Investors, Marsden S.
Cason and William A. McFarlane.
"IPO" means an initial public offering of Common Stock which results in
cash proceeds (net of costs, expenses and discounts) to Borrower of not less
than $25,000,000, if such net proceeds are used to repay in full all
Subordinated Debt.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"Lender" or "Lenders" means Heller, together with its successors and
permitted assigns pursuant to subsection 9.1.
"Lender Addition Agreement" means an agreement among Agent, a Lender and
such Lender's assignee substantially in the form attached hereto as Exhibit G,
delivered to Agent in connection with an assignment of a Lender's interest
hereunder in accordance with subsection 9.1.
"Lender Letter of Credit" has the meaning assigned to that term in
subsection 2.1(G), and shall include each Lender Letter of Credit issued under
the Existing Loan Agreement and outstanding on the Closing Date.
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"Leverage Ratio" means as of any date of determination, the ratio of (a)
the sum of all long term Indebtedness of Borrower and its Domestic Subsidiaries
(including the current portion thereof but excluding any Revolving Loan)
outstanding PLUS the average daily balance of the Revolving Loan during the
applicable period to (b) EBITDA for such period.
"LIBOR Rate" means, for each Interest Period, a rate of interest equal to:
(a) the rate of interest determined by Agent at which deposits
in Dollars for the relevant Interest Period are offered based on
information presented on the Reuters Screen LIBOR Page as of 11:00
A.M. (London time) on the day which was two (2) Business Days prior to
the first day of such Interest Period; PROVIDED that if at least two
such offered rates appear on the Reuters Screen LIBOR Page in respect
of such Interest Period, the arithmetic mean of all such rates (as
determined by Agent) will be the rate used; PROVIDED further that if
Reuters ceases to provide LIBOR quotations, such rate shall be the
average rate of interest determined by Agent at which deposits in
Dollars are offered for the relevant Interest Period by Bankers Trust
Company, Chase Manhattan Bank, N.A. and Chemical Bank (or their
respective successors) to prime banks in the London interbank market
as of 11:00 A.M. (London time) on the applicable Interest Rate
Determination Date, divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which was two (2) Business Days
prior to the beginning of such Interest Period (including, without
limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board of Governors of the Federal Reserve
System or other governmental authority having jurisdiction with
respect thereto, as now and from time to time in effect) for
Eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) which are required to be
maintained by a member bank of the Federal Reserve System;
(such rate to be adjusted to the nearest one sixteenth of one percent (1/16 of
1%) or, if there was no nearest one sixteenth of one percent (1/16 of 1%), to
the next higher one sixteenth of one percent (1/16 of 1%).
"LIBOR Rate Loans" means Loans bearing interest at rates determined by
reference to the LIBOR Rate as provided in subsection 2.2(A)(2).
"LIBOR Rate Margin" means, with respect to Revolving Loans, including any
Seasonal Overadvance two and three-quarters percent (2.75%), and with respect to
Term Loans, three percent (3%), subject to reduction from time to time in
accordance with subsection 2.2(A).
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"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Term Loan
Commitment or the Revolving Loan Commitment (including a Seasonal Overadvance),
including all loans under the Existing Loan Agreement outstanding on the Closing
Date.
"Loan Documents" means this Agreement, the Existing Loan Agreement, the
Notes, the Pledge Agreement, the Trademark and Patent Agreements, the Canadian
Documents, any Mortgages, and all other instruments, documents and agreements
executed by or on behalf of any Loan Party and delivered concurrently herewith
or at any time hereafter to or for Agent or any Lender in connection with the
Loans and other transactions contemplated by this Agreement, all as amended,
restated, supplemented or modified from time to time.
"Loan Party" means, collectively, Borrower, Borrower's Subsidiaries, and
any other Person (other than Agent or any Lender or a Shareholder) which was or
becomes a party to any Loan Document.
"Loan Year" has the meaning assigned to that term in subsection 2.3(D).
"Management Options" means options to acquire Common Stock issued on the
Original Closing Date and from time to time thereafter pursuant to Borrower's
1994 Stock Incentive Plan.
"Management Restricted Shares" means shares of Common Stock issued as
"restricted stock" on the Original Closing Date and from time to time thereafter
pursuant to Borrower's 1994 Stock Incentive Plan.
"Management Stock Purchase Agreement" means the Stock Purchase and Non-
Competition Agreement dated as of the Original Closing Date among Borrower,
Marsden S. Cason and William A. McFarlane.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets or condition (financial or otherwise)
of Borrower on an individual basis or on Borrower and its Subsidiaries, taken as
a whole or (b) the impairment in any material respect of the ability of any Loan
Party to perform its obligations under any Loan Document to which it was a party
or of Agent or any Lender to enforce or collect any of the Obligations.
"Maximum Revolving Loan Amount" has the meaning assigned to that term in
subsection 2.1(B).
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"Mortgage" means any mortgage, deed of trust, leasehold mortgage, leasehold
deed of trust, collateral assignments of leases or other documents under the
laws of any applicable jurisdiction granting Liens on interests in real property
and delivered by any Loan Party to Agent, on behalf of Lenders, with respect to
Mortgaged Property, all in form and substance acceptable to Agent.
"Mortgaged Property" has the meaning assigned to that term in subsection
5.15(a).
"Note" or "Notes" means one or more of the Term Notes or Revolving Notes,
or a combination thereof.
"Obligations" means all obligations, liabilities and indebtedness of every
nature of each Loan Party from time to time owed to Agent or any Lender under
the Loan Documents, including the principal amount of all debts, claims and
indebtedness, accrued and unpaid interest and all fees, costs and expenses,
whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
now and/or from time to time hereafter owing, due or payable.
"Odyssey Bankruptcy Debtors" means Odyssey International Inc., Odyssey
Holding Inc., Odyssey International Pte. Ltd. and Odyssey Worldwide Holdings
B.V.
"Odyssey Bank" means any of Chemical Bank, The First National Bank of
Boston, or The Hong Kong & Shangai Banking Corporation Limited or each and all
of their Subsidiaries, successors and assigns.
"Odyssey Group" means each United States and foreign entity that was an
affiliate of the Odyssey Bankruptcy Debtors in 1992, as described in the
disclosure statement approved with respect to the Bankruptcy Plan, except those
subsequently sold in a sale of stock and not of assets.
"Old TNF" means the California corporation that was known as The North Face
prior to the Original Closing Date.
"Operating Cash Flow" means, for any period, (a) EBITDA; LESS (b) Capital
Expenditures.
"Original Closing Date" means June 7, 1994.
"Overadvance Period" has the meaning set forth in subsection 2.1(C).
"Permitted Canadian Financing" means Indebtedness of TNF Canada to a Person
other than Borrower if (a) no guaranty or other credit support or Liens are
provided by Borrower; (b) the Intercompany Inventory Account and all other
Indebtedness and liabilities of TNF Canada to Borrower are repaid in full from
the initial proceeds; and thereafter (c)
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further sales of Inventory are made by Borrower to TNF Canada only for cash in
advance, COD, letter of credit or credit (but at no time may the Intercompany
Inventory Account exceed Fifty Thousand Dollars ($50,000)); (d) no Lender
Letters of Credit or Underlying L/C may be issued for the benefit of TNF
Canada; and (e) no Inventory of Borrower shall be located in Canada.
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Laws or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent or which are being
contested in good faith if Borrower has notified Agent of the assertion of such
Liens and, if required by Agent, an adequate reserve against the Borrowing Base
shall have been made therefor; (c) Liens (other than any Lien imposed by ERISA)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, statutory obligations, surety and appeal bonds, bids, leases,
utilities, government contracts, trade contracts, licenses of computer software
or hardware, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money); (d) easements,
rights-of-way, restrictions, and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
any Loan Party or any of its Subsidiaries; (e) Liens for purchase money
obligations or Capital Leases, PROVIDED that (i) the purchase of the asset
subject to any such Lien is permitted under subsection 6.3, (ii) the
Indebtedness secured by any such Lien was permitted under subsection 7.1, and
(iii) such Lien encumbers only the asset so purchased; (f) Liens in favor of
Agent on behalf of Lenders; (g) judgment Liens which do not create an Event of
Default; (h) Liens set forth on Schedule 1.1(B); (i) Liens securing Indebtedness
of TNF Scotland permitted to be incurred under subsection 7.1(d); (j) Liens
securing Indebtedness of TNF Canada to Borrower which have been assigned to
Agent for the benefit of Lenders; and (k) Liens on assets of TNF Canada securing
Permitted Canadian Financing.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Pledge Agreement" means the Amended and Restated Stock Pledge Agreement
executed and delivered by Borrower on the Closing Date.
"Preferred Stock Purchase Agreement" means the Preferred Stock Purchase
Agreement dated as of the Original Closing Date among Borrower, Whitney 1990
Equity Fund, L.P. and J.H. Whitney & Co., as amended by Amendment No. 1 dated as
of March
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1, 1995, and as further amended, supplemented or otherwise modified as permitted
under subsection 7.7.
"Prime Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in Federal
Reserve Statistical Release H.15(519) entitled "Selected Interest Rates" or any
successor publication of the Federal Reserve System reporting the Bank Prime
Loan rate or its equivalent, or (b) the Federal Funds Effective Rate. The
statistical release generally sets forth a Bank Prime Loan rate for each
Business Day. In the event the Board of Governors of the Federal Reserve System
ceases to publish a Bank Prime Loan rate or its equivalent, the term "Prime
Rate" shall mean a variable rate of interest per annum equal to the highest of
the "prime rate", "reference rate", "base rate", or other similar rate announced
from time to time by any of Bankers Trust Company, The Chase Manhattan Bank,
National Association or Chemical Bank (with the understanding that any such rate
may merely be a reference rate and may not necessarily represent the lowest or
best rate actually charged to any customer by the any such bank).
"Prime Rate Loans" means Loans bearing interest at rates determined by
reference to the Prime Rate as provided in subsection 2.2(A)(2).
"Prime Rate Margin" means, with respect to Revolving Loans, including any
Seasonal Overadvance, one percent (1.0%) and with respect to Term Loans, one and
one quarter percent (1.25%), subject to reduction from time to time in
accordance with subsection 2.2(A).
"Pro Forma" means the unaudited consolidated and consolidating balance
sheet of Borrower and its Subsidiaries as of the Original Closing Date annexed
as Schedule 1.1(C) to the Existing Loan Agreement.
"Pro Rata Share" means (a) with respect to matters relating to a particular
Commitment of a Lender (including the making or repayment of Loans pursuant to
that Commitment), the percentage obtained by dividing (i) such Commitment of
that Lender by (ii) all such Commitments of all Lenders and (b) with respect to
all other matters, the percentage obtained by dividing (i) the Total Loan
Commitment of a Lender by (ii) the Total Loan Commitments of all Lenders, in
either case as such percentage may be adjusted by assignments permitted
pursuant to subsection 9.1.
"Purchase Agreement" means that certain Purchase and Sale Agreement [Short
Form] dated as of May 25, 1994 among Sellers and Borrower, as purchaser,
including all exhibits and schedules thereto.
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"Reconciliation Report" means a report duly executed by the chief executive
officer or chief financial officer of Borrower appropriately completed and in
substantially the form of Exhibit E.
"Requisite Lenders" means Lenders having (a) fifty-one percent (51%) or
more of the Total Loan Commitments or, (b) if the Term Loan Commitments have
been terminated, fifty-one percent (51%) or more of the sum of the Revolving
Loan Commitments and the aggregate outstanding principal amount of the Term
Loans, if any, or (c) if all Commitments have been terminated fifty-one percent
(51%) or more of the aggregate outstanding principal amount of the Revolving
Loan and the Term Loan.
"Restated Certificate of Incorporation" means the Restated Certificate of
Incorporation of Borrower filed on the Original Closing Date.
"Restricted Junior Payment" means: (a) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock of Borrower
or any of its Subsidiaries now or hereafter outstanding; (b) any payment or
prepayment of principal of, premium, if any, or interest on, or any redemption,
conversion, exchange, retirement, defeasance, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any Subordinated
Debt or any shares of any class of stock of Borrower or any of its Subsidiaries
now or hereafter outstanding; (c) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of Borrower or any of its Subsidiaries now or
hereafter outstanding; (d) any payment by Borrower or any of its Subsidiaries of
any management fees, director's fees, guarantee fees or similar fees to any
Affiliate, whether pursuant to a management agreement or otherwise, and (e)
fees, salaries or other compensation to any Shareholder or to the chief
executive officer and second most senior executive officer of Borrower.
"Revolving Loan" means all advances made by Lenders pursuant to
subsections' 2.1(B) and (C) (including those revolving loans under the Existing
Loan Agreement which remain outstanding as Revolving Loans on the Closing Date)
and any amounts added to the principal balance of the Revolving Loan pursuant to
this Agreement.
"Revolving Loan Commitment" means (a) as to any Lender, the commitment of
such Lender to make Revolving Loans (including Seasonal Overadvances) and to
purchase risk participations in Lender Letters of Credit and Underlying L/C's
pursuant to subsection 2.1(G) as set forth on the signature page of this
Agreement opposite such Lender's signature or in the most recent Lender Addition
Agreement, if any, executed by such Lender and (b) as to all Lenders, the
aggregate commitment of all Lenders to make Revolving Loans (including Seasonal
Overadvances) and to purchase risk participations in Lender Letters of Credit
and Underlying L/C's pursuant to subsection 2.1(G).
"Revolving Note" or "Revolving Notes" means each promissory note made by
Borrower in substantially the form of Exhibit Hard issued pursuant to subsection
2.1(F).
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"Risk Participation Agreement" has the meaning assigned to that term in
subsection 2.1(G).
"Risk Participation Liability" means, as to each Lender Letter of Credit
and each Risk Participation Agreement, all reimbursement obligations of Borrower
or any of its Subsidiaries to the issuer of the Lender Letter of Credit or the
Underlying L/C including: (a) the amount available to be drawn or which may
become available to be drawn; (b) all amounts which have been paid or made
available by the issuing bank to the extent not reimbursed; and (c) all unpaid
interest, fees and expenses with respect thereto.
"Risk Participation Reserve" means, at any time, an amount equal to (a) the
aggregate amount of Risk Participation Liability with respect to all Lender
Letters of Credit, Underlying L/C's and all Risk Participation Agreements
outstanding at such time PLUS (b) to the extent not included in clause (a), the
aggregate amount theretofore paid by Agent or any Lender under Lender Letters of
Credit or Risk Participation Agreements for which Agent or such Lender has not
been reimbursed or which has not been debited to the Loan Account pursuant to
subsection 2.1(G)(2).
"Scheduled Installment" has the meaning assigned to that term in subsection
2.1(A).
"Seasonal Overadvance" means all advances made by Lenders pursuant to
subsection 2.1(C).
"Securityholders Agreement" means that certain Securityholders Agreement
dated as of the Original Closing Date among the members of the Investor Group,
the other Shareholders named therein and Borrower.
"Sellers" means, collectively, Odyssey Holding Inc. and Old TNF as sellers
under the Purchase Agreement.
"Series A Preferred Stock" means the Series A Convertible Preferred Stock,
par value $1.00 per share, of Borrower issued pursuant to the Preferred Stock
Purchase Agreement and the Restated Certificate of Incorporation, or any other
capital stock of Borrower into which such stock was reclassified or
reconstituted.
"Shareholder" means each Person which owns shares of the capital stock of
Borrower, whether beneficially or of record.
"Subordinated Debt" means all Indebtedness owing by Borrower to Whitney
Subordinated Debt Fund, L.P., a Delaware limited partnership, or its successors
and assigns pursuant to the Subordinated Debt Agreement.
"Subordinated Debt Agreement" means the Subordinated Note and Common Stock
Purchase Agreement dated as of the Original Closing Date between Borrower and
Whitney
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Subordinated Debt Fund, L.P., and the Subordinated Promissory Note due June 7,
2001 in the aggregate principal amount of $24,333,333 issued by Borrower
thereunder, each as amended by Amendment No. 1 dated as of March 1, 1995, and
each as amended, supplemented or otherwise modified as permitted under
subsection 7.7 or increased as permitted by subsection 7.1.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which 50% or more of the total voting
power of shares of stock (or equivalent ownership or controlling interest)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Tangible Net Worth" means an amount equal to (a) Borrower's and its
Domestic Subsidiaries' net worth; PLUS (b) the principal amount of Subordinated
Debt to the extent permitted pursuant to subsection 7.1; LESS (c) Borrower's and
its Domestic Subsidiaries' Intangible Assets; LESS (d) Borrower's and its
Domestic Subsidiaries' prepaid expenses; LESS (e) all obligations owed to
Borrower or any of its Domestic Subsidiaries by an Affiliate of Borrower or any
of its Subsidiaries; and LESS (f) all loans by Borrower or any of its Domestic
Subsidiaries to officers, stockholders or employees of Borrower or any of its
Subsidiaries.
"Term" has the meaning assigned to that term in subsection 2.5.
"Term Loan" means all advances made by Lenders pursuant to subsection
2.1(A).
"Term Loan Commitment" means (a) as to any Lender, the commitment of such
Lender to make the Term Loan as set forth on the signature page of this
Agreement opposite such Lender's signature or in the most recent Lender Addition
Agreement, if any, executed by such Lender and (b) as to all Lenders, the
aggregate commitment of all Lenders to make the Term Loan.
"Term Note" or "Term Notes" means each promissory note made by Borrower in
substantially the form of Exhibit F and issued pursuant to subsection 2.1(F).
"Termination Date" means the date this Agreement is terminated as set
forth in subsection 2.5.
"TNF Canada" means The North Face (Canada), Inc., a corporation organized
under the laws of Canada, and a wholly-owned Subsidiary of Borrower.
"TNF Europe" means The North Face (Europe) Limited, a private limited
company incorporated in Scotland under the Companies Acts, formerly known as The
North Face (Scotland) Limited, and a wholly-owned Subsidiary of Borrower.
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"Total Interest Coverage" means, for any period, Operating Cash Flow
DIVIDED BY Interest Expenses.
"Total Loan Commitment" means the aggregate Commitments of any Lender with
respect to the Revolving Loan Commitment and the Term Loan Commitment.
"Trademark and Patent Agreements" means, collectively, the agreement
entitled Amended and Restated Confirmation and Grant of Security Interest in
Trademarks and Trademark Applications and the agreement entitled Amended and
Restated Confirmation and Grant of Security Interest in Patents, each dated as
of the Closing Date and executed by Borrower.
"Transaction Documents" means collectively, the Loan Documents, the
Subordinated Debt Agreement, the Preferred Stock Purchase Agreement, the Goldwin
Stock Purchase Agreement, the Management Stock Purchase Agreement, the
Management Options, the Securityholders Agreement, the 1994 Stock Incentive
Plan, the Restated Certificate of Incorporation, the Borrower Stock and the
Acquisition Documents and all other documents and agreements executed and
delivered by Borrower on the Original Closing Date in connection with the
Acquisition, including the financing thereof.
"UCC" means the Uniform Commercial Code as in effect on the date hereof in
the State of New York, as amended from time to time, and any successor statute,
or as in effect in any jurisdiction in which Collateral is located (PROVIDED,
that with respect to the shares pledged under the Pledge Agreement, UCC means
the Uniform Commercial Code as in effect in the State of New York).
"Underlying L/C" means a letter of credit issued by a bank under a Risk
Participation Agreement.
"Whitney Investor" means each of J.H. Whitney & Co., Whitney 1990 Equity
Fund, L.P. and Whitney Subordinated Debt Fund, L.P., and each of their
"Permitted Transferees" (as defined in the Securityholders Agreement) which is
bound by the terms of the Securityholders Agreement.
1.2 ACCOUNTING TERMS. For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
conformity with GAAP. Financial statements and other information furnished to
Agent or any Lender pursuant to subsection 5.1 shall be prepared in accordance
with GAAP as in effect at the time of such preparation. In the event any
"Accounting Changes" (as defined below) shall occur and such changes affect
financial covenants, standards or terms in this Agreement, then Borrower and
Lenders agree to enter into negotiations in order to amend such provisions of
this Agreement so as to equitably reflect such Accounting Changes with the
desired result that the criteria for evaluating the financial condition of
Borrower and its Subsidiaries shall be the same after such Accounting Changes as
if such Accounting
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Changes had not been made, and until such time as such an amendment shall have
been executed and delivered by Borrower and Requisite Lenders, (A) all financial
covenants, standards and terms in this Agreement shall be calculated and/or
construed as if such Accounting Changes had not been made, and (B) Borrower
shall prepare footnotes to each Compliance Certificate and the financial
statements required to be delivered hereunder that show the differences between
the financial statements delivered (which reflect such Accounting Changes) and
the basis for calculating financial covenant compliance (without reflecting such
Accounting Changes). "Accounting Changes" means: (a) changes in accounting
principles required by GAAP and implemented by Borrower and/or any of its
Subsidiaries; (b) changes in accounting principles recommended by the certified
public accountants for Borrower and/or any of its Subsidiaries (which certified
public accountants have been approved by Requisite Lenders); and (c) changes in
carrying value of Borrower's (or any of its Subsidiaries') assets, liabilities
or equity accounts resulting from (i) the application of purchase accounting
principles (A.P.B. 16 and/or 17 and EITF 88-16 and FASB 109) to the Acquisition
or (ii) as the result of any other adjustments that, in each case, were
applicable to, but not included in, the Pro Forma, except those adjustments
described in Schedule 1.2. All such adjustments resulting from expenditures made
subsequent to the Original Closing Date (including, but not limited to,
capitalization of costs and expenses or payment of pre-Closing Date liabilities)
shall be treated as expenses in the period the expenditures are made and
deducted as part of the calculation of EBITDA in such period.
1.3 OTHER DEFINITIONAL PROVISIONS. References to "Sections", "subsections",
"Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. In this Agreement, words importing any gender include the other
genders; the words "including," "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to agreements and other
contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
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SECTION 2 LOANS AND COLLATERAL
2.1 LOANS
(A) TERM LOAN. Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Borrower herein set
forth, each Lender agrees, severally and not jointly, to make advances to
Borrower from time to time during the first Loan Year after the Closing Date
equal to its Pro Rata Share of the Term Loan. The Term Loan Commitment is Six
Million Dollars ($6,000,000). The proceeds of the Term Loan shall be used
solely for the following Capital Expenditures (including leasehold
improvements): (i) up to Five Million Dollars ($5,000,000) for three retail
stores; (ii) up to One Million Dollars ($1,000,000) for renovations and/or
relocations of existing retail stores; (iii) up to One Million Two Hundred Fifty
Thousand Dollars ($1,250,000) for the purchase and/or upgrade of information
systems and software; and (iv) up to Seven Hundred Fifty Thousand Dollars
($750,000) for relocation of Borrower's distribution center and/or corporate
headquarters; but advances under the Term Loan shall not exceed Six Million
Dollars ($6,000,000) in the aggregate and advances for expenditures under
clauses (ii), (iii) and (iv) shall not exceed Two Million Dollars ($2,000,000)
in the aggregate. Each advance under the Term Loan shall be in a minimum
principal amount of at least One Hundred Thousand Dollars $100,000. Amounts
borrowed under this subsection 2.1(A) and repaid may not be reborrowed.
Borrower shall make principal repayments in the amounts of the applicable
Scheduled Installments (or such lesser principal amount of the Term Loan as
shall then be outstanding) on the dates and in the amounts set forth below.
"Scheduled Installment" means, for each date set forth below, the amount in
Dollars set forth opposite such date; PROVIDED THAT if less than the full amount
of the Term Loan Commitment was advanced prior to the first anniversary of the
Closing Date, the following amounts shall be reduced ratably to amortize the
outstanding Term Loan on the same ratable basis):
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Date Scheduled Installment
---- ---------------------
4/1/96 $312,500
7/1/96 $312,500
10/1/96 $312,500
1/1/97 $312,500
4/1/97 $375,000
7/1/97 $375,000
10/1/97 $375,000
1/1/98 $375,000
4/1/98 $375,000
7/1/98 $375,000
10/1/98 $375,000
1/1/99 $375,000
4/1/99 $437,500
7/1/99 $437,500
10/1/99 $437,500
1/1/100 $437,500
(B) REVOLVING LOAN. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Borrower herein set
forth, each Lender agrees to lend to Borrower from time to time its Pro Rata
Share of the Revolving Loan. The Revolving Loan Commitment is Forty-Four
Million Dollars ($44,000,000). Amounts borrowed under this subsection 2.1(B)
may be repaid and reborrowed at any time prior to the earlier of (i) the
termination of the Revolving Loan Commitment pursuant to subsection 8.3 or (ii)
the Termination Date. No Lender shall have any obligation to make advances
under this subsection 2.1(B) to the extent any requested advance would cause the
balance of the Revolving Loans then outstanding to exceed the Maximum Revolving
Loan Amount; PROVIDED that Lenders may, in their sole discretion, with the
approval of all Lenders elect from time to time to make Loans in excess of the
Maximum Revolving Loan Amount or the Revolving Loan Commitment. If loans in
excess of the Maximum Revolving Loan Amount are made pursuant to the approval of
Lenders as set forth in the proviso to the preceding sentence, then for purposes
of subsection 2.4(B)(1), the Maximum Revolving Loan Amount shall be deemed
increased by such amount but only for so long as Lenders allow such Loans to be
outstanding.
(1) "Maximum Revolving Loan Amount" means, as of any date of
determination, the lesser of (a) the Revolving Loan Commitment minus the Risk
Participation Reserve and (b) the Borrowing Base minus the Risk Participation
Reserve plus the amount, if any, available to be borrowed pursuant to subsection
2.1(C) below.
(2) "Borrowing Base" means, as of any date of determination, an
amount equal to the sum of (a) eighty-five percent (85%) of Eligible Accounts;
PLUS (b) fifty percent (50%) of Eligible Inventory; PROVIDED that the amounts
available under this clause (b) and under subsection 2.1(C) may not exceed the
Inventory Sublimit; PLUS (c) fifty percent (50%)
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of the sum of the face amount of (i) Risk Participation Agreements entered into
with respect to documentary letters of credit to purchase Inventory or (ii)
Lender Letters of Credit used to purchase Inventory (in each case net of
provisions for duty and freight charges); PLUS (d) eighty-five percent (85%) of
Eligible Canadian Accounts; PROVIDED that the amounts available under this
clause (d) shall not exceed the unpaid amount of the Intercompany Inventory
Account LESS reserves for withholding taxes, if any, payable by TNF Canada with
respect thereto and shall only be available until TNF Canada enters into a
Permitted Canadian Financing; LESS (e) in each category, such reserves as Agent
in its sole, reasonable discretion elects to establish from time to time. For
purposes of calculating the Borrowing Base, all Eligible Canadian Accounts and
Eligible Inventory shall be denominated in Dollars, based on the most recently
available conversion rate from Canadian dollars.
(C) SEASONAL OVERADVANCE FACILITY.
During the months of May, June, July and August (the "Overadvance Period")
in any Loan Year, each Lender agrees, severally and not jointly, to make
Revolving Loans to Borrower in excess of the Borrowing Base on the terms set
forth in this subsection (each such advance, a "Seasonal Overadvance"). Each
Seasonal Overadvance by a Lender shall be in an amount equal to its Pro Rata
Share of the aggregate Seasonal Overadvances to be made on any Funding Date. In
no event may the aggregate outstanding Seasonal Overadvances exceed twenty-five
percent (25%) of Eligible Inventory during the months of June, July or August or
twenty percent (20%) of Eligible Inventory during the month of May nor may the
outstanding Seasonal Overadvance PLUS Revolving Loans advanced under clause (b)
of the definition of Borrowing Base exceed in the aggregate the Inventory
Sublimit, nor may the aggregate outstanding amount of Revolving Loans (including
Seasonal Overadvances) plus the Risk Participation Reserve exceed the Revolving
Loan Commitment. All Seasonal Overadvances shall be repaid no later than the
end of the Overadvance Period in each year.
(D) ELIGIBLE COLLATERAL
"Eligible Accounts" means, as at any date of determination, the aggregate
of all Accounts of Borrower that Agent, in its reasonable credit judgment, deems
to be eligible for borrowing purposes. Without limiting the generality of the
foregoing, unless otherwise agreed by Agent, the following Accounts are NOT
Eligible Accounts:
(1) Any Account which, at the date of issuance of the respective
invoice therefor, was (i) payable more than sixty (60) days after the date of
issuance of such invoice or (ii) solely with respect to Accounts under a payment
dating program which is consistent with normal industry practices and approved
by Agent ("Dating Program"), payable later than the last day of the Dating
Program;
(2) Any Dating Program Account which remains unpaid for more than
thirty (30) days after the due date under the Dating Program or any other
Account which remains
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unpaid for more than sixty (60) days after the due date specified in the
original invoice or for more than ninety (90) days after invoice date if no due
date was specified;
(3) Any Account due from a customer whose principal place of business
is located outside the United States of America or Canada unless such Account
is backed by a letter of credit, in form and substance and issued by a bank
reasonably acceptable to Agent, in its sole discretion, PROVIDED that such
letter of credit was by its terms transferrable and has been delivered to Agent,
on behalf of Lenders, as additional collateral;
(4) Any Account due from a customer which Agent has notified Borrower
does not have an acceptable credit standing (as determined in the sole
discretion of Agent);
(5) Any Account with respect to which the customer is the United
States of America or any department, agency or instrumentality thereof unless
Borrower has, with respect to such Account, fully complied with the Federal
Assignment of Claims Act (31 U.S.C. Section 3727);
(6) Any Account with respect to which the customer is an Affiliate of
Borrower or a director, officer, agent, stockholder or employee of Borrower or
any of its Affiliates (other than an Account from Goldwin);
(7) Any Account due from a customer if more than twenty-five percent
(25%) of the aggregate amount of Accounts of such customer have at the time
remained unpaid for more than sixty (60) days after the due date and/or, with
respect to Dating Program Accounts, more than thirty (30) days after the end of
the Dating Program;
(8) Any Account with respect to which there is any unresolved
dispute with the respective customer (but only to the extent of such dispute);
(9) Any Account evidenced by an "instrument" (as defined in the UCC)
not in the possession of Agent, on behalf of Lenders;
(10) Any Account with respect to which Agent, on behalf of Lenders
does not have a valid, first priority and fully perfected security interest;
(11) Any Account subject to any Lien except those in favor of Agent,
on behalf of Lenders;
(12) Any Account with respect to which the customer was the subject of
any bankruptcy or other insolvency proceeding;
(13) Any Account due from a customer to the extent that such Account,
if taken together with all Accounts due from the same customer, would exceed in
the aggregate an amount equal to twenty percent (20%) of the aggregate of all
Accounts at said date; or,
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solely with respect to Accounts due from REI, an amount equal to thirty percent
(30%) of the aggregate of all Accounts at that date;
(14) Any Account with respect to which the customer's obligation to pay is
conditional or subject to a repurchase obligation or right to return or with
respect to which the goods or services giving rise to such Account have not been
delivered (or performed, as applicable) and accepted by such account debtor,
including progress billings, bill and hold sales, guarantied sales, sale or
return transactions, sales on approval or consignment sales (PROVIDED, that
express warranties to retail customers in the ordinary course of business
consistent with past practice shall not, of themselves, make an Account
ineligible);
(15) Any Account with respect to which the customer is located in New
Jersey, Minnesota, or any other state denying creditors access to its courts in
the absence of a Notice of Business Activities Report or other similar filing,
unless Borrower has either qualified as a foreign corporation authorized to
transact business in such state or has filed a Notice of Business Activities
Report or similar filing with the applicable state agency for the then current
year; and
(16) Any Account with respect to which the customer is a creditor of
Borrower (including a customer to which Borrower owes a credit balance);
PROVIDED, HOWEVER, that any such Account shall only be ineligible as to that
portion of such Account which is less than or equal to the amount owed by
Borrower to such customer.
"Eligible Inventory" means, as at any date of determination, the value
(determined in Dollars at the lower of cost or market on a first-in, first-out
basis) of all Inventory owned by and in the possession of Borrower and located
in the United States of America or, until TNF Canada enters into a Permitted
Canadian Financing, in Canada and in any case that Agent, in its reasonable
credit judgment, deems to be eligible for borrowing purposes. Without limiting
the generality of the foregoing, unless otherwise agreed by Agent, the following
is NOT Eligible Inventory: (a) work-in-process; (b) finished goods which do not
meet the specifications of the purchase order for such goods; (c) Inventory
which Agent determines, in the exercise of reasonable discretion and in
accordance with Agent's or Borrower's customary business practices, to be
unacceptable for borrowing purposes due to age, quality, type, category and/or
quantity; (d) Inventory with respect to which Agent, on behalf of Lenders, does
not have a valid, first priority and fully perfected security interest; (e)
Inventory with respect to which there exists any Lien in favor of any Person
other than Agent, on behalf of Lenders; and (f) Inventory produced in violation
of the Fair Labor Standards Act and subject to the so-called "hot goods"
provisions contained in Title 29 U.S.C. 215 (a)(i).
(E) BORROWING MECHANICS. (1) Prime Rate Loans made on any Funding Date
shall be in an aggregate minimum amount of Twenty-five Thousand Dollars
($25,000) and integral multiples of Twenty-five Thousand Dollars ($25,000) in
excess of such amount. LIBOR Rate Loans made on any Funding Date shall be in an
aggregate minimum amount of Five Hundred
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Thousand Dollars ($500,000) and integral multiples of ($500,000) in excess of
such amount.
(2) When Borrower desires to borrow under subsection 2.1(B) or (C)
Borrower shall deliver to Agent a notice of borrowing no later than 1:00 p.m.
(New York time) (i) on the proposed Funding Date in the case of a requested
Prime Rate Loan and (ii) at least two (2) Business Days in advance of the
proposed Funding Date in the case of a requested LIBOR Rate Loan ("Notice of
Borrowing"). The Notice of Borrowing shall specify: (1) the proposed Funding
Date (which shall be a Business Day); (2) the amount and type of Loans
requested; (3) in the case of a Revolving Loan, that the aggregate amount of the
Revolving Loans (including the Revolving Loan or Seasonal Overadvance then
noticed) will not exceed the Maximum Revolving Loan Amount; (4) whether such
Loans shall consist of Prime Rate Loans or LIBOR Rate Loans; (5) if such Loans,
or any portion thereof are to be LIBOR Rate Loans, the amounts thereof and the
initial Interest Periods therefor; and (6) that no Default or Event of Default
has occurred and is continuing or would result from the proposed advance.
Borrower may not borrow any LIBOR Rate Loan if any Default or Event of Default
has occurred and is continuing.
In lieu of delivering a Notice of Borrowing, Borrower may give Agent
telephonic notice by the required time of the notice hereunder; PROVIDED that
such notice shall be promptly confirmed in writing by delivery of a written
Notice of Borrowing to Agent on that same day.
Neither Agent nor any Lender shall incur any liability to Borrower for
acting upon any telephonic notice that Agent believes in good faith to have been
given by a duly authorized officer or other person authorized to borrow on
behalf of Borrower or for otherwise acting in good faith under this subsection
2.1(E). Neither Agent nor any Lender will make any advance pursuant to any
telephonic notice unless Agent has also received the most recent Borrowing Base
Certificate and all other documents required under subsection 5.1(F) by 1:00
p.m. (New York time). The making of an advance pursuant to telephonic notice
shall constitute a Loan under this Agreement. Each such advance made to
Borrower under the Revolving Loan and each Seasonal Overadvance, if any, shall
be deposited by wire transfer in immediately available funds in such account as
Borrower may from time to time designate to Agent in writing.
(3) Borrower shall give Agent at least three (3) Business Days prior
written notice of its desire to borrow any advance under the Term Loan, which
notice shall be accompanied by a certificate of Borrower describing, in
reasonable detail, the Capital Expenditures to be made with the proceeds
thereof. Each notice of borrowing hereunder shall specify the Funding Date
(which shall be a Business Day), whether such Term Loan shall consist of a Prime
Rate Loan or a LIBOR Rate Loan and the Interest Period, if any, applicable
thereto. Each such advance to Borrower under the Term Loan shall be deposited
in immediately available funds in such account as Borrower may from time to time
designate to Agent in writing.
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(4) Agent shall notify Lenders of Loans requested hereunder in
accordance with subsection 9.6.
(F) NOTES. Borrower shall execute and deliver to each Lender (1) a Term
Note to evidence its Term Loan, such Term Note to be in the principal amount of
the Term Loan Commitment of such Lender and with other appropriate insertions
and (2) a Revolving Note to evidence its Revolving Loan, such Revolving Note to
be in the principal amount of the Revolving Loan Commitment of such Lender and
with other appropriate insertions. In the event of an assignment under
subsection 9.1, Borrower shall, upon surrendering of the assigning Lender's
Notes, issue new Notes to reflect the new commitments or Loans of the assigning
Lender and its assignee.
(G) LENDER LETTERS OF CREDIT AND RISK PARTICIPATION AGREEMENTS. Subject
to the terms and conditions of this Agreement and in reliance upon the
representations and warranties of Borrower herein set forth, the Revolving Loan
Commitments may, in addition to advances under the Revolving Loan and Seasonal
Overadvances, be utilized, upon the request of Borrower, for (i) the issuance of
letters of credit by Agent (each such letter of credit, a "Lender Letter of
Credit") or (ii) the issuance by Agent of risk participation agreements (each
such agreement, a "Risk Participation Agreement") to confirm payment to banks
which issue sight or standby letters of credit for the account of Borrower.
Each Risk Participation Agreement shall provide for automatic daily reporting of
the outstanding Underlying L/C's and any amounts drawn thereunder. All Lender
Letters of Credit and Lender Guaranties (as defined in the Existing Loan
Agreement) outstanding under the Existing Credit Agreement on the Closing Date
shall be deemed Lender Letters of Credit hereunder.
(1) MAXIMUM AMOUNT. The aggregate amount of Risk Participation
Liability with respect to all Lender Letters of Credit and Risk Participation
Agreements outstanding at any time shall not exceed Fifteen Million Dollars
($15,000,000), subject to, and reduced by, any reductions in the Revolving Loan
Commitment under subsection 2.4.
(2) REIMBURSEMENT. Borrower shall be irrevocably and unconditionally
obligated forthwith without presentment, demand, protest or other formalities of
any kind, to reimburse Agent, for the benefit of Agent and Lenders, for any
amounts paid by Agent or any Lender with respect to any Lender Letter of Credit
or any Risk Participation Agreement issued for the account of Borrower,
including all fees, costs and expenses paid by Agent or any Lender to any bank
that issues letters of credit. Borrower hereby authorizes and directs Agent, at
Agent's option, to debit Borrower's account (by increasing the principal balance
of the Revolving Loan) in the amount of any payment made by Agent or any Lender
with respect to any Lender Letter of Credit or any Risk Participation Agreement.
All amounts paid by Agent or any Lender with respect to any Lender Letter of
Credit or Risk Participation Agreement that are not immediately repaid by
Borrower with the proceeds of a Revolving Loan or otherwise shall bear interest
at the Default Rate applicable to Revolving Loans. Each Lender agrees to fund
its Pro Rata Share of any Revolving Loan made pursuant to this subsection
2.1(G)(2). In the event that Borrower shall fail to reimburse Agent on the date
of any payment by Agent
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under a Lender Letter of Credit or Risk Participation Agreement in an amount
equal to the amount of such payment, Agent shall promptly notify each Lender of
the unreimbursed amount of such payment, together with accrued interest thereon,
and each Lender agrees to purchase, and shall be deemed to have purchased, a
participation in such Lender Letter of Credit or Risk Participation Agreement in
an amount equal to its Pro Rata Share of the unpaid amount of such Risk
Participation Liability and each Lender agrees to pay to Agent such Lender's Pro
Rata Share of such Risk Participation Liability. The obligation of each Lender
to deliver to Agent an amount equal to its respective participation pursuant to
the foregoing sentence shall be absolute and unconditional and such remittance
shall be made notwithstanding the occurrence or continuation of an Event of
Default or Default or failure to satisfy any condition set forth in Section 3.
In the event any Lender fails to make available to Agent the amount of such
Lender's participation in such Lender Letter of Credit or Risk Participation
Agreement as provided in this subsection 2.1(G)(2), Agent shall be entitled to
recover such amount on demand from such Lender, together with interest at the
Prime Rate.
(3) CONDITIONS OF ISSUANCE. In addition to all other terms and
conditions set forth in this Agreement, the issuance by Agent of any Lender
Letter of Credit or Risk Participation Agreement shall be subject to the
conditions precedent that the Lender Letter of Credit or Underlying L/C be in
such form, be for such amount, contain such terms and support such transactions
as are reasonably acceptable to Agent. Each Lender Letter of Credit, Underlying
L/C and Risk Participation Agreement shall be in form and substance acceptable
to Agent. The expiration date of each Lender Letter of Credit or Underlying L/C
shall be on a date which is at least thirty (30) days before the Termination
Date. Each Risk Participation Agreement shall provide that all demands or
claims for payment with respect to each Underlying L/C must be presented by a
date certain, which date will be at least thirty (30) days before the
Termination Date.
(4) REQUEST FOR LETTERS OF CREDIT. Borrower shall give Agent at
least two (2) Business Days prior notice specifying the date a Lender Letter of
Credit or Underlying L/C is to be issued, identifying the beneficiary and
describing the nature of the transactions proposed to be supported thereby. The
notice shall be accompanied by the form of the requested Lender Letter of Credit
or Underlying L/C.
(H) OTHER LETTER OF CREDIT AND GUARANTY PROVISIONS.
(1) OBLIGATIONS ABSOLUTE. The obligation of Borrower to reimburse
Agent or any Lender for payments made under any Lender Letter of Credit or Risk
Participation Agreement shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances
including the following circumstances:
(a) any lack of validity or enforceability of any Lender Letter
of Credit or Risk Participation Agreement or Underlying L/C or any other
agreement;
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(b) the existence of any claim, setoff, defense or other right
which Borrower, any of its Subsidiaries or Affiliates, Agent or any Lender, on
the one hand, may at any time have against any beneficiary or transferee of any
Lender Letter of Credit or any Underlying L/C (or any Persons for whom any such
transferee may be acting), Agent, any Lender or any other Person, on the other
hand, whether in connection with this Agreement, the transactions contemplated
herein or any unrelated transaction (including any underlying transaction
between Borrower or any of its Subsidiaries or Affiliates and the beneficiary
for which the Lender Letter of Credit or Underlying L/C was procured);
(c) any draft, demand, certificate or any other document
presented under any Lender Letter of Credit or Underlying L/C proving to be
forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(d) payment by Agent or any Lender under any Lender Letter of
Credit or Risk Participation Agreement against presentation of a demand, draft
or certificate or other document which does not comply with the terms of such
Lender Letter of Credit or Underlying L/C; PROVIDED that, in the case of any
payment by Agent or a Lender under any Lender Letter of Credit or Underlying
L/C, Agent or such Lender has not acted with gross negligence or willful
misconduct (as determined by a court of competent jurisdiction) in determining
that the demand for payment under such Lender Letter of Credit, Underlying L/C
or Risk Participation Agreement complies on its face with any applicable
requirements for a demand for payment under such Lender Letter of Credit,
Underlying L/C or Risk Participation Agreement;
(e) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
(f) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(2) NATURE OF AGENT'S AND LENDERS' DUTIES. As between Agent and or
any Lender and Borrower, Borrower assumes all risks of the acts and omissions
of, or misuse of any Lender Letter of Credit, Underlying L/C or Risk
Participation Agreement by beneficiaries of any Lender Letter of Credit or
Underlying L/C. In furtherance and not in limitation of the foregoing, neither
Agent nor any Lender shall be responsible: (a) for the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for and issuance of any Lender
Letter of Credit, Underlying L/C or Risk Participation Agreement, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (b) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Lender Letter of Credit or Underlying L/C or the rights or benefits thereunder
or proceeds thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason; (c) for failure of the beneficiary of any Lender
Letter of Credit or Underlying L/C to comply fully with conditions required in
order to demand payment under such Lender Letter of Credit or Underlying L/C;
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PROVIDED that, in the case of any payment by Agent or any Lender under any
Lender Letter of Credit or Risk Participation Agreement, or by any issuer of an
Underlying L/C, Agent, or such Lender or such issuer has not acted with gross
negligence or willful misconduct (as determined by a court of competent
jurisdiction) in determining that the demand for payment under such Lender
Letter of Credit or Risk Participation Agreement or Underlying L/C complies on
its face with any applicable requirements for a demand for payment thereunder;
(d) for errors, omissions, interruptions or delays in transmission or delivery
of any messages, by mail, cable, telegraph, telex or otherwise, whether or not
they be in cipher; (e) for errors in interpretation of technical terms; (f) for
any loss or delay in the transmission or otherwise of any document required in
order to make a payment under any Lender Letter of Credit, Underlying L/C or
Risk Participation Agreement or of the proceeds thereof; (g) for the credit of
the proceeds of any drawing under any Lender Letter of Credit, Underlying L/C
or demand under, a Risk Participation Agreement; and (h) for any consequences
arising from causes beyond the control of Agent or any Lender. None of the
above shall affect, impair, or prevent the vesting of any of Agent's or any
Lender's rights or powers hereunder.
(3) In furtherance and extension of and not in limitation of, the
specific provisions hereinabove set forth, any action taken or omitted by Agent
or any Lender under or in connection with any Lender Letter of Credit or Risk
Participation Agreement, if taken or omitted in good faith, shall not put Agent
or any Lender under any resulting liability to Borrower.
2.2 INTEREST.
(A) RATE OF INTEREST. The Loans and all other Obligations shall bear
interest from the date such Loans are made or such other Obligations become due
to the date paid at a rate per annum determined by reference to the Prime Rate
or the LIBOR Rate. The applicable basis for determining the rate of interest
shall be selected by Borrower initially at the time a notice of borrowing is
given pursuant to subsection 2.1(E). The basis for determining the interest rate
with respect to any Loan may be changed from time to time pursuant to subsection
2.2(E). If on any day a Loan is outstanding with respect to which notice has not
been delivered to Agent in accordance with the terms of this Agreement
specifying the basis for determining the rate of interest, then for that day
that Loan shall bear interest determined by reference to the Prime Rate.
The Loans shall bear interest through maturity as follows:
(1) if a Prime Rate Loan, then at a per annum rate equal to the sum
of the Prime Rate plus the applicable Prime Rate Margin; and
(2) if a LIBOR Rate Loan, then at a per annum rate equal to the sum
of the LIBOR Rate plus the applicable LIBOR Rate Margin.
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Notwithstanding the foregoing, so long as no Default or Event of Default
has occurred and is continuing, (x) if no IPO has been completed, the effective
Prime Rate Margin and LIBOR Rate Margin otherwise applicable under the foregoing
sentence shall be reduced by one-quarter of one percent (0.25%) if EBITDA for
the Fiscal Year ending December 31, 1996 equals or exceeds Twelve Million Eight
Hundred Thousand Dollars ($12,800,000) and shall be reduced by an additional
one-quarter of one percent (0.25%) if EBITDA for the Fiscal Year ending December
31, 1997 equals or exceeds Sixteen Million Three Hundred Thousand Dollars
($16,300,000); (y) after completion of an IPO, the effective Prime Rate Margin
shall be reduced to one-quarter of one percent (.25%) for all Revolving Loans,
and one-half of one percent (.50%) for the Term Loan and the LIBOR Rate Margin
shall be reduced to two percent (2%) for all Revolving Loans and two and
one-quarter percent (2.25%) for the Term Loan; and (z) after completion of an
IPO, the effective Prime Rate Margin and LIBOR Rate Margin shall be further
reduced by one quarter of one percent (.25%) if such IPO is completed prior to
December 31, 1997 and EBITDA for the Fiscal Year ending December 31, 1996 equals
or exceeds Twelve Million Eight Hundred Thousand ($12,800,000) or if such IPO is
completed thereafter and EBITDA for the Fiscal Year ending December 31, 1997
equals or exceeds Sixteen Million Three Hundred Thousand Dollars ($16,300,000).
Any reduction under clauses (x) or (z) shall be effective on the fifth
Business Day following receipt by Agent and Lenders of the audited financial
statements delivered pursuant to subsection 5.1(C) hereof evidencing that
Borrower has achieved the EBITDA levels in this subsection for the prior Fiscal
Year; PROVIDED that any change in the LIBOR Rate Margin shall not become
effective for any outstanding LIBOR Rate Loans until the end of the applicable
Interest Period.
After the occurrence of an Event of Default and for so long as such Event
of Default continues, (i) the Loans and all other Obligations shall, at the
option of Agent or Requisite Lenders, bear interest at a rate per annum equal to
two percent (2.0%) plus the applicable interest rate (the "Default Rate") and
(ii) each LIBOR Rate Loan shall automatically convert to a Prime Rate Loan at
the end of any applicable Interest Period.
(B) INTEREST PERIODS. In connection with each LIBOR Rate Loan, Borrower
shall elect an interest period (each an "Interest Period") to be applicable to
such Loan, which Interest Period shall be either a one, two, three or six month
period; PROVIDED that
(1) the initial Interest Period for any Loan shall commence on the
Funding Date of such Loan;
(2) in the case of immediately successive Interest Periods, each
successive Interest Period shall commence on the day on which the next preceding
Interest Period expires;
(3) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next succeeding
Business Day; PROVIDED that if any Interest Period would otherwise expire on a
day that is not a Business Day but is
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a day of the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(4) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to part
(5) below, end on the last Business Day of a calendar month;
(5) no Interest Period shall extend beyond the Termination Date;
(6) no Interest Period may extend beyond a date on which Borrower is
required to make a scheduled payment of principal of the Loans unless the sum of
(a) the aggregate principal amount of Loans that are Prime Rate Loans or that
have Interest Periods expiring on or before such date and (b) the available,
unused Revolving Loan Commitment or Borrowing Base equals or exceeds the
principal amount required to be paid on the Loans on such date; and
(7) there shall be no more than five (5) Interest Periods relating
to LIBOR Rate Loans outstanding at any time.
(C) COMPUTATION AND PAYMENT OF INTEREST. Interest on the Loans and all
other Obligations shall be computed on the daily principal balance on the basis
of a 360-day year for the actual number of days elapsed in the period during
which it accrues. In computing interest on any Loan, the date of funding of the
Loan or the first day of an Interest Period applicable to such Loan or, with
respect to a Prime Rate Loan being converted from a LIBOR Rate Loan, the date of
conversion of such LIBOR Rate Loan to such Prime Rate Loan, shall be included
and the date of payment of such Loan or the expiration date of an Interest
Period applicable to such Loan, or with respect to a Prime Rate Loan being
converted to a LIBOR Rate Loan, the date of conversion of such Prime Rate Loan
to such LIBOR Rate Loan, shall be excluded; PROVIDED that if a Loan is repaid on
the same day on which it is made, one day's interest shall be paid on that Loan.
Interest on Prime Rate Loans and all other Obligations other than LIBOR Rate
Loans shall be payable to Agent, for the benefit of Lenders, monthly in arrears
on the first day of each month, on the date of any prepayment of Loans and at
maturity, whether by acceleration or otherwise. Interest on LIBOR Rate Loans
shall be payable to Agent, for the benefit of Lenders, on the last day of the
applicable Interest Period for such Loan, and at maturity, whether by
acceleration or otherwise. In addition, for each LIBOR Rate Loan having an
Interest Period longer than three (3) months, interest accrued on such Loan
shall also be payable on the last day of each three (3) month interval during
such Interest Period.
(D) INTEREST LAWS. Notwithstanding any provision to the contrary
contained in this Agreement or any other Loan Document, Borrower shall not be
required to pay, and neither Agent nor any Lender shall be permitted to collect,
any amount of interest in excess of the maximum amount of interest permitted by
law, ("Excess Interest"). If any Excess Interest is
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provided for or determined by a court of competent jurisdiction to have been
provided for in this Agreement or in any other Loan Document, then in such
event: (1) the provisions of this subsection shall govern and control; (2)
neither Borrower nor any Loan Party shall be obligated to pay any Excess
Interest; (3) any Excess Interest that Agent or any Lender may have received
hereunder shall be, at such Lender's option, (a) applied as a credit against the
outstanding principal balance of the Obligations or accrued and unpaid interest
(not to exceed the maximum amount permitted by law), (b) refunded to the payor
thereof, or (c) any combination of the foregoing; (4) the interest rate(s)
provided for herein shall be automatically reduced to the maximum lawful rate
allowed from time to time under applicable law (the "Maximum Rate"), and this
Agreement and the other Loan Documents shall be deemed to have been and shall
be, reformed and modified to reflect such reduction; and (5) neither Borrower
nor any Loan Party shall have any action against Agent or any Lender for any
damages arising out of the payment or collection of any Excess Interest.
Notwithstanding the foregoing, if for any period of time interest on any
Obligations is calculated at the Maximum Rate rather than the applicable rate
under this Agreement, and thereafter such applicable rate becomes less than the
Maximum Rate, the rate of interest payable on such Obligations shall remain at
the Maximum Rate until each Lender shall have received the amount of interest
which such Lender would have received during such period on such Obligations had
the rate of interest not been limited to the Maximum Rate during such period.
(E) CONVERSION OR CONTINUATION. Subject to the provisions of subsection
2.10, Borrower shall have the option to (1) convert at any time all or any part
of outstanding Prime Rate Loans equal to Five Hundred Thousand Dollars
($500,000) and integral multiples of Five Hundred Thousand Dollars ($500,000) in
excess of that amount to LIBOR Rate Loans, or (2) upon the expiration of any
Interest Period applicable to a LIBOR Rate Loan, to continue all or any portion
of such Loan equal to Five Hundred Thousand Dollars ($500,000) and integral
multiples of Five Hundred Thousand Dollars ($500,000) in excess of that amount
as a LIBOR Rate Loan and the succeeding Interest Period(s) of such continued
Loan shall commence on the last day of the Interest Period of the Loan to be
continued; or (3) at the end of any Interest Period. convert all or any part of
a LIBOR Rate Loan to a Prime Rate Loan; PROVIDED that any LIBOR Rate Loan which
continues as such meets the minimum requirement of clause (2); and PROVIDED.
FURTHER, that no outstanding Loan may be continued as, or be converted into, a
LIBOR Rate Loan when any Event of Default or Default has occurred and is
continuing.
Borrower shall deliver a Notice of Conversion/Continuation to Agent
no later than 1:00 p.m. (New York time) at least two (2) Business Days
in advance of the proposed conversion/continuation date ("Notice of
Conversion/Continuation"). A Notice of Conversion/Continuation shall certify:
(1) the proposed conversion/continuation date (which shall be a Business Day);
(2) the amount of the Loan to be converted/continued; (3) the nature of the
proposed conversion/continuation; (4) in the case of a conversion to, or a
continuation of. a LIBOR Rate Loan, the requested Interest Period; and (5) that
no Default or Event of Default has occurred and is continuing or would result
from the proposed conversion/continuation.
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In lieu of delivering the above-described Notice of Conversion/
Continuation, Borrower may give Agent telephonic notice by the required time
of any proposed conversion/continuation under this subsection 2.2
(E); PROVIDED that such notice shall be promptly confirmed in writing by
delivery of a Notice of Conversion/Continuation to Agent on or before the
proposed conversion/continuation date.
Neither Agent nor any Lender shall incur any liability to Borrower in
acting upon any telephonic notice referred to above that Agent believes in good
faith to have been given by a duly authorized officer or other person authorized
to act on behalf of Borrower or for otherwise acting in good faith under this
subsection 2.2(E) and upon conversion/continuation by Lenders in accordance with
this Agreement pursuant to any telephonic notice, Borrower shall have effected
such conversion or continuation, as the case may be, hereunder.
2.3 FEES
(A) AGENT'S FEE. Borrower shall pay to Agent such fees as are agreed
upon by Borrower and Agent in a letter agreement of even date herewith.
(B) UNUSED LINE FEE. Borrower shall pay to Agent, for the benefit of
Lenders, a fee in an amount equal to the Revolving Loan Commitment LESS the sum
of (i) the average daily balance of the Revolving Loan (including any Seasonal
Overadvance) plus (ii) the average daily face amount of the Risk Participation
Reserve during the preceding month multiplied by one-half percent (.5%) per
annum, such fee to be payable monthly in arrears on the first day of the first
month following the Closing Date and the first day of each month thereafter.
The first payment hereunder shall include the Unused Line Fee payable under the
Existing Loan Agreement for any partial month prior to the Closing Date.
(C) LETTER OF CREDIT AND GUARANTY FEES. Borrower shall pay to Agent for
the benefit of Lenders fees for each Lender Letter of Credit and each Risk
Participation Agreement for the period from and including the date of issuance
of same to and excluding the date of expiration or termination, equal to the
average daily face amount of Risk Participation Liability multiplied by two
percent (2.0%) per annum, such fees to be calculated on the basis of a 360-day
year for the actual number of days elapsed and to be payable quarterly in
arrears on the first day of each July, October, January and April. Borrower
shall also reimburse Agent for any and all fees and expenses, if any, paid by
Agent to the issuer of the Underlying L/C.
(D) PREPAYMENT FEES. If Borrower prepays the Obligations in full or
(other than voluntary prepayments of the Revolving Loans or Seasonal
Overadvances) in part, prior to the end of the first Loan Year, Borrower, at the
time of such prepayment, shall pay to Agent, for the benefit of Lenders, as
compensation for the costs of being prepared to make funds available to Borrower
under this Agreement, and not as a penalty, an amount determined by multiplying
one percent (1%) by (1) in the case of a prepayment in full of the Obligations,
the sum of the outstanding principal balance of the Term Loan at the date of
such prepayment plus the amount of the Revolving Loan Commitment, or (2) in the
case of a prepayment of the Term Loan, in
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whole or in part, or a reduction in the Revolving Loan Commitment, the amount of
such prepayment or reduction, PROVIDED that no amount shall be due (x) with
respect to a partial prepayment of the Term Loan (or reduction in the Revolving
Loan Commitment) as a result of any Asset Disposition in the ordinary course of
business or (y) if Heller ceases to be the Agent hereunder and the Obligations
are prepaid in full. "Loan Year" means each period of twelve (12) consecutive
months commencing on the Closing Date and on each anniversary thereof.
2.4 PAYMENTS AND PREPAYMENTS
(A) MANNER AND TIME OF PAYMENT. In its sole discretion, Agent may charge
interest and other amounts payable hereunder to the Revolving Loan, all as set
forth on Agent's books and records. Unless otherwise directed by Agent, all
payments to Lenders hereunder shall be made by delivery thereof to Agent to the
account specified below or, with respect to the Revolving Loan and any Seasonal
Overadvance only, by delivery to Agent of all proceeds of Accounts or other
Collateral deposited in the Blocked Accounts in accordance with subsection 5.6
hereof, but subject to the terms of such subsection and the agreements governing
the Blocked Accounts. If Agent elects to bill Borrower for any amount due
hereunder, such amount shall be immediately due and payable with interest
thereon as provided herein. All payments made directly by Borrower of the
Obligations shall be made in Dollars without deduction, defense, setoff or
counterclaim and in same day funds and delivered to Agent by wire transfer to
Agent's account ("Agent's Account"), ABA No. 071-0000-3, Account No. 52-98695 at
First National Bank of Chicago, One First National Plaza, Chicago, IL 60670,
Reference: Heller Business Credit for the benefit of The North Face or at such
other place as Agent may direct from time to time by notice to Borrower.
Proceeds remitted from the Blocked Accounts or otherwise wire transferred to
Agent's Account shall be credited to the Obligations on the Business Day on
which Agent receives immediately available funds in Agent's Account if received
prior to 3 p.m. (New York time); PROVIDED, HOWEVER, for the purposes of
calculating interest on the Obligations, such funds shall be deemed received one
(1) Business Day following such date of receipt, but after an IPO has been
consummated, funds shall be deemed received for such purposes on the day of
Agent's receipt of immediately available funds if received prior to 3:00 p.m.
(New York time).
(B) MANDATORY PREPAYMENTS
(1) OVERADVANCE. At any time that the principal balance of the
Revolving Loan exceeds the Maximum Revolving Loan Amount, Borrower shall
immediately repay the Revolving Loan to the extent necessary to reduce the
principal balance to an amount that is equal to or less than the Maximum
Revolving Loan Amount. Such prepayments shall be applied first to any Seasonal
Overadvances and then to other Revolving Loans.
(2) SEASONAL OVERADVANCES. At any time that the principal balance
of the Seasonal Overadvances exceeds the amounts permitted pursuant to
subsection 2.1(C), Borrower shall immediately repay the Seasonal Overadvances to
the extent necessary to reduce the
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principal balance to such amount. In addition, in no event may Seasonal
Overadvances remain outstanding beyond the end of the Overadvance Period in any
year.
(3) PROCEEDS OF ASSET DISPOSITIONS AND SECURITIES SALES.
Immediately upon receipt by Borrower or any of its Subsidiaries of proceeds of
any Asset Disposition (in one or a series of related transactions), which
proceeds exceed Fifty Thousand Dollars ($50,000), net of taxes and other
customary closing costs payable in connection therewith and the amount applied
to repay Indebtedness secured by any Permitted Encumbrance (it being understood
that if the net proceeds exceed Fifty Thousand Dollars ($50,000), the entire
amount and not just the portion above Fifty Thousand Dollars ($50,000) shall be
subject to this paragraph), or the proceeds from the issuance of securities of
Borrower or any of its Subsidiaries (net of reasonable underwriting fees and
customary closing costs payable in connection therewith and LESS any prepayments
of the Subordinated Debt from the proceeds of an IPO permitted under subsection
7.5 hereof), Borrower shall prepay the Obligations in an amount equal to such
proceeds. Notwithstanding the foregoing, if Borrower reasonably expects the
proceeds of any Asset Disposition to be reinvested within 180 days to repair or
replace any assets with like assets, Borrower shall deliver the proceeds to
Agent to be applied to the Revolving Loan, and Borrower may, so long as no
Default or Event of Default shall have occurred and be continuing, borrow
Revolving Loans for such repair or replacement. If Borrower fails to reinvest
such proceeds within 180 days, Borrower hereby authorizes Lenders to make a
Revolving Loan to repay the Term Loan as required hereby and/or if the Term Loan
has been repaid, the Revolving Loan Commitment shall be permanently reduced as
provided herein. All such prepayments shall first be applied in payment of
Scheduled Installments in the inverse order of maturity (and the Term Loan
Commitment will be permanently reduced in the amount of such prepayment) and, at
any time after the Term Loan shall have been repaid in full, such payments shall
be applied as a permanent reduction of the Revolving Loan Commitment; PROVIDED,
HOWEVER, that prepayments from proceeds of an IPO or any issuance of Common
Stock thereafter shall not permanently reduce the Revolving Loan Commitment.
(C) VOLUNTARY PREPAYMENTS AND REPAYMENTS. Borrower may, at any time and
upon not less than three (3) Business Days prior notice to Agent and payment of
any fees due under subsection 2.3(D), prepay the Term Loan in whole or in part,
and upon like notice may terminate the Revolving Loan Commitment, PROVIDED,
HOWEVER, the Revolving Loan Commitment may not be terminated by Borrower until
the Term Loan and any Seasonal Overadvance and all Revolving Loans are paid in
full. Upon termination of the Revolving Loan Commitment, Borrower shall cause
Agent and each Lender to be released to the satisfaction of Agent from all
liability under any Lender Letters of Credit or Lender Guaranties or, at Agent's
option, Borrower will deposit cash collateral with Agent in an amount equal to
the Risk Participation Liability with respect to each Lender Letter of Credit
and each Risk Participation Agreement that will remain outstanding after
prepayment or repayment or provide one or more letters of credit to Agent, from
a bank and on terms acceptable to Agent.
(D) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made hereunder
shall be stated to be due on a day that is not a Business Day, the payment may
be made on the next
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succeeding Business Day and such extension of time shall be included in the
computation of the amount of interest or fees due hereunder.
2.5 TERM OF THIS AGREEMENT. This Agreement shall be effective until February
1, 2000 (the "Termination Date"). The Commitments shall (unless earlier
terminated) terminate on the Termination Date. In addition, this Agreement may
be terminated as set forth in Section 8.3 hereof. Upon termination in accordance
with Section 8.3 or on the Termination Date, all Obligations shall be
immediately due and payable without notice or demand. Notwithstanding any
termination, until all Obligations have been fully paid and satisfied, Agent, on
behalf of Lenders, shall be entitled to retain security interests in and liens
upon all Collateral, and even after payment of all Obligations hereunder, the
obligation of Borrower and its Subsidiaries to indemnify Agent and Lenders in
accordance with the terms hereof or of any other Loan Document shall continue.
2.6 STATEMENTS, APPLICATION OF PAYMENTS. Agent shall render a monthly
statement of account to Borrower within twenty (20) days after the end of each
month. Such statement of account shall constitute an account stated unless
Borrower makes written objection thereto in reasonable detail (including
appropriate calculations) within thirty (30) days from the date such statement
is mailed to Borrower. Borrower promises to pay all of its Obligations as such
amounts become due or are declared due pursuant to the terms of this Agreement.
Except for payments on the Term Loan and mandatory prepayments, principal
payments of the Loans shall be applied first to Seasonal Overadvances and then
to Revolving Loans. After the occurrence and during the continuance of an Event
of Default, Borrower irrevocably waives the right to direct the application of
any and all payments at any time or times thereafter received by Agent or any
Lender from or on behalf of Borrower, and Borrower hereby irrevocably agrees
that Agent shall have the continuing exclusive right to apply and to reapply any
and all payments received at any time or times after the occurrence and during
the continuance of an Event of Default against the Obligations in such manner as
Agent may deem advisable notwithstanding any previous entry by Agent upon any
books and records.
2.7 GRANT OF SECURITY INTEREST. To secure the payment and performance when
due of the Obligations, including all renewals, extensions, restructurings and
refinancings of any or all of the Obligations, Borrower hereby grants to Agent,
on behalf of Lenders, a continuing first priority security interest, lien and
mortgage in and to all right, title and interest of Borrower in the following
property of Borrower, whether now owned or existing or hereafter acquired or
arising and regardless of where located (all being collectively included within
the "Collateral"): (A) Accounts; (B) Inventory; (C) general intangibles (as
defined in the UCC, including Borrower's rights and claims under the Assigned
Agreements and the Canadian Documents; (D) documents (as defined in the UCC) or
other receipts covering, evidencing or representing goods; (E) instruments (as
defined in the UCC); (F) chattel paper (as defined in the UCC); (G) Equipment;
(H) Mortgaged Property; (I) Intellectual Property, including without limitation
that set forth on Schedule 4.13 hereof, (J) all deposit accounts of Borrower
maintained with any bank or financial institution; (K) all cash and other monies
and property of Borrower in the possession or under the control of Agent or any
Lender or any participant;
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(L) all books, records, ledger cards, files, correspondence, computer programs,
tapes, disks and related data processing software that at any time evidence or
contain information relating to any of the property described above or are
otherwise necessary or helpful in the collection thereof or realization thereon;
(M) rights under this Agreement or any other Loan Document and the proceeds of
any Loans hereunder; and (N) proceeds of all or any of the property described
above, including, without limitation, the proceeds of any insurance policies
covering any of the above described property. Borrower hereby confirms that the
security interests granted to Heller under the Existing Loan Agreement shall
continue in full force and effect as if granted to Agent for the benefit of
Lenders.
2.8 CAPITAL ADEGUACY AND OTHER ADJUSTMENTS. In the event that Agent or any
Lender shall have determined that the adoption after the date hereof of any law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order regarding capital adequacy, reserve requirements or similar requirements
or compliance by Agent or such Lender or any corporation controlling Agent or
such Lender with any request or directive regarding capital adequacy, reserve
requirements or similar requirements (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) from any central
bank or governmental agency or body having jurisdiction does or shall have the
effect of increasing the amount of capital, reserves or other funds required to
be maintained by Agent or such Lender or any corporation controlling Agent or
such Lendcr with respect to the Obligations and thereby reducing the rate of
return on Agent's or such Lender's or such corporation's capital as a
consequence of its obligations hereunder, then Borrower shall from time to time
within fifteen (15) days after notice and demand from Agent or such Lender
(together with the certificate referred to in the next sentence) pay to Agent or
such Lender additional amounts sufficient to compensate Agent or such Lender for
such reduction, so long as Agent or such Lender is then requiring such payments
from other borrowers, the demand does not seek payment for a period more than
90 days in arrears and the demand is made prior to payment in full of the
Obligations and termination of all Commitments. A certificate as to the amount
of such cost and showing the basis of the computation of such cost submitted by
Agent or such Lender to Borrower shall, absent manifest error, be final,
conclusive and binding for all purposes. If a Lender makes a demand for
compensation pursuant to this subsection 2.8, Borrower may obtain, at Borrower's
expense but without payment of any fee under subsection 2.3(D), a replacement
lender who agrees to acquire Lender's interest in the Loans and the Commitments
on the terms set forth in this Agreement and such Lender shall assign to such
replacement lender its interest in the Loans and the Commitments, PROVIDED that
Borrower has paid all amounts then due to such Lender (including any amounts
due under this subsection 2.8).
2.9 TAXES.
(A) NO DEDUCTIONS. Any and all payments or reimbursements made hereunder
or under the Notes shall be made free and clear of and without deduction for any
and all taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect th@reto; excluding, however, the following: taxes
imposed on the net income of a Lender or Agent by
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the jurisdiction under the laws of which such Lender or Agent is organized or
doing business or any political subdivision thereof and taxes imposed on its
net income by the jurisdiction of a Lender's or Agent's applicable lending
office or any political subdivision thereof. If Borrower shall be required by
law to deduct any such amounts from or in respect of any sum payable
hereunder to Agent or any Lender, then the sum payable hereunder shall be
increased as may be necessary so that, after making all required deductions,
Agent or such Lender receives an amount equal to the sum it would have
received had no such deductions been made. Each Lender which is organized
under the laws of a jurisdiction other than the United States or any state
thereof shall deliver to Agent and Borrower concurrently with its execution
of this Agreement or any Lender Addition Agreement duly executed copies of
such Internal Revenue Service forms as required to demonstrate that it is
entitled to receive all payments hereunder free from United States
withholding taxes as of such date.
(B) CHANGES IN TAX LAWS. In the event that, subsequent to the Closing
Date, (1) any changes in any existing law, regulation, treaty or directive or in
the interpretation or application thereof, (2) any new law, regulation, treaty
or directive enacted or any interpretation or application thereof, or (3)
compliance by Agent or any Lender with any request or directive (whether or not
having the force of law) from any governmental authority, agency or
instrumentality:
(1) does or shall subject Agent or any Lender to any tax of any kind
whatsoever with respect to this Agreement, the other Loan Documents or any Loans
made or Lender Guaranties or Lender Letters of Credit issued hereunder, or
change the basis of taxation of payments to Agent or any Lender of principal,
fees, interest or any other amount payable hereunder (except for net income
taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally
by federal, state or local taxing authorities with respect to interest or
commitment or other fees payable hereunder or changes in the rate of tax on the
overall net income of Agent or any Lender); or
(2) does or shall impose on Agent or any Lender any other
condition or increased cost in connection with the transactions contemplated
hereby or participations herein; and the result of any of the foregoing is to
increase the cost to Agent or any Lender of issuing or participating in any
Lender Letter of Credit or Risk Participation Agreement or making or
continuing any Loan hereunder, as the case may be, or to reduce any amount
receivable hereunder, then, in any such case, Borrower shall promptly pay to
Agent or such Lender, upon its demand, any additional amounts necessary to
compensate Agent or such Lender, on an after-tax basis, for such additional
cost or reduced amount receivable, as determined by Agent or such Lender with
respect to this Agreement or the other Loan Documents. If Agent or any
Lender becomes entitled to claim any additional amounts pursuant to this
subsection, it shall promptly notify Borrower of the event by reason of which
Agent or such Lender has become so entitled. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by
Agent or any Lender to Borrower shall, absent manifest error, be final,
conclusive and binding for all purposes.
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2.10 SPECIAL PROVISIONS GOVERNING LIBOR RATE LOANS.
Notwithstanding any other provision of this Agreement, the following
provisions shall govern with respect to LIBOR Rate Loans as to the matters
covered:
(A) DETERMINATION OF INTEREST RATE. As soon as practicable after noon
(New York time) on each Interest Rate Determination Date, Agent shall determine
(which determination shall, absent manifest error, be final, conclusive and
binding upon all parties) the interest rate that shall apply to the LIBOR Rate
Loans for which an interest rate is then being determined for the applicable
Interest Period and shall promptly give notice thereof (in writing or by
telephone confirmed in writing) to Borrower and Lenders.
(B) SUBSTITUTED RATE OF BORROWING. If on any Interest Rate Determination
Date Agent shall have determined (which determination shall be final and
conclusive and binding upon all parties) that:
(1) by reason of any changes arising after the date of this
Agreement affecting the LIBOR market or affecting the position of Agent or any
Lender in such market, adequate and fair means do not exist for ascertaining the
applicable interest rate by reference to the LIBOR Rate with respect to the
LIBOR Rate Loans as to which an interest rate determination is then being made;
or
(2) by reason of (a) any change after the date hereof in any
applicable law or governmental rule, regulation or order (or any interpretation
thereof and including the introduction of any new law or governmental rule,
regulation or order) or (b) any change in circumstances affecting Agent or any
Lender or the LIBOR market or the position of Agent or any Lender in such market
(such as for example, but not limited to, official reserve requirements required
by Regulation D to the extent not given effect in the LIBOR Rate), the LIBOR
Rate shall not represent the effective pricing to Lenders for Dollar deposits of
comparable amounts for the relevant period;
then, and in any such event, Agent shall promptly (and in any event as soon as
possible after being notified of a borrowing, conversion or continuation) give
notice (by telephone confirmed in writing) to Borrower and Lenders of such
determination. Thereafter, Borrower shall pay to Agent for the benefit of
Lenders, upon written demand therefor, such additional amounts (in the form of
an increased rate of, or a different method of calculating, interest or
otherwise as Agent in its sole discretion shall determine) as shall be required
to cause Lenders to receive interest with respect to LIBOR Rate Loans for the
Interest Period following that Interest Rate Determination Date at a rate per
annum equal to the applicable LIBOR Rate Margin in excess of the effective
pricing to Lenders for Dollar deposits to make or maintain LIBOR Rate Loans. A
certificate as to additional amounts owed showing in reasonable detail the basis
for the calculation thereof, submitted in good faith to Borrower by Agent shall,
absent manifest error, be final and conclusive and binding upon all of the
parties hereto.
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(C) REQUIRED TERMINATION AND PREPAYMENT. If on any date any Lender shall
have reasonably determined (which determination shall be final and conclusive
and binding upon all parties) that the making or continuation of its LIBOR Rate
Loans has become unlawful or impossible by compliance by any Lender in good
faith with any law, governmental rule, regulation or order (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful), then, and in any such event, that Lender shall promptly give notice
(by telephone confirmed in writing) to Agent and Borrower of that determination.
Subject to prior withdrawal of a notice of borrowing or a Notice of
Conversion/Continuation or prepayment of the LIBOR Rate Loans as contemplated by
the following subsection 2.10(D), the obligation of Lenders to make or maintain
any LIBOR Rate Loans during any such period shall be terminated at the earlier
of the termination of the Interest Period then in effect or when required by law
and Borrower shall no later than the termination of the Interest Period in
effect at the time any such determination pursuant to this subsection 2.10 (C)
is made or, earlier, when required by law, repay or prepay the LIBOR Rate Loans,
together with all interest accrued thereon.
(D) OPTIONS OF BORROWER. In lieu of paying Lenders such additional
moneys as are required by subsection 2.10(B) or the prepayment required by
subsection 2.10(C), Borrower may exercise any one of the following options:
(1) If the determination by Agent or any Lender relates only to
LIBOR Rate Loans then being requested by Borrower pursuant to a notice of
borrowing or a Notice of Conversion/Continuation, Borrower may by giving notice
(by telephone confirmed in writing) to Agent no later than the date immediately
prior to the date on which such LIBOR Rate Loans are to be made, withdraw that
notice and the LIBOR Rate Loans then being requested shall be made by Lenders
as Prime Rate Loans; or
(2) Upon written notice to Agent, Borrower may terminate the
obligations of Lenders to make or maintain Loans as, and to convert Loans into,
LIBOR Rate Loans and in such event, Borrower shall, prior to the time any
payment pursuant to subsection 2.10(C) is required to be made or, if the
provisions of subsection 2.10(B) are applicable, at the end of the then current
Interest Period, convert all of the LIBOR Rate Loans into Prime Rate Loans in
the manner contemplated by subsection 2.2(E) but without satisfying the advance
notice requirements therein; or
(3) Borrower may give notice (by telephone confirmed in writing)
to Agent and require Lenders to make the LIBOR Rate Loan then being requested
as a Prime Rate Loan or to continue to maintain any outstanding Prime Rate
Loan then the subject of a Notice of Conversion/Continuation as a Prime Rate
Loan or to convert any LIBOR Rate Loans then outstanding that are so affected
into Prime Rate Loans at the end of the then current Interest Period (or at
such earlier time as prepayment is otherwise required to be made pursuant to
subsection 2.10(C) in the manner contemplated by subsection 2.2(E) but
without satisfying the advance notice requirements therein, that notice to
pertain only to those Loans and to have
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no effect on the obligations of Lenders to make or maintain LIBOR Rate Loans or
to convert Prime Rate Loans into LIBOR Rate Loans.
(E) COMPENSATION. Borrower shall compensate each Lender, upon written
request by such Lender (which request shall set forth in reasonable detail the
basis for requesting such amounts and which shall, absent manifest error, be
conclusive and binding upon all parties hereto), for all reasonable losses,
expenses and liabilities (including, without limitation, any loss (including
interest paid) sustained by such Lender in connection with the re-employment of
such funds), such Lender may sustain: (1) if for any reason (other than a
default by such Lender) a borrowing of any LIBOR Rate Loan does not occur on a
date specified therefor in a notice of borrowing, a Notice of
Conversion/Continuation or a telephonic request for borrowing or
conversion/continuation or a successive Interest Period does not commence after
notice therefor is given pursuant to subsection 2.2(E); (2) if any prepayment of
any of its LIBOR Rate Loans occurs on a date that is not the last day of an
Interest Period applicable to that Loan; (3) if any prepayment of any of its
LIBOR Rate Loans is not made on any date specified in a notice of prepayment
given by Borrower; or (4) as a consequence of any other default by Borrower to
repay its LIBOR Rate Loans when required by the terms of this Agreement;
PROVIDED that during the period while any such amounts have not been paid, Agent
shall reserve an equal amount from amounts otherwise available to be borrowed
under the Revolving Loan.
(F) BOOKING OF LIBOR RATE LOANS. Any Lender may make, carry or transfer
LIBOR Rate Loans at, to, or for the account of, any of its branch offices or the
office of an Affiliate of such Lender.
(G) ASSUMPTIONS CONCERNING FUNDING OF LIBOR RATE LOANS. Calculation of
all amounts payable to Lenders under this subsection 2.10 shall be made as
though each Lender had actually funded its relevant LIBOR Rate Loan through the
purchase of a LIBOR deposit bearing interest at the LIBOR Rate in an amount
equal to the amount of that LIBOR Rate Loan and having a maturity comparable to
the relevant Interest Period and through the transfer of such LIBOR deposit from
an offshore office to a domestic office in the United States of America;
PROVIDED, HOWEVER, that any Lender may fund each of its LIBOR Rate Loans in any
manner it sees fit and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this subsection 2.10.
SECTION 3 CONDITIONS TO EFFECTIVENESS; CONDITIONS TO LOANS
3.1 CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT AND TO LOANS ON THE CLOSING
DATE. The effectiveness of this Agreement and obligations of Agent and each
Lender to make Loans or to issue Lender Letters of Credit or participate in any
Risk Participation Agreement on the Closing Date are subject to the prior or
concurrent satisfaction of all of the conditions set forth below.
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(A) CLOSING DELIVERIES. Agent shall have received, in form and substance
acceptable to Agent all documents, instruments and information identified on
Schedule 3.1(A), and all other agreements, notes, certificates, legal opinions,
orders, authorizations, financing statements, mortgages and other documents
which Agent or any Lender may in good faith request and each and all of the
foregoing must be in form and substance acceptable to Agent.
(B) SECURITY INTERESTS. Agent shall have received satisfactory evidence
that all security interests and liens granted to Heller or Agent pursuant to
the Existing Loan Agreement, this Agreement or the other Loan Documents have
been duly perfected and constitute first priority liens on the Collateral,
subject only to Permitted Encumbrances. Agent shall have received all UCC
termination statements and other releases of Liens, duly executed by the
applicable secured parties, releasing any and all Liens against the Collateral,
except Permitted Encumbrances. Agent shall have received the duly executed
Pledge Agreement, together with the certificates for the stock of TNF Canada and
TNF Europe delivered in pledge, and with stock powers executed in blank.
(C) REPAYMENT OF TERM LOAN. The Term Loan under the Existing Loan
Agreement shall be repaid in full on the Closing Date, but without any
requirement to pay any prepayment fee which would have been due under the
Existing Loan Agreement.
(D) CANADIAN DOCUMENTS. Each of the Canadian Documents shall have been
duly executed and delivered, and the Liens duly perfected and Agent and Lenders
shall have received opinions of counsel in Canada in form and substance
acceptable to Agent and its counsel.
(E) FEES AND COSTS. Borrower shall have paid the fees payable on the
Closing Date referred to in subsections 2.3(A) and all fees and costs of Agent's
counsel.
(F) CORPORATE AUTHORIZATION AND OPINIONS. Agent shall have received
evidence satisfactory to it that all necessary actions of Borrower and its
Subsidiaries to authorize the execution, delivery and performance of this
Agreement and the other Loan Documents have been duly taken, and shall have
received the opinion of Crosby, Heafey, Roach & May, in form and substance
acceptable to Agent and its counsel.
(G) SUBORDINATED DEBT DOCUMENTS. Borrower shall have obtained such
consents under, or an amendment to, the Subordinated Debt Agreement, in form and
substance acceptable to Agent, necessary to permit the execution, delivery and
performance of this Agreement and the Canadian Documents.
(H) APPRAISAL OF TRADEMARK. Agent shall have received (at Heller's cost)
an appraisal, in form and substance acceptable to it and from an appraiser
acceptable to Agent, of the trademark "The North Face."
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3.2 CONDITIONS TO ALL LOANS AND LENDER LETTERS OF CREDIT. The obligations of
each Lender to make Loans or of Agent to issue Lender Letters of Credit or to
execute and deliver any Risk Participation Agreement on any Funding Date
(including the Closing Date) are subject to satisfaction of all of the
conditions set forth below.
(A) LOAN DOCUMENTS. Agent shall have received, in form and substance
satisfactory to Lender, all agreements, mortgages, financing statements and
other documents as required to perfect or continue the perfection of Agent's
first priority security interests in the Collateral for the benefit of Lenders.
(B) CONSENTS. All consents, approvals or authorizations of any Person
required for the execution, delivery or performance of the Loan Documents shall
have been obtained and remain in full force and effect.
(C) REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained herein and in the Loan Documents shall be true, correct and complete
in all material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except for any representation or warranty
limited by its terms to a specific date and taking into account any amendments
to the Schedules or Exhibits as a result of any disclosures made by Borrower to
Lenders after the Closing Date and approved by Agent.
(D) NO DEFAULT. No event shall have occurred and be continuing or would
result from the consummation of the requested borrowing or notice requesting
issuance of a Lender Letter of Credit or Underlying L/C that would constitute a
Default or an Event of Default.
(E) PERFORMANCE OF AGREEMENTS. Each Loan Party shall have performed
in all material respects all agreements and satisfied all conditions which
any Loan Document or (if failure to perform would have a Material Adverse
Effect or permit other parties to exercise remedies against a Loan Party) any
other Transaction Document provides shall be performed by it on or before
that Funding Date.
(F) NO PROHIBITION. No provision of any law or regulation, and no order,
judgment or decree of any court, arbitrator or governmental authority, shall
purport to enjoin or restrain Agent or any Lender from making any Loans or
issuing or participating in any Lender Letters of Credit or Underlying L/C's or
impair any security interest in the Collateral.
(G) MARGIN REGULATIONS. The making of the Loans requested on such
Funding Date shall not violate Regulation G, Regulation T, Regulation U or
Regulation X of the Board of Governors of the Federal Reserve System.
(H) NO LITIGATION. There shall not be pending or, to the knowledge of
Borrower, threatened, any action, charge, claim, demand, suit, proceeding,
petition, governmental investigation or arbitration against or affecting any
Loan Party or any of its Subsidiaries or any property of any Loan Party or any
of its Subsidiaries that has not been disclosed by Borrower
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in writing, and that, in the opinion of Agent, would reasonably be expected to
have a Material Adverse Effect and there shall have occurred no development in
any such action, charge, claim, demand, suit, proceeding, petition, governmental
investigation or arbitration that, in the opinion of Agent, would reasonably be
expected to have a Material Adverse Effect.
(I) NO MATERIAL ADVERSE CHANGE. No event shall have occurred since the
Original Closing Date which has resulted in any material adverse change in the
business, properties, assets or condition (financial or otherwise) of Borrower
individually or Borrower and its subsidiaries taken as a whole.
SECTION 4 BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce Agent and each Lender to enter into this
Agreement, to make Loans and to issue or participate in Lender Letters of Credit
and Risk Participation Agreements, Borrower represents and warrants to Agent and
each Lender that the following statements are and will be true, correct and
complete:
4.1 ORGANIZATION, POWERS, CAPITALIZATION.
(A) ORGANIZATION AND POWERS. Each of the Loan Parties is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and qualified to do business in all jurisdictions
where such qualification is required. Each of the Loan Parties has (and had at
all relevant times) all requisite corporate power and authority to own and
operate its properties, to carry on its business as now conducted and proposed
to be conducted and to enter into each Loan Document and other Transaction
Document to which such Loan Party is a signatory.
(B) CAPITALIZATION. The authorized capital stock of each of the Loan
Parties is as set forth on Schedule 4.1(B). All issued and outstanding shares of
capital stock of each of the Loan Parties are duly authorized and validly
issued, fully paid, nonassessable, free and clear of all Liens other than those
in favor of Agent for the benefit of Lenders and such shares were issued in
compliance with all applicable state and federal (domestic or foreign) laws
concerning the issuance of securities. As of the Closing Date, the capital
stock of Borrower is owned by the Shareholders and in the amounts set forth on
Schedule 4.1(B). All of the capital stock of TNF Europe is owned by Borrower
(except one director's qualifying share), and all of the capital stock of TNF
Canada is owned by Borrower. There are no preemptive or other outstanding
rights, options, warrants, conversion rights or similar agreements or
understandings for the purchase or acquisition from any Loan Party or any other
Person of any shares of capital stock or other securities of any such entity,
except as described in Schedule 4.1(B).
4.2 AUTHORIZATION OF BORROWING AND ACQUISITION, NO CONFLICT. Borrower has the
corporate power and authority to incur the Obligations and to grant security
interests in the Collateral. On the Original Closing Date, the execution,
delivery and performance of the Loan Documents
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and the other Transaction Documents by each Loan Party signatory thereto was
duly authorized by all necessary corporate and shareholder action. The
execution, delivery and performance of this Agreement, the amendments to the
Pledge Agreement and the Canadian Documents have been duly authorized by all
necessary corporate and shareholder action of Borrower and TNF Canada. The
execution, delivery and performance by each Loan Party of each Loan Document and
other Transaction Document to which it is a party and the consummation of the
transactions contemplated by this Agreement and the Transaction Documents do not
and will not be in contravention of any applicable law, the corporate charter or
bylaws of any Loan Party or any material agreement or order by which any Loan
Party or any of its property is bound. No consents, authorizations or permits
are required to be obtained by Borrower or any of its Subsidiaries for the
execution, delivery or performance of any Loan Document, except those which have
been obtained and delivered to Agent. No filing by Borrower, Old TNF or any
Shareholder was required under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 in connection with the Acquisition. This Agreement is, and the other
Transaction Documents, including the Notes, are the legally valid and binding
obligations of the applicable Loan Parties, respectively, enforceable against
the Loan Parties in accordance with the respective terms of the respective
Transaction Documents.
4.3 FINANCIAL CONDITION. The financial statements of Old TNF and its
Subsidiaries as of November 30, 1993 and for each period thereafter (but prior
to the Original Closing Date) which have been, and all financial statements
concerning Borrower and its Subsidiaries which have been furnished pursuant to
the Existing Loan Agreement or will hereafter be furnished by Borrower and its
Subsidiaries to Agent or any Lender pursuant to this Agreement have been or will
be prepared in accordance with GAAP consistently applied throughout the periods
involved (except as disclosed therein) and do or will present fairly in all
material respects the financial condition of the Persons covered thereby as at
the dates thereof and the results of their operations for the periods then
ended. The Budgets delivered and to be delivered have been and will be prepared
by Borrower in light of the past operations of the business of Old TNF and its
Subsidiaries.
4.4 INDEBTEDNESS AND LIABILITIES. As of the Closing Date, except as set forth
on Schedule 7.1(C), neither Borrower nor any of its Subsidiaries has (a) any
Indebtedness except Indebtedness under the Existing Loan Agreement or as accrued
in the financial statements dated as of December 31, 1994; or (b) any
liabilities other than as stated in financial statements dated as of December
31, 1994 or operating lease liabilities and trade credit to Persons incurred in
the ordinary course of business following the date of the such financial
statements.
4.5 ACCOUNT WARRANTIES. Borrower represents, warrants and covenants as to
each Account of Borrower or TNF Canada or any of Borrower's Subsidiaries which
is a party to a Loan Document that, at the time of its creation, the Account is
a valid, bona fide account, representing an indebtedness incurred by the named
account debtor for goods actually sold and delivered or for services completely
rendered; there are no setoffs, or counterclaims, genuine or otherwise, against
the Account; the Account does not represent a sale to an Affiliate (other than
Goldwin or TNF Canada) or a consignment, sale or return or a bill and hold
transaction;
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no agreement exists permitting any deduction or discount (other than the
discount stated on the invoice); Borrower or the applicable Subsidiary is the
lawful owner of the Account and Borrower or such Subsidiary has the right to
assign the same to Agent, for the benefit of Lenders; each Account is free of
all security interests, liens and encumbrances other than those in favor of
Agent, for the benefit of Lenders and, as to Accounts of TNF Canada Liens in
favor of Borrower which have been assigned to Agent, for the benefit of Lenders;
and the Account is due and payable in accordance with its terms.
4.6 NAMES. Borrower does not conduct business, nor has it at any time during
the past five years conducted business, under any name, trade name or fictitious
business name other than those names set forth on Schedule 4.6.
4.7 LOCATIONS; FEIN. Schedule 4.7 sets forth the locations of Borrower's and
each Subsidiary's principal places of business, the locations of their books and
records, the locations of all other offices of Borrower and its Subsidiaries and
all Collateral locations, and such locations are Borrower's and its Subsidiaries
sole locations for their respective businesses and the Collateral. Borrower's
federal employer identification number is 94-320-4082.
4.8 TITLE TO PROPERTIES; LIENS. Borrower and each of its Subsidiaries has
good, sufficient and legal title, subject to Permitted Encumbrances, to all its
respective material properties and assets. Except for Permitted Encumbrances,
all such properties and assets are free and clear of Liens. To the best
knowledge of Borrower after due inquiry, there are no actual, threatened or
alleged defaults with respect to any leases of real property under which
Borrower or any of its Subsidiaries is lessee or lessor which would have a
Material Adverse Effect.
4.9 LITIGATION; ADVERSE FACTS. Except as set forth on Schedule 4.9, there are
no judgments outstanding against any Loan Party or Old TNF or affecting any
property of any Loan Party or Old TNF nor is there any action, charge, claim,
demand, suit, proceeding, petition, governmental investigation or arbitration
now pending or, to the best knowledge of Borrower after due inquiry, threatened
against or affecting any Loan Party or Old TNF or any property of any Loan Party
or Old TNF which could reasonably be expected to result in any Material Adverse
Effect. No Loan Party has received any opinion or memorandum or legal advice
from legal counsel to the effect that such Loan Party is exposed to any
liability which could reasonably be expected to result in any Material Adverse
Effect.
4.10 PAYMENT OF TAXES. Except as set forth on Schedule 4.10 or permitted
pursuant to Section 5.9, all tax returns and reports of Borrower and each of its
Subsidiaries required to be filed by any of them have been timely filed, and all
taxes, assessments, fees and other governinental charges upon such Persons and
upon their respective properties, assets, income and franchises which are shown
on such returns as due and payable have been paid when due and payable. None of
the income tax returns of Borrower or any of its Subsidiaries are under audit.
No tax liens have been filed against any assets of Borrower or its Subsidiaries
and not discharged and no claims are being asserted with respect to any taxes
against Borrower or its Subsidiaries. The charges, accruals and reserves on the
books of Borrower and each of its
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Subsidiaries in respect of any taxes or other governmental charges are in
accordance with GAAP.
4.11 PERFORMANCE OF AGREEMENTS. None of the Loan Parties, nor Old TNF and none
of their respective Subsidiaries is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
contractual obligation of any such Person, and no condition exists that, with
the giving of notice or the lapse of time or both, would constitute such a
default, except as set forth in Schedule 4.11 and for such defaults which could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
4.12 EMPLOYEE BENEFIT PLANS. Borrower, each Subsidiary of Borrower, Old TNF
and each ERISA Affiliate is in compliance in all material respects with all
applicable provisions of ERISA, the IRC and all other applicable laws and the
regulations and interpretations thereof with respect to all Employee Benefit
Plans and, as to TNF Europe and TNF Canada, with all applicable laws relating to
any employee benefit or retirement plans. No liability has been incurred by
Borrower, any Subsidiary of Borrower, Old TNF or any ERISA Affiliate which
remains unsatisfied for any funding obligation, taxes or penalties with respect
to any Employee Benefit Plan or any similar plan of TNF Europe and TNF Canada,
except the liability of TNF Europe for underfunding of its pension plan as
disclosed prior to the Original Closing Date, for which Borrower has no
liability. Neither Borrower, any Subsidiary of Borrower, Old TNF or any ERISA
Affiliate has any withdrawal liability under any multi-employer plan.
4.13 INTELLECTUAL PROPERTY. Borrower and each of its Subsidiaries owns, is
licensed to use or otherwise has the right to use, all Intellectual Property
used in or necessary for the conduct of its business as currently conducted and
as conducted by Old TNF and its Subsidiaries prior to the Original Closing Date
and all such Intellectual Property is identified on Schedule 4.13.
4.14 BROKER'S FEES. No broker's or finder's fee or commission will be payable
with respect to the issuance and sale of the Notes or any of the other
transactions contemplated hereby.
4.15 ENVIRONMENTAL COMPLIANCE. Each Loan Party and Old TNF has been and is
currently in compliance in all material respects with all applicable
Environmental Laws, including obtaining and maintaining in effect all permits,
licenses or other authorizations required by applicable Environmental Laws.
There are no claims, liabilities, investigations, litigation, administrative
proceedings, whether pending or threatened, or judgments or orders relating to
any Hazardous Materials asserted or (to the best knowledge of Borrower)
threatened against any Loan Party or Old TNF or relating to any real property
currently or formerly owned, leased or operated by any Loan Party or Old TNF
which could have a Material Adverse Effect.
4.16 SOLVENCY. As of and from and after the date of this Agreement, Borrower
and each of its Subsidiaries: (a) owns and will own assets the fair saleable
value of which are (i) greater than the total amount of its liabilities
(including contingent liabilities); (ii) greater than the amount that will be
required to pay its probable liabilities as they mature; (b) has capital that is
not unreasonably small in relation to its business as presently conducted or any
contemplated
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or undertaken transaction; and (c) does not intend to incur and does not believe
that it will incur debts beyond its ability to pay such debts as they become
due.
4.17 DISCLOSURE. No representation or warranty of Borrower, any of its
Subsidiaries or any other Loan Party contained in this Agreement, the Existing
Loan Agreement, the Purchase Agreement, or any other Transaction Document, the
financial statements described in subsection 4.3 or delivered by Borrower under
this Agreement, the other Loan Documents, or any other document, certificate or
written statement in final form furnished to Agent or any Lender by or on behalf
of any such Person for use in connection with the Loan Documents contains any
untrue statement of a material fact or omitted, omits or will omit (in each case
at the time made) to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made. The Budgets and pro forma financial
information contained in such materials are based upon good faith estimates and
assumptions believed by such Persons to be reasonable at the time made, it being
recognized by Agent and Lenders that such projections as to future events are
not to be viewed as facts and that actual results during the period or periods
covered by any such projections may differ from the projected results. There is
no material fact known to Borrower that has had or could reasonably be expected
to have a Material Adverse Effect and that has not been disclosed herein or in
such other documents, certificates and statements furnished to Agent and Lenders
for use in connection with the transactions contemplated hereby.
4.18 INSURANCE. Borrower and each of its Subsidiaries maintains insurance
policies for business interruptions and public liability and property and
casualty damage for its business and properties as required by subsection 5.10,
no notice of cancellation has been received with respect to such policies and
Borrower and each of its Subsidiaries is in compliance with all conditions
contained in such policies. Agent, for the benefit of Lenders has been named as
an additional insured and loss payee, respectively, on all such insurance
policies.
4.19 COMPLIANCE WITH LAWS. Neither Borrower, nor Old TNF nor any of their
Subsidiaries is in violation of any law, ordinance, rule, regulation, order,
policy, guideline or other requirement of any domestic or foreign government or
any instrumentality or agency thereof, having jurisdiction over the conduct of
its business or the ownership of its properties, including, without limitation,
any violation relating to any use, release, storage, transport or disposal of
any Hazardous Material, which violation would subject Borrower or any such
Subsidiary, or any of their respective officers to criminal liability or have a
Material Adverse Effect and no such violation has been alleged.
4.20 BANK ACCOUNTS. Schedule 4.20 sets forth the account numbers and locations
of all bank accounts of Borrower and its Subsidiaries.
4.21 SUBSIDIARIES. Borrower has no Subsidiaries other than TNF Canada, TNF
Europe and a dormant Subsidiary of TNF Europe, Black & Edgington (Exports)
Limited, which conducts
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no business and has no assets or liabilities other than a guaranty of the
indebtedness and/or obligations of TNF Europe.
4.22 USE OF PROCEEDS AND MARGIN SECURITY. Borrower shall use the proceeds of
all Loans for proper business purposes (as described in the recitals to this
Agreement) consistent with all applicable laws, statutes, rules and regulations.
No portion of the proceeds of any Loan shall be used by Borrower or any of its
Subsidiaries in any manner that might cause the borrowing or the application of
such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation
X or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Exchange Act.
4.23 EMPLOYEE MATTERS. Except as set forth on Schedule 4.23, (a) no Loan Party
nor Old TNF nor any of such Loan Party's employees is subject to any collective
bargaining agreement, (b) no petition for certification or union election is
pending with respect to the employees of any Loan Party or Old TNF and no union
or collective bargaining unit has sought such certification or recognition with
respect to the employees of any Loan Party or Old TNF within the past three (3)
years and (c) there are no strikes, slowdowns, work stoppages or controversies
pending or, to the best knowledge of Borrower after due inquiry, threatened
between any Loan Party or Old TNF and its respective employees, other than
employee grievances arising in the ordinary course of business which could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. Except as set forth on Schedule 4.23, neither Borrower
nor any of its Subsidiaries is subject to an employment contract or any
liability for severance pay.
4.24 GOVERNMENTAL REGULATION. None of the Loan Parties is, or after giving
effect to any Loan will be, subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act or the Investment Company Act
of 1940 or to any federal or state statute or regulation limiting its ability to
incur Indebtedness for borrowed money.
4.25 PURCHASE AGREEMENT; TRANSACTION DOCUMENTS, EXISTING CREDIT AGREEMENT.
Borrower represents and warrants that each of the representations and warranties
of Sellers and Borrower in the Purchase Agreement and each representation and
warranty of Borrower in any other Transaction Document, all of which are
incorporated herein by this reference, were true and correct in all material
respects as of the Original Closing Date and each representation and warranty of
Borrower in the Existing Credit Agreement, all of which are incorporated herein
by reference, were true and correct when made under the Existing Credit
Agreement. Notwithstanding anything in the Purchase Agreement or any
Transaction Document or the Existing Credit Agreement to the contrary, all such
representations and warranties incorporated herein shall, solely for purposes of
this Agreement, survive the execution and delivery of the Purchase Agreement or
any Transaction Document and the consummation of the Acquisition, the execution
and delivery of this Agreement and the making of the Loans.
4.26 TNF CANADA. TNF Canada has the corporate power and authority to purchase
Inventory from Borrower and to grant security interests in its assets to secure
the unpaid obligations owed
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to Borrower. The Canadian Documents executed and delivered by TNF Canada have
been duly authorized, executed and delivered by TNF Canada, and neither the
execution and delivery of such Canadian Documents, nor TNF Canada's performance
thereof, contravenes or violates its governing documents, any applicable law or
any agreement or order to which TNF Canada is a party.
SECTION 5 AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any of the Commitments
hereunder shall be in effect and until payment in full of all Obligations and
termination of all Lender Letters of Credit and Underlying L/C's, unless
Requisite Lenders or Agent at the direction of Requisite Lenders shall otherwise
give prior written consent, Borrower shall perform, and shall cause each of its
Subsidiaries to perform, all covenants in this Section 5 applicable to such
Person.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will maintain, and cause
each of its Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP. Borrower will deliver to Agent
and each Lender the financial statements and other reports described below
(unless specified to be delivered solely to Agent).
(A) MONTHLY FINANCIALS. As soon as available and in any event within
twenty-five (25) days after the end of each month, Borrower will deliver (1) the
consolidated and consolidating balance sheet of Borrower and its Subsidiaries as
at the end of such month and the related consolidated and consolidating
statements of income, stockholders' equity and cash flow for such month and for
the period from the beginning of the then current Fiscal Year to the end of such
month, (2) the consolidated and consolidating balance sheet and the related
consolidated and consolidating statements of income, stockholders' equity and
cash flow for the same period of the prior year and (3) a schedule of the
outstanding Indebtedness for borrowed money of Borrower and its Subsidiaries
describing in reasonable detail each such debt issue or loan outstanding and the
principal amount and amount of accrued and unpaid interest with respect to each
such debt issue or loan.
(B) QUARTERLY FINANCIALS. As soon as available and in any event within
forty-five (45) days after the end of each quarter of a Fiscal Year, Borrower
will deliver the consolidated and consolidating balance sheet of Borrower and
its Subsidiaries as at the end of such period and the related consolidated and
consolidating statements of income, stockholders' equity and cash flow for such
quarter of a Fiscal Year and for the period from the beginning of the then
current Fiscal Year to the end of such quarter of a Fiscal Year. Borrower will
also deliver the consolidated and consolidating balance sheet, and the related
consolidated and consolidating statements of income, stockholders' equity and
cash flow for the same periods in the prior Fiscal Year.
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(C) YEAR-END FINANCIALS. As soon as available and in any event within
ninety (90) days after the end of each Fiscal Year, Borrower will deliver: (1)
the consolidated balance sheet of Borrower and its Subsidiaries as at the end of
such year and the related consolidated statements of income, stockholders'
equity and cash flow for such Fiscal Year; (2) for the Fiscal Year ending
December 31, 1994, the consolidated balance sheet, and the related consolidated
statements of income, stockholders' equity and cash flow for Old TNF for the
prior Fiscal Year; (3) a schedule of the outstanding Indebtedness of Borrower
and its Subsidiaries describing in reasonable detail each such debt issue or
loan outstanding and the principal amount and amount of accrued and unpaid
interest with respect to each such debt issue or loan; and (4) a report with
respect to the financial statements of Borrower and its Subsidiaries from a firm
of independent certified public accountants selected by Borrower and acceptable
to Agent, which report shall be unqualified as to going concern and scope of
audit and shall state that (a) such consolidated financial statements present
fairly the consolidated financial position of Borrower and its Subsidiaries as
at the dates indicated and the results of their operations and cash flow for the
periods indicated in conformity with GAAP applied on a basis consistent with
prior years and (b) that the examination by such accountants in connection with
such consolidated financial statements has been made in accordance with
generally accepted auditing standards; and (5) copies of the consolidating
financial statements of Borrower and its Subsidiaries, including (a)
consolidating balance sheets of Borrower and its Subsidiaries as at the end of
such Fiscal Year showing intercompany eliminations and (b) related consolidating
statements of earnings of Borrower and its Subsidiaries showing intercompany
eliminations and (c) consolidating cash flows of Borrower and its Subsidiaries.
(D) ACCOUNTANTS' CERTIFICATION AND REPORTS. Together with each delivery
of consolidated financial statements of Borrower and its Subsidiaries pursuant
to subsection 5.1(C), Borrower will deliver a written statement by its
independent certified public accountants (a) stating that the examination has
included a review of the terms of this Agreement as same relate to accounting
matters and (b) stating whether, in connection with the examination, any
condition or event that constitutes a Default or an Event of Default has come to
their attention and, if such a condition or event has come to their attention,
specifying the nature and period of existence thereof. Promptly upon receipt
thereof, Borrower will deliver copies of all significant reports submitted to
Borrower by independent public accountants in connection with each annual,
interim or special audit of the financial statements of Borrower made by such
accountants, including the comment letter submitted by such accountants to
management in connection with their annual audit.
(E) COMPLIANCE CERTIFICATE. Together with the delivery of each set of
financial statements referenced in subparts (A), (B) and (C) of this subsection
5.1, Borrower will deliver a Compliance Certificate.
(F) BORROWING BASE CERTIFICATES, REGISTERS AND JOURNALS. Subject to the
last sentence of this subsection 5.1(F), within five (5) Business Days after the
end of each fiscal month, Borrower shall deliver to Agent (1) a completed
Borrowing Base Certificate updated to reflect the most recent sales and
collections of Borrower and TNF Canada through the end of such
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month and the amount of the Intercompany Inventory Account at the end of such
month; (2) a completed assignment schedule of all Accounts created by Borrower
and TNF Canada during such month; (3) an invoice register or sales journal
describing all sales and credits of Borrower and TNF Canada for that month, in
form and substance acceptable to Agent, and, if Agent so requests, copies of
invoices evidencing such sales and proofs of delivery relating thereto; and (4)
a completed cash receipts journal (including information regarding non-cash
credits and adjustments) for that month. Notwithstanding the foregoing, during
any period that the excess of the Maximum Revolving Loan Amount over the
outstanding principal balance of all Revolving Loans (including Seasonal
Overadvances) plus the Risk Participation Liability is less than Two Million
Dollars ($2,000,000), (x) all reports required by this subsection 5.1(F) shall
be due within two (2) Business Days after the end of each week, unless an IPO
has been consummated, and (y) Borrower shall notify Agent within two (2)
Business Days of any decrease in the Intercompany Inventory Account of $200,000
or more from the amount shown on the most recent Borrowing Base Certificate or
notice under this subsection.
(G) RECONCILIATION REPORTS, INVENTORY REPORTS AND LISTINGS AND AGINGS.
Within five (5) Business Days after the last day of each month and from time to
time upon the request of Agent, Borrower will deliver to Agent: (1) an aged
trial balance of all then existing Accounts of Borrower and its Subsidiaries;
and (2) an Inventory Report as of the last day of such period. As soon as
available and in any event within five (5) Business Days after the last day of
each month, and from time to time upon the request of Agent, Borrower will
deliver to Agent: (1) a Reconciliation Report as at the last day of such period;
(2) an aged trial balance of all then existing accounts payable of Borrower and
its Subsidiaries; and (3) a detailed inventory listing and cover summary report.
All such reports shall be in form and substance acceptable to Agent. The
reports shall show, in detail acceptable to Agent, Borrower's Inventory in
Canada and all Inventory sold by Borrower to TNF Canada, and all additions to
and payments on the Intercompany Inventory Account.
(H) MANAGEMENT REPORT. Together with each delivery of financial
statements of Borrower and its Subsidiaries pursuant to subdivisions (A), (B)
and (C) of this subsection 5.1, Borrower will deliver a management report: (1)
describing the operations and financial condition of Borrower and its
Subsidiaries for the month then ended and the portion of the current Fiscal Year
then elapsed (or for the Fiscal Year then ended in the case of year-end
financials); (2) setting forth in comparative form the corresponding figures for
the corresponding periods of the previous Fiscal Year (or, as applicable, for
the Fiscal Year of Old TNF) and the corresponding figures from the most recent
Budget for the current Fiscal Year delivered to Agent and Lenders pursuant to
5.1(P); and (3) discussing the reasons for any significant variations. The
information above shall be presented in reasonable detail and shall be certified
by the chief financial officer of Borrower to the effect that such information
fairly presents the results of operations and financial condition of Borrower
and its Subsidiaries as at the dates and for the periods indicated.
(I) APPRAISALS. From time to time after the occurrence of an Event of
Default, upon the request of Agent, Borrower will obtain and deliver to Agent,
at Borrower's expense,
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appraisal reports in form and substance and from appraisers acceptable to Agent,
stating the then current fair market and orderly liquidation values of all or
any portion of the Collateral.
(J) GOVERNMENT NOTICES. Borrower will deliver to Agent promptly after
receipt by Borrower or any of its Subsidiaries copies of all notices, requests,
subpoenas, inquiries or other writings received from any governmental agency
concerning any Employee Benefit Plan, the violation or alleged violation of any
Environmental Laws, the storage, use or disposal of any Hazardous Material, the
violation or alleged violation of the Fair Labor Standards Act or Borrower's or
any Subsidiary's payment or nonpayment of any taxes, including any tax audit.
(K) EVENTS OF DEFAULT, ETC. Promptly upon any officer of Borrower or of
any of its Subsidiaries obtaining knowledge of any of the following events or
conditions, Borrower shall deliver a certificate of Borrower's chief executive
officer specifying the nature and period of existence of such condition or event
and what action Borrower and/or its Subsidiary has taken, is taking and proposes
to take with respect thereto: (1) any condition or event that constitutes an
Event of Default or Default; (2) any notice of default that any Person has given
to Borrower or any of its Subsidiaries or any other action taken with respect to
a claimed default; or (3) any Material Adverse Effect.
(L) TRADE NAMES. Borrower and its Subsidiaries will give Agent at least
thirty (30) days advance written notice of any change of name or of any new
trade name or fictitious business name. Borrower's and each of its
Subsidiaries' use of any trade name or fictitious business name will be in
compliance with all laws regarding the use of such names.
(M) LOCATIONS. Borrower will give Agent at least thirty (30) days
advance written notice of any change in the principal place of business of
Borrower or of any of its Subsidiaries which is a party to any Loan Document
or any change in the location of the books and records or any of the
Collateral or of any new location for the books and records or any of the
Collateral.
(N) BANK ACCOUNTS. Borrower will give Agent at least fifteen (15) days'
advance written notice of any new bank accounts established by Borrower or any
of its Subsidiaries which is a party to any Loan Document.
(O) LITIGATION. Promptly upon any officer of Borrower or of any of its
Subsidiaries obtaining knowledge of (1) the institution of any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
Loan Party or any property of any Loan Party not previously disclosed by
Borrower to Agent (other than any such action, suit, proceeding, investigation
or arbitration which seeks only money damages in an amount not in excess of
$25,000) or (2) any material development in any action, suit, proceeding,
governmental investigation or arbitration at any time pending against or
affecting any Loan Party or any property of any Loan Party which is reasonably
likely to have a Material Adverse Effect. Borrower will promptly give notice
thereof to Agent and provide such other
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information as may be reasonably available to them to enable Agent and its
counsel to evaluate such matter.
(P) BUDGETS. As soon as available and in any event no later than thirty
(30) days prior to the end of each Fiscal Year of Borrower, Borrower will
deliver a consolidated and consolidating Budget of Borrower and its Subsidiaries
for the forthcoming three Fiscal Years, year by year, and for the forthcoming
Fiscal Year, month by month.
(Q) SUBORDINATED DEBT AND EQUITY NOTICES. Borrower shall promptly
deliver to Agent copies of all notices given or received by Borrower or any of
its Subsidiaries with respect to noncompliance with any term or condition
related to any Subordinated Debt, and shall promptly notify Agent of any
potential or actual event of default with respect to any Subordinated Debt.
Borrower shall deliver to Agent copies of notices given or received by Borrower
under the Preferred Stock Purchase Agreement.
(R) OTHER INFORMATION. With reasonable promptness, Borrower will deliver
such other information and data with respect to any Loan Party, any Subsidiary
of any Loan Party or any of the Collateral as Agent or any Lender may reasonably
request from time to time.
5.2 ACCESS TO ACCOUNTANTS. Borrower authorizes Agent to discuss the financial
condition and financial statements of Borrower and its Subsidiaries with
Borrower's or any of its Subsidiaries' independent public accountants upon
reasonable notice to Borrower of its intention to do so and authorizes such
accountants to respond to all of Agent's inquiries.
5.3 INSPECTION. Borrower shall permit Agent and any Lender and any authorized
representatives designated by Agent or any Lender to visit and inspect any of
the properties of Borrower or any of its Subsidiaries, including its and their
financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its and their affairs, finances and business with its
and their employees and independent public accountants, at such reasonable times
during normal business hours and as often as may be reasonably requested;
PROVIDED Lenders shall coordinate such visits through Agent and, except as
provided in this subsection 5.3 or subsection 10.1, at Lenders' expense.
Borrower acknowledges that Agent intends to make such inspections on at least a
quarterly basis, and Borrower agrees to pay to Agent an audit fee for three such
inspections during any Fiscal Year when no Event of Default exists and for each
inspection while an Event of Default exists equal to Five Hundred Dollars
($500.00) per auditor per day or any portion thereof, excluding all full days
spent by Agent traveling to or from Borrower's locations, plus out of pocket
expenses.
5.4 COLLATERAL RECORDS. Borrower shall keep and shall cause each of its
Subsidiaries to keep full and accurate books and records relating to the
Collateral and shall mark such books and records to indicate Agent's security
interests in the Collateral for the benefit of Lenders.
5.5 ACCOUNT COVENANTS: VERIFICATION. Borrower shall, at its own expense: (a)
cause all invoices evidencing Accounts of Borrower and all copies thereof to
bear a notice that such
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invoices are payable in the name of Borrower to the Blocked Accounts established
in accordance with subsection 5.6 and (b) use its best efforts to assure prompt
payment of all amounts due or to become due under such Accounts. No discounts,
credits or allowances will be issued, granted or allowed by Borrower or any
Subsidiary to customers and no returns will be accepted without Agent's prior
written consent except in the ordinary course of business; PROVIDED, that until
Agent notifies Borrower to the contrary after the occurrence and during the
continuance of an Event of Default, Borrower may presume consent. Borrower will
promptly notify Agent in the event that a customer alleges any dispute or claim
with respect to an Account of Borrower and each of its Subsidiaries in excess of
$50,000 or of any other circumstances known to Borrower that may impair the
validity or collectibility of such an Account. Agent shall have the right, at
any time or times hereafter, to verify the validity, amount or any other matter
relating to an Account, by mail, telephone or in person. After the occurrence
of a Default or an Event of Default, Borrower shall not, and shall not permit
any Subsidiary to, without the prior consent of Agent, adjust, settle or
compromise the amount or payment of any Account, or release wholly or partly any
customer or obligor thereof, or allow any credit or discount thereon.
5.6 COLLECTION OF ACCOUNTS AND PAYMENTS. Borrower shall establish such
lockboxes and depository accounts (collectively, "Blocked Accounts") with such
banks as are reasonably acceptable to Agent to which all account debtors shall
directly remit all payments on Accounts of Borrower and in which Borrower will
immediately deposit all cash payments made for Inventory or other cash payments
constituting proceeds of Collateral in the identical form in which such payment
was made, whether by cash or check. Unless a facility for a Permitted Canadian
Financing has been executed, Borrower shall cause TNF Canada to establish a
lockbox for payment of its Accounts, and all funds shall be transferred to a
Blocked Account. Prior to the occurrence of a Default or an Event of Default,
Agent shall instruct the banks to release all funds in the Blocked Accounts to
Borrower. After the occurrence of a Default or an Event of Default which has
not been cured, Agent may deliver a notice that all funds in the Blocked
Accounts shall be transferred to Agent and, in such event, Borrower hereby
agrees that all payments received by Agent, whether by cash, check, wire
transfer or any other instrument, made to such Blocked Accounts or otherwise
received by Agent and whether on the Accounts or as proceeds of other Collateral
or otherwise will be the sole and exclusive property of Agent for the benefit of
Lenders. Borrower, and any of its Affiliates, employees, agents or other
Persons acting for or in concert with Borrower, shall, acting as trustee for
Agent, receive, as the sole and exclusive property of Agent, any monies, checks,
notes, drafts or any other payments relating to and/or proceeds of Accounts or
other Collateral which come into the possession or under the control of Borrower
or any of Borrower's Affiliates, employees, agents or other Persons acting for
or in concert with Borrower, and immediately upon receipt thereof, Borrower or
such Persons shall remit the same or cause the same to be remitted, in kind, to
the Blocked Accounts, Agent's Account or to Agent at its address set forth in
subsection 9.6 below.
5.7 ENDORSEMENT. Borrower hereby constitutes and appoints, and shall cause
each of its Subsidiaries which is a party to any Loan Document to constitute and
appoint, Agent and all
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Persons designated by Agent for that purpose as Borrower's true and lawful
attoney-in-fact, with power to endorse Borrower's name to any of the items of
payment described in subsection 5.6 above and all proceeds of Collateral that
come into Agent's or any Lender's possession or under Agent's or any Lender's
control. Both the appointment of Agent as Borrower's or its Subsidiary's
attorney and Agent's rights and powers are coupled with an interest and are
irrevocable until payment in full and complete performance of all of the
Obligations.
5.8 CORPORATE EXISTENCE. Borrower will, and will cause each of its
Subsidiaries to, at all times preserve and keep in full force and effect its
corporate existence and all rights and franchises material to its business.
Borrower will promptly notify Agent of any change in its or any of its
Subsidiaries' corporate structures.
5.9 PAYMENT OF TAXES. Borrower will, and will cause each of its Subsidiaries
to, pay all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or with respect to any of its franchises,
business, income or property before any penalty accrues thereon; PROVIDED that
no such tax need be paid if Borrower or such Subsidiary is contesting same in
good faith by appropriate proceedings promptly instituted and diligently
conducted and if Borrower or such Subsidiary has established appropriate
reserves as shall be required in conformity with GAAP.
5.10 MAINTENANCE OF PROPERTIES; INSURANCE. Borrower will maintain or cause to
be maintained in good repair, working order and condition all material
properties used in the business of Borrower and its Subsidiaries and will make
or cause to be made all appropriate repairs, renewals and replacements thereof.
Borrower will maintain or cause to be maintained, with financially sound and
reputable insurers, business interruption insurance (with no exclusion for
earthquakes), public liability and property damage and casualty insurance with
respect to its business and properties and the business and properties of its
Subsidiaries against loss or damage of the kinds customarily carried or
maintained by corporations of established reputation engaged in similar
businesses and in amounts acceptable to Agent. Borrower shall cause Agent, for
the benefit of Lenders, to be named as loss payee on all insurance policies
relating to any Collateral and as additional insured under all liability
policies, in each case pursuant to appropriate endorsements in form and
substance acceptable to Agent. Borrower shall apply any proceeds received from
any policies of insurance relating to any Collateral to the Obligations as set
forth in subsection 2.4(B).
5.11 COMPLIANCE WITH LAWS. Borrower will, and will cause each of its
Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority as now in effect and which
may be imposed in the future in all jurisdictions in which Borrower or any of
its Subsidiaries is now doing business or may hereafter be doing business, other
than those laws the noncompliance with which would not have a Material Adverse
Effect.
5.12 FURTHER ASSURANCES. Borrower shall, and shall cause each of its
Subsidiaries to, from time to time, execute such guaranties, financing or
continuation statements, documents, security
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agreements, reports and other documents or deliver to Agent such instruments,
certificates of title or other documents as Agent at any time may reasonably
request to evidence, perfect or otherwise implement the guaranties and security
for repayment of the Obligations provided for in the Loan Documents. At Agent's
request, Borrower shall cause any of its Subsidiaries promptly to guaranty the
Obligations and to grant to Agent, for the benefit of Lenders, security
interests in the real, personal and mixed property of such Subsidiary to secure
the Obligations; PROVIDED that, so long as Borrower does not loan or advance
funds (by capital contribution or otherwise) to TNF; Europe, TNF Europe shall
not be required to guaranty the Obligations or grant Liens to Lender on its
assets, and so long as Borrower and TNF Canada are in compliance with this
Agreement with respect to Indebtedness of TNF Canada and investments by Borrower
in TNF Canada, and the Liens granted to Borrower by TNF Canada have been
perfected and assigned to Agent, TNF Canada shall not be required to guaranty
the Obligations.
5.13 COLLATERAL LOCATIONS. Borrower will keep its Collateral at the locations
specified as Borrower's locations on Schedule 4.7. With respect to any new
location (which as to Borrower in any event shall be within the continental
United States or Canada), Borrower will execute such documents and take such
actions as Agent deems necessary to perfect and protect the security interests
of Agent in the Collateral, for the benefit of Lenders including obtaining
agreements from any landlord in form and substance acceptable to Agent.
Borrower will segregate its Collateral from any Inventory of TNF Canada, and
undertake such procedures as may be requested by Agent to identify all such
Collateral. If TNF Canada enters into a Permitted Canadian Financing, Borrower
shall no longer keep any Collateral in Canada.
5.14 BAILEES. If any Collateral is at any time in the possession or control of
any warehouseman, bailee or any of Borrower's or any Subsidiary's agents or
processors, Borrower shall, upon the request of Agent, notify, or cause its
Subsidiary to notify, such warehouseman, bailee, agent or processor of the
security interests in favor of Agent, for the benefit of Lenders, created hereby
and shall instruct such Person to hold all such Collateral for Agent's account
subject to Agent's instructions.
5.15 MORTGAGES; TITLE INSURANCE; SURVEYS.
(A) MORTGAGED PROPERTY. Agent may from time to time designate real
property or leasehold interests of any Loan Party or any Subsidiary of any Loan
Party after the date hereof as "Mortgaged Property", in which case Borrower
shall as promptly as possible (and in any event within sixty (60) days after
such designation) deliver to Agent, for the benefit of Lenders, a fully executed
Mortgage, in form and substance acceptable to Agent, together with title
insurance policies and surveys as required by this subsection 5.15. Borrower
agrees that, following the taking of the actions with respect to any Mortgaged
Property required by the immediately preceding sentence, Agent, for the benefit
of Lenders, shall have a valid and enforceable mortgage on the respective
Mortgaged Property, free and clear of all defects and encumbrances except for
Permitted Encumbrances. Notwithstanding the foregoing, Agent shall not require
a leasehold mortgage or deed of trust to the extent that it is prohibited by the
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applicable lease, nor any Mortgage on the real property owned by TNF Europe so
long as TNF Europe is not required to guaranty the Obligations.
(B) TITLE INSURANCE. Within thirty (30) days following delivery of any
Mortgage with respect to Mortgaged Property, Borrower shall deliver or cause to
be delivered to Agent, for the benefit of Lenders, ALTA lender's title insurance
policies issued by title insurers reasonably satisfactory to Agent (the
"Mortgage Policies") in form and substance and in amounts reasonably acceptable
to Agent assuring Agent that the Mortgages are valid and enforceable first
priority mortgage liens on the respective Mortgaged Property, free and clear of
all defects and encumbrances except Permitted Encumbrances. The Mortgage
Policies shall be in form and substance reasonably acceptable to Agent and shall
include an endorsement insuring against the effect of future advances under this
Agreement, for mechanics' liens and for any other matter that Agent may
reasonably request, and shall provide for affirmative insurance and such
reinsurance as Agent may reasonably request. In the case of each leasehold
constituting Mortgaged Property, Agent shall have received such estoppel
letters, consents and waivers from the landlords and non-disturbance agreements
from any holders of mortgages or deeds of trust on such real estate as may have
been requested by Agent, which letters shall be in form and substance
satisfactory to Agent.
(C) SURVEYS. Within thirty (30) days following delivery of any Mortgage
with respect to Additional Mortgaged Property, Borrower shall deliver or cause
to be delivered to Agent current surveys, certified by a licensed surveyor, for
all real property that is the subject of the Mortgage Policies. All such
surveys shall be sufficient to allow the issuer of the mortgage policy to issue
an ALTA lender's policy.
5.16 CANADIAN ACCOUNTS. Borrower will cause TNF Canada to apply proceeds of
the collections of its Accounts and any Permitted Canadian Financing to the
payment of the Intercompany Inventory Account and other Indebtedness owed to
Borrower. Unless a credit facility to provide a Permitted Canadian Financing is
in effect, TNF Canada shall not maintain more than Seventy-Five Thousand
Dollars ($75,000) in cash or cash equivalents.
5.17 [Intentionally omitted].
5.18 [intentionally omitted]
5.19 DIVIDENDS. Borrower will not pay any cash dividends on any Borrower
Stock.
5.20 POST-CLOSING DELIVERIES. (A) Borrower shall take such actions as may be
required to perfect Agent's Liens on the Intellectual Property in the foreign
jurisdictions listed on Schedule 5.20 within the period set forth on such
schedule. (B) Borrower shall obtain consents and agreements from lessors of its
real and personal property, and take such other actions as described on Schedule
5.20, within the period set forth on such schedule.
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SECTION 6 FINANCIAL COVENANTS
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations and termination of
all Lender Letters of Credit and Risk Participation Agreements, unless Borrower
has received the prior written consent of Requisite Lenders or of Agent at the
direction of Requisite Lenders, Borrower shall comply with and shall cause each
of its Subsidiaries to comply with all covenants in this Section 6 applicable to
such Person.
6.1 TANGIBLE NET WORTH. Tangible Net Worth shall be at least the amount set
forth below as of the dates set forth below.
Date Amount
---- ------
9/30/94 $ 6,700,000
12/31/94 $ 7,000,000
3/31/95 $ 6,000,000
6/30/95 $ 4,250,000
9/30/95 $ 7,500,000
12/31/95 $ 7,500,000
3/31/96 $ 7,500,000
6/30/96 $ 6,300,000
9/30/96 $11,000,000
12/31/96 $11,000,000
3/31/97 and each Fiscal Quarter thereafter $11,000,000
6.2 MINIMUM EBITDA. Minimum EBITDA at the end of each fiscal quarter set
forth below for the rolling four (4) quarter period (or such lesser period as
may equal the number of fiscal quarters elapsed since June 30, 1994 (not
including the quarter ended June 30, 1994)) ending on the last day of each
fiscal quarter set forth below shall not be less than the amount set forth below
opposite such date.
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Fiscal Ouarter Amount
-------------- ------
9/30/94 $ 4,500,000
12/31/94 $ 6,750,000
3/31/95 $ 8,500,000
6/30/95 $ 7,100,000
9/30/95 $ 8,250,000
12/31/95 $ 9,500,000
3/31/96 $10,000,000
6/30/96 $10,000,000
9/30/96 $10,400,000
12/31/96 $10,700,000
3/31/97 and thereafter $11,000,000
and in each Fiscal Year, minimum EBITDA for the fiscal quarter ending September
30 shall not be less than $6,000,000.
6.3 CAPITAL EXPENDITURE LIMITS. The aggregate amount of all Capital
Expenditures of Borrower and its Domestic Subsidiaries (excluding (i) trade-ins,
(ii) Capital Expenditures in respect of replacement assets to the extent funded
with casualty insurance proceeds and (iii) Capital Expenditures financed with
proceeds of the Term Loan) will not exceed Six Hundred Thousand Dollars
($600,000) in the period from the Original Closing Date to December 31, 1994,
One Million Five Hundred Thousand Dollars ($1,500,000) in the Fiscal Years
ending December 31, 1995 and 1996 and One Million Dollars ($1,000,000) in any
Fiscal Year thereafter. After the consummation of an IPO and repayment in full
of the Subordinated Debt, Borrower may make additional Capital Expenditures for
new retail stores in an amount not to exceed the net cash proceeds of an IPO
LESS the amount applied to repay the Subordinated Debt plus the net cash
proceeds of the issuance of Common Stock (other than in an IPO); PROVIDED that
such Capital Expenditures shall not exceed Five Million Dollars ($5,000,000) in
any Fiscal Year. In the event that Borrower or any of its Domestic Subsidiaries
enters into a Capital Lease or other contract with respect to fixed assets, for
purposes of calculating Capital Expenditures under this subsection only, the
amount of the Capital Lease initially capitalized on Borrower's balance sheet
prepared in accordance with GAAP shall be considered expended in full on the
date that Borrower or any of its Domestic Subsidiaries enters into such contract
or Capital Lease.
6.4 FIXED CHARGE COVERAGE. Fixed Charge Coverage at the end of each fiscal
quarter for the rolling four (4) quarter period (or such lesser period as may
equal the number of fiscal quarters which have elapsed since June 30, 1994 (not
including the quarter ended June 30, 1994)) ending on the last day of each
fiscal quarter shall not be less than 1.2.
6.5 TOTAL INTEREST COVERAGE. Total Interest Coverage at the end of each
fiscal quarter for the rolling four (4) quarter period (or such lesser period
as may equal the number of fiscal
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quarters which have elapsed since June 30, 1994 (not including the quarter ended
June 30, 1994)) ending on the last day of each fiscal quarter shall not be less
than 1.75.
6.6 LEVERAGE RATIO. Commencing with the fiscal quarter ending March 31, 1995,
the Leverage Ratio at the end of each fiscal quarter for the rolling four (4)
quarter period (or three (3) fiscal quarters as of March 31, 1995) ending on the
last day of each fiscal quarter shall not exceed 6.5.
6.7 ADJUSTMENT OF FINANCIAL COVENANTS. If TNF Canada enters into a Permitted
Canadian Financing, Borrower, Agent and Lenders agree to negotiate in good faith
in order to amend the foregoing covenants and the related definitions to exclude
TNF Canada and provide criteria for evaluating Borrower's performance and
financial condition which shall be the same after such exclusion.
SECTION 7 NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations and termination of
all Lender Letters of Credit and Risk Participation Agreements, unless Borrower
has received the prior written consent of Requisite Lenders or of Agent at the
direction of Requisite Lender, Borrower shall comply, and shall cause each of
its Subsidiaries to comply, with all covenants in this Section 7 applicable to
such Person.
7.1 INDEBTEDNESS AND LIABILITIES. Borrower will not, and will not permit any
of its Subsidiaries to, directly or indirectly create, incur, assume, guaranty,
or otherwise become or remain directly or indirectly liable, on a fixed or
contingent basis, with respect to any Indebtedness except: (a) the Obligations;
(b) Indebtedness not to exceed One Hundred Thousand Dollars ($100,000) in the
aggregate at any time outstanding secured by purchase money Liens; (c)
Indebtedness with respect to Capital Leases not to exceed Seven Hundred Fifty
Thousand Dollars ($750,000) in the aggregate at any time outstanding; (d)
Indebtedness existing on the Closing Date not otherwise permitted hereunder and
identified on Schedule 7.1(C) and refinancings thereof in amounts not in excess
of that set forth on such Schedule 7.1(C); PROVIDED, that in no event may any
refinancing of the Indebtedness of TNF Europe require any guaranty of payment or
other credit support by Borrower; (e) Subordinated Debt in an amount not in
excess of the amount outstanding on the Original Closing Date; (f) additional
Subordinated Debt issued on the same terms as the Subordinated Debt issued on
the Original Closing Date in a principal amount not to exceed five percent (5%)
of the amount outstanding on the Original Closing Date if, at the time of and
after giving effect to the issuance thereof no Event of Default has occurred and
is continuing or would result therefrom and Borrower is in compliance on a pro
forma basis with the covenants contained in Section 6 of this Agreement; (g)
until TNF Canada enters into a Permitted Canadian Financing, the Intercompany
Inventory Account and other intercompany Indebtedness of TNF Canada to Borrower
in an amount not to exceed the investment permitted under subsection 7.4(d) and
if
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a credit facility for a Permitted Canadian Financing is in effect, the
Intercompany Inventory Account in an amount. not to exceed Fifty Thousand
Dollars ($50,000); and (h) a Permitted Canadian Financing. Except for
Indebtedness described in the preceding sentence, Borrower will not, and will
not permit any of its Subsidiaries to, incur any indebtedness or liabilities
except for trade payables, operating leases and other liabilities not
constituting Indebtedness in the ordinary course of business not delinquent or
with respect to which Borrower or any of its Subsidiaries is contesting in good
faith the amount or validity thereof by appropriate proceedings and then only to
the extent that Borrower or any of its Subsidiaries has established adequate
reserves therefor, if appropriate under GAAP.
7.2 GUARANTIES. Except for guaranties issued to Agent for the benefit of
Lenders or endorsements of instruments or items of payment for collection in the
ordinary course of business or customary indemnities to corporate agents,
officers and directors (but subject to sub-section 7.5), Borrower shall not, and
shall not permit any of its Subsidiaries to, guaranty, endorse, or otherwise in
any way become or be responsible for any obligations of any other Person,
whether directly or indirectly by agreement to purchase the indebtedness of any
other Person or through the purchase of goods, supplies or services, or
maintenance of working capital or other balance sheet covenants or conditions,
or by way of stock purchase, capital contribution, advance or loan for the
purpose of paying or discharging any indebtedness or obligation of such other
Person or otherwise. The foregoing shall not prohibit Subsidiaries from
guarantying the Obligations, nor Borrower from guarantying the obligations of
TNF Canada under its lease; PROVIDED that the terms of such lease and guaranty
are acceptable to Lender.
7.3 TRANSFERS, LIENS AND RELATED MATTERS.
(A) TRANSFERS. Borrower shall not, and shall not permit any of its
Subsidiaries to, sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to any of the Collateral or the
assets of such Person, except that Borrower and its Subsidiaries may (i) sell
Inventory in the ordinary course of business; (ii) with the prior written
consent of Lender not to be unreasonably withheld or delayed, license trademarks
and tradenames in the ordinary course of business consistent with past practices
of Old TNF prior to the Original Closing Date; (iii) terminate the leases
described on Schedule 7.3(B); and (iv) make voluntary Asset Dispositions if all
of the following conditions are met: (1) the market value of assets sold or
otherwise disposed of in any single transaction or series of related
transactions does not exceed Twenty-five Thousand Dollar ($25,000) and the
aggregate market value of assets sold or otherwise disposed of in any Fiscal
Year does not exceed Seventy-five Thousand Dollars ($75,000); (2) the
consideration received is at least equal to the fair market value of such
assets; (3) the sole consideration received is cash; (4) the net proceeds of
such Asset Disposition are applied as required by subsection 2.4(B); (5) after
giving effect to the sale or other disposition of the assets included within the
Asset Disposition and the repayment of the Obligations with the proceeds
thereof, Borrower is in compliance on a pro forma basis with the covenants set
forth in Section 6 recomputed for the most recently ended month for which
information is available and is in compliance with all other terms and
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conditions contained in this Agreement; and (6) no Default or Event of Default
shall result from such sale or other disposition.
(B) LIENS. Except for Permitted Encumbrances, Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly create,
incur, assume or permit to exist any Lien on or with respect to any of the
Collateral or the assets of such Person or any proceeds, income or profits
therefrom.
(C) NO NEGATIVE PLEDGES. Neither Borrower nor any Subsidiary of Borrower
shall enter into or assume any agreement (other than the Loan Documents and the
Subordinated Debt Agreement) prohibiting the creation or assumption of any Lien
upon its properties or assets, whether now owned or hereafter acquired, other
than any such agreement entered into by TNF Europe prior to the Original Closing
Date or in connection with a refinancing of Indebtedness of TNF Europe
permitted by subsection 7.1(d) and any prohibition on Liens upon assets of TNF
Canada in any Permitted Canadian Financing.
(D) NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO BORROWER. Except as
provided herein and for any agreement entered into by TNF Europe prior to the
Original Closing Date, Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Subsidiary to: (1) pay dividends or make any other
distribution on any of such Subsidiary's capital stock owned by Borrower or any
Subsidiary of Borrower; or (2) subject to subordination provisions, pay any
indebtedness owed to Borrower or any other Subsidiary; (3) make loans or
advances to Borrower or any other Subsidiary; or (4) transfer any of its
property or assets to Borrower or any other Subsidiary.
7.4 INVESTMENTS AND LOANS. Borrower shall not, and shall not permit any of
its Subsidiaries to, make or permit to exist investments in or loans to any
other Person, except: (a) Cash Equivalents; (b) loans and advances to employees
for moving, entertainment, travel and other similar expenses in the ordinary
course of business in an aggregate outstanding amount not in excess of Fifty
Thousand Dollars ($50,000) at any time; (c) the investment of Borrower in the
stock of TNF Europe and of TNF Europe in the stock of Black & Edgington
(Exports) Limited, in each case existing on the Original Closing Date (but
excluding in each case any additional investments, by capital contribution or
otherwise, or loans); and (d) the investment (by loan, advance, capital
contribution or otherwise) of Borrower in TNF Canada in an amount not in excess
of Five Hundred Thousand Dollars ($500,000) in the aggregate plus liabilities of
TNF Canada for Inventory sold by Borrower in accordance with the Canadian
Documents; PROVIDED that the Intercompany Inventory Account and all Indebtedness
or liabilities of TNF Canada to Borrower shall be repaid with the initial
proceeds of any Permitted Canadian Financing and no further sales of Inventory
shall be made by Borrower to TNF Canada except as permitted under the definition
of Permitted Canadian Financing. Prior to TNF Canada's entering into an
agreement for a Permitted Canadian Financing, Borrower shall not amend the
provisions of the Canadian Documents relating to the price of Inventory sold by
Borrower to TNF Canada, or the Liens granted to Borrower and assigned to Agent.
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7.5 RESTRICTED JUNIOR PAYMENTS. Borrower will not, and will not permit any of
its Subsidiaries to, directly or indirectly declare, order, pay, make or set
apart any sum for any Restricted Junior Payment, except that: (a) Subsidiaries
of Borrower may make Restricted Junior Payments to Borrower with respect to
their common stock; (b) Borrower may make payments of principal of and interest
on the Subordinated Debt and indemnity payments and expense reimbursements in
accordance with the terms of the Subordinated Debt Agreement PROVIDED that
Borrower shall have notified Lender at least five (5) Business Days prior to
making any indemnity payments and may pay in full the Subordinated Debt with the
net proceeds of an IPO; (c) Borrower may sell the trademarks listed on Schedule
7.3 to Goldwin pursuant to the Goldwin Stock Purchase Agreement; (d) Borrower
may pay dividends on the Series A Preferred Stock in additional shares of such
Borrower Stock and may issue Common Stock upon conversion of the Series A
Preferred Stock or exercise of Management Options; (e) Borrower may pay the fees
required to be paid on the Original Closing Date under the Preferred Stock
Purchase Agreement and the Subordinated Debt Agreement; and (f) so long as no
Default or Event of Default shall have occurred and be continuing or shall
result from the Restricted Junior Payment and Borrower is in compliance on a pro
forma basis with the covenants set forth in Section 6, Borrower may (i)
repurchase Common Stock or Management Options or Management Restricted Stock
held by an employee of Borrower upon termination of employment of such employee
in an aggregate amount in each Fiscal Year not to exceed Five Hundred Thousand
Dollars ($500,000); (ii) pay management fees in an amount not to exceed
Sixty-two Thousand Five Hundred Dollars ($62,500) in each fiscal quarter
pursuant to the Preferred Stock Agreement; (iii) pay director's fees in an
amount not in excess of $50,000.00 per year; and (g) Borrower may pay base
compensation to Borrower's two top executive officers in an amount not in
excess, in the aggregate, of One Million Dollars ($1,000,000.00) in each Fiscal
Year and such incentive compensation as may be approved by the Compensation
Committee of Borrower's Board of Directors plus an amount not in excess of Five
Hundred Thousand ($500,000) in the aggregate for legal fees and expenses of such
officers in connection with proceedings for which the Board of Directors has
approved Borrower's indemnification.
7.6 RESTRICTION ON FUNDAMENTAL CHANGES. Neither Borrower nor any of its
Subsidiaries will: (a) enter into any transaction of merger or consolidation;
(b) liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution); (c) convey, sell, lease, sublease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its business or assets, or the capital stock of any of its Subsidiaries,
whether now owned or hereafter acquired; or (d) acquire by purchase or otherwise
all or any substantial part of the business or assets of, or stock or other
evidence of beneficial ownership of, any Person, PROVIDED that Borrower may
purchase the North Face branded inventory from In Sport Fashions, Inc. in
accordance with the terms set forth in the Transition and Services Agreement
dated October 13, 1994.
7.7 CHANGES RELATING TO SUBORDINATED DEBT AND SERIES A PREFERRED STOCK.
Borrower will not, and will not permit any of its Subsidiaries to, change or
amend the terms of the Subordinated Debt or the Series A Preferred Stock if the
effect of such amendment is to: (a)
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increase the interest rate on the Subordinated Debt; (b) change the dates upon
which payments of principal or interest are due on the Subordinated Debt; (c)
change any event of default or add any covenant with respect to the Subordinated
Debt or the Series A Preferred Stock; (d) change the payment provisions of the
Subordinated Debt or the Series A Preferred Stock; (e) change the subordination
provisions the Subordinated Debt Agreement; (f) change or amend any other term
if such change or amendment would materially increase the obligations of the
obligor or confer additional material rights on the holder of such Indebtedness
or the Series A Preferred Stock in a manner adverse to Borrower, any of its
Subsidiaries, Agent or Lenders; (g) increase the outstanding principal amount of
the Subordinated Debt in excess of that permitted under subsection 7.1 hereof;
or (h) require the cash payment of dividends on the Series A Preferred Stock or
any mandatory redemption thereof.
7.8 TRANSACTIONS WITH AFFILIATES. Borrower will not, and will not permit any
Loan Party to, directly or indirectly, enter into or permit to exist any
transaction (including the purchase, sale or exchange of property or the
rendering of any service) with any Affiliate or with any officer, director or
employee of any Loan Party, except for (a) transactions in the ordinary course
of, and pursuant to the reasonable requirements of, Borrower's or a Subsidiary's
business and upon fair and reasonable terms which are fully disclosed to Agent
and Lenders and which are no less favorable to Borrower or such Subsidiary than
it would obtain in a comparable arm's length transaction with an unaffiliated
Person; (b) the transactions set forth in the Goldwin Stock Purchase Agreement;
(c) the issuance of Management Options; and (d) the payment of fees pursuant to
the Subordinated Debt Agreement and the Preferred Stock Purchase Agreement to
the extent permitted under subsection 7.5 hereof. The foregoing shall not
prohibit the transactions contemplated by the Transaction Documents or
Borrower's performance of the terms thereof so long as Borrower fully complies
with all restrictions contained in any other covenant in this Agreement.
7.9 ENVIRONMENTAL LIABILITIES. Borrower will not, and will not permit any
Loan Party to: (a) violate in any material respect any applicable Environmental
Law; (b) dispose of any Hazardous Materials (except in accordance with
applicable law) into or onto or from, any real property owned, leased or
operated by any Loan Party; or (c) permit any Lien imposed pursuant to any
Environmental Law to be imposed or to remain on any real property owned, leased
or operated by any Loan Party.
7.10 CONDUCT OF BUSINESS. Borrower will not, and will not permit any of its
Subsidiaries to, engage in any business other than businesses of the type
engaged in by Old TNF or TNF Europe on the Original Closing Date.
7.11 COMPLIANCE WITH ERISA. Borrower will not, and will not permit any of its
Subsidiaries to establish any new Employee Benefit Plan or amend any existing
Employee Benefit Plan if the liability or increased liability resulting from
such establishment or amendment is material. Neither Borrower nor any
Subsidiary shall fail to establish, maintain and operate each Employee Benefit
Plan in compliance in all material respects with the provisions of ERISA, the
IRC and all other applicable laws and the regulations and interpretations
thereof.
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7.12 TAX CONSOLIDATIONS. Borrower will not, and will not permit any of its
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person other than Borrower or any of its Subsidiaries.
7.13 SUBSIDIARIES. Borrower will not, and will not permit any of its
Subsidiaries to, establish, create or acquire any new Subsidiaries after the
Closing Date without Lender's prior written consent. TNF Canada will remain a
wholly-owned Subsidiary of Borrower.
7.14 FISCAL YEAR. Neither Borrower nor any Subsidiary of Borrower shall change
its Fiscal Year.
7.15 PRESS RELEASE; PUBLIC OFFERING MATERIALS. Borrower will not, and will not
permit any Loan Party to, disclose the name of Agent or any Lender in any press
release or in any prospectus, proxy statement or other materials filed with any
governmental entity relating to a public offering of the capital stock of any
Loan Party without prior notice to Agent and Lenders and the approval of Agent
and such Lender the terms of the disclosure concerning it, which approval will
not be unreasonably withheld. Notwithstanding the foregoing, this Agreement may
be filed with the Securities and Exchange Cominission to the extent required by
law.
7.16 BANK ACCOUNTS. Borrower will not, and will not permit any of its
Subsidiaries to, establish any new bank accounts without the prior written
consent of Agent, which will not be unreasonable withheld, or amend or terminate
any Blocked Account or lockbox agreement without the prior written consent of
Agent.
SECTION 8 DEFAULT, RIGHTS AND REMEDIES
8.1 EVENT OF DEFAULT. "Event of Default" shall mean the occurrence or
existence of any one or more of the following:
(A) PAYMENT. Failure to make payment of the principal of any of the
Obligations when due (in installments, by mandatory prepayment, acceleration or
otherwise) or failure to pay interest or any other amount due to Lender under
the Loan Documents when due and such default is not remedied within five (5)
days after such interest or other amount becomes due; or
(B) DEFAULT IN OTHER AGREEMENTS. (1) Default of Borrower or any of its
Subsidiaries in payment when due of any principal or interest on any
Indebtedness or (2) breach or default of Borrower or any of its Subsidiaries
with respect to any Indebtedness, if such failure to pay, breach or default
entitles the holder to cause such Indebtedness having an individual principal
amount in excess of $250,000 or having an aggregate principal amount in excess
of $500,000 to become or be declared due prior to its stated maturity; or
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(C) BREACH OF CERTAIN PROVISIONS. Failure of Borrower to perform or
comply with any term or condition contained in subsections 5.1, 5.3, 5.5, 5.6,
5.8 or contained in Section 6 or Section 7; or
(D) BREACH OF WARRANTY. Any representation, warranty, certification or
other statement made by any Loan Party in any Loan Document or in any statement
or certificate at any time given by such Person in writing pursuant or in
connection with any Loan Document is false in any material respect on the date
made; or
(E) OTHER DEFAULTS UNDER LOAN DOCUMENTS. Borrower or any other Loan Party
defaults in the performance of or compliance with any term contained in this
Agreement or the other Loan Documents and such default is not remedied or waived
within ten (10) days after receipt by Borrower of notice from Agent or Requisite
Lenders of such default (other than occurrences described in other provisions of
this subsection 8.1 for which a different grace or cure period is specified or
which constitute immediate Events of Default); or
(F) CHANGE IN CONTROL. Any Change in Control occurs; or
(G) INVOLUNTARY BANKRUPTCY APPOINTMENT OF RECEIVER, ETC. (1) A court
enters a decree or order for relief with respect to Borrower or any of its
Subsidiaries in an involuntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, which
decree or order is not stayed or other similar relief is not granted under any
applicable federal or state law; or (2) the continuance of any of the following
events for forty-five (45) days unless dismissed, bonded or discharged: (a) an
involuntary case is commenced against Borrower or any of its Subsidiaries, under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or (b) a decree or order of a court for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over Borrower or any of its Subsidiaries, or over all or a substantial
part of their respective property, is entered; or (c) an interim receiver,
trustee or other custodian is appointed without the consent of Borrower or any
of its Subsidiaries, for all or a substantial part of the property of Borrower
or any such Subsidiary; or
(H) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) An order for
relief is entered with respect to Borrower or any of its Subsidiaries or
Borrower or any of its Subsidiaries commences a voluntary case under the
Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case or to the conversion of an involuntary case to a voluntary
case under any such law or consents to the appointment of or taking possession
by a receiver, trustee or other custodian for all or a substantial part of its
property; or (2) Borrower or any of its Subsidiaries makes any assignment for
the benefit of creditors; or (3) the board of directors of Borrower or any of
its Subsidiaries adopts any resolution or otherwise authorizes action to approve
any of the actions referred to in this subsection 8.1(H); or
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(I) LIENS. Any lien, levy or assessment is filed or recorded with respect
to or otherwise imposed upon all or any part of the Collateral or the assets of
Borrower or any of its Subsidiaries by the United States or any department or
instrumentality thereof or by any state, county, municipality or other
governmental agency, domestic or foreign (other than Permitted Encumbrances) and
such lien, levy or assessment is not stayed, vacated, paid or discharged within
ten (10) days; or
(J) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process involving (1) an amount in any individual case in
excess of $250,000 or (2) an amount in the aggregate at any time in excess of
$500,000 (in either case not adequately covered by insurance, subject to the
deductibles approved by Agent, as to which the insurance company has
acknowledged coverage) is entered or filed against Borrower or any of its
Subsidiaries or any of their respective assets or any Collateral and remains
undischarged, unvacated, unbonded or unstayed for a period of forty-five (45)
days or in any event later than five (5) days prior to the date of any proposed
sale thereunder; or
(K) DISSOLUTION. Any order, judgment or decree is entered against
Borrower or any of its Subsidiaries decreeing the dissolution or split up of
Borrower or that Subsidiary and such order remains undischarged or unstayed for
a period in excess of twenty (20) days; or
(L) INJUNCTION. Borrower or any of its Subsidiaries is enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business and such order continues for more than thirty (30) days; or
(M) INVALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents for any
reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party or Shareholder denies that it has any further liability
under any Loan Documents to which it is party, or gives notice to such effect;
or
(N) FAILURE OF SECURITY. Agent, on behalf of Lenders, does not have or
ceases to have a valid and perfected first priority security interest in the
Collateral (subject to Permitted Encumbrances), in each case, for any reason
other than the failure of Agent or any Lender to take any action within its
control; or
(O) DAMAGE, STRIKE, CASUALTY. Any material damage to, or loss, theft or
destruction of, any Collateral, whether or not insured, or any strike, lockout,
labor dispute, embargo, condemnation, act of God or public enemy, or other
casualty which causes, for more than fifteen (15) consecutive days beyond the
coverage period of any applicable business interruption insurance as to which
Borrower has received payments, the cessation or substantial curtailment of
revenue producing activities at any facility of Borrower or any of its
Subsidiaries if any such event or circumstance could reasonably be expected to
have a Material Adverse Effect; or
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(P) LICENSES AND PERMITS. The loss, suspension or revocation of, or
failure to renew, any license or permit now held or hereafter acquired by
Borrower or any of its Subsidiaries, if such loss, suspension, revocation or
failure to renew could have a Material Adverse Effect.
8.2 SUSPENSION OF COMMITMENTS. Upon the occurrence of any Default or Event of
Default, notwithstanding any grace period or right to cure, Agent may, and upon
the demand of Requisite Lenders shall, without notice or demand, immediately
cease making additional Loans and the Commitments shall be suspended; PROVIDED
that, in the case of a Default, if the subject condition or event is waived,
cured or removed by Requisite Lenders within any applicable grace or cure
period, the Commitments shall be reinstated.
8.3 ACCELERATION. Upon the occurrence of any Event of Default described in the
foregoing subsections 8.1(G) or 8.1(H), all Obligations shall automatically and
immediately be immediately due and payable, without presentment, demand, protest
or other requirements of any kind, all of which are hereby expressly waived by
Borrower, and the Commitments shall thereupon terminate. Upon the occurrence
and during the continuance of any other Event of Default, Agent may, and upon
demand by Requisite Lenders shall, by written notice to Borrower, (a) declare
all or any portion of the Obligations to be, and the same shall forthwith
become, immediately due and payable and the Commitments shall thereupon
terminate and (b) demand that Borrower immediately deposit with Agent an amount
equal to the Risk Participation Liability to enable Lender to make payments
under the Lender Letters of Credit and Lender Guaranties when required and such
amount shall become immediately due and payable.
8.4 REMEDIES. If any Event of Default shall have occurred and be continuing,
Agent may, and upon demand of Requisite Lenders shall, exercise in respect of
the Collateral, in addition to all other rights and remedies provided for herein
or in any other Loan Documents or otherwise available to Agent or Lenders, all
the rights and remedies of a secured party on default under the UCC (whether or
not the UCC applies to the affected Collateral) and may also (a) notify any or
all obligors on the Accounts to make all payments directly to Agent; (b) require
Borrower and any other Loan Party to, and Borrower hereby agrees that it will,
at its expense and upon request of Agent forthwith, assemble all or part of the
Collateral as directed by Agent and make it available to Agent at a place to be
designated by Agent which is reasonably convenient to both parties; (c) withdraw
all cash in the Blocked Accounts and apply such monies in payment of the
Obligations in the manner provided in subsection 8.7; (d) without notice or
demand or legal process, enter upon any premises of Borrower and any other Loan
Party and take possession of the Collateral; and (e) without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of the Lender's offices or elsewhere, at such
time or times, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as Agent may deem commercially reasonable.
Borrower agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days notice to Borrower of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. At any sale of the Collateral, if permitted by law,
Agent or any Lender may bid (which bid may
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be, in whole or in part, in the form of cancellation of indebtedness) for the
purchase of the Collateral or any portion thereof for the account of Agent or
such Lender. Agent and Lenders shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Borrower shall
remain liable for any deficiency. Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was
so adjourned. Agent shall not be required to proceed against any Collateral but
may proceed against Borrower directly. To the extent permitted by law, Borrower
hereby specifically waives all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter enacted.
8.5 APPOINTMENT OF ATTORNEY-IN-FACT. Borrower hereby constitutes and appoints
Agent as Borrower's attorney-in-fact with full authority in the place and stead
of Borrower and in the name of Borrower, Agent or otherwise, from time to time
in Agent's discretion to take any action and to execute any instrument that
Agent may deem necessary or advisable to accomplish the purposes of this
Agreement, including: (a) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral; (b) to adjust, settle or compromise the
amount or payment of any Account, or release wholly or partly any customer or
obligor thereunder or allow any credit or discount thereon; (c) to receive,
endorse, and collect any drafts or other instruments, documents and chattel
paper, in connection with clause (a) above; (d) to file any claims or take any
action or institute any proceedings that Agent may deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce the rights
of Agent and Lenders with respect to any of the Collateral; and (e) to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, assignments, verifications and notices in connection with
Accounts and other documents relating to the Collateral. The appointment of
Agent as Borrower's attorney and Agent's rights and powers are coupled with an
interest and are irrevocable until payment in full and complete performance of
all of the Obligations.
8.6 LIMITATION ON DUTY OF AGENT AND LENDERS WITH RESPECT TO COLLATERAL. Beyond
the safe custody thereof, neither Agent nor any Lender shall have any duty with
respect to any Collateral in its possession or control (or in the possession or
control of any agent or bailee of Agent) or with respect to any income thereon
or the preservation of rights against prior parties or any other rights
pertaining thereto. Agent and each Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which it accords its own property. Neither Agent nor any Lender shall be liable
or responsible for any loss or damage to any of the Collateral, or for any
diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or other agent or bailee
selected by Agent or any Lender in good faith.
8.7 APPLICATION OF PROCEEDS. Upon the occurrence and during the continuance of
an Event of Default, the proceeds of any sale of, or other realization upon, all
or any part of the
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Collateral shall be applied: FIRST, to all fees, costs and expenses incurred by
Agent or any Lender with respect to this Agreement, the other Loan Documents or
the Collateral; SECOND, to all fees due and owing to Agent and Lenders; THIRD,
to accrued and unpaid interest on the Obligations; FOURTH, to the principal
amounts of the Obligations outstanding in such order as Agent may determine in
its sole discretion; and FIFTH, to any other indebtedness or obligations of
Borrower owing to Agent or any Lender.
8.8 WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the part of Agent or any
Lender to exercise, and no delay in exercising and no course of dealing with
respect to, any right under this Agreement or any other Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise by Agent
or any Lender of any right under this Agreement or any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right. The rights in this Agreement and the other Loan Documents are cumulative
and are not exclusive of any other remedies provided by law.
SECTION 9 ASSIGNMENTS; AGENCY PROVISIONS
9.1 ASSIGNMENTS AND PARTICIPATIONS. Each Lender may assign its rights and
delegate its obligations under this Agreement to another Person; PROVIDED that
such assignment shall be of a constant and not a varying percentage of its
Commitments and shall be of the same percentage of the Revolving Loan Commitment
and Term Loan Commitment (or outstanding Term Loan); PROVIDED that (a) unless
such assignment is to a Lender or an Affiliate of a Lender, the assigning Lender
shall first obtain the written consent of Agent, which consent is not to be
unreasonably withheld; (b) the amount of Commitments and Loans of the assigning
Lender being assigned shall in no event be less than the lesser of (i) Five
Million Dollars ($5,000,000) or (ii) the entire amount of the Commitments and
Loans of such assigning Lender, (c) the Lender and its assignee shall have
executed and delivered to Agent a Lender Addition Agreement and paid to Agent a
processing fee of Two Thousand Five Hundred Dollars ($2,500); (d) as a condition
to the effectiveness of such assignment, Borrower shall have complied with its
obligations under the last sentence of subsection 2.1(F); and (e) no assignment
may be made to any Odyssey Bank.
In the case of an assignment authorized under this subsection 9.1, the
assignee shall have, to the extent of such assignment, the same rights, benefits
and obligations as it would if it were a Lender hereunder. The assigning Lender
shall be relieved of its obligations hereunder with respect to its Commitment or
such assigned portion thereof. Borrower hereby acknowledges and agrees that any
assignment will give rise to a direct obligation of Borrower to the assignee and
that the assignee shall be considered to be a "Lender". Each Lender may sell
participations in all or any part of any Loans made by it to another Person;
PROVIDED that no participation may be sold to any Odyssey Bank; and PROVIDED,
FURTHER that any such participation shall be in a minimum amount of Five Million
Dollars ($5,000,000) and PROVIDED, FURTHER, that all amounts payable by Borrower
hereunder shall be determined as if that Lender had not sold such participation
and the holder of any such participation shall not be entitled
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to require such Lender to take or omit to take any action hereunder except
action directly affecting (a) any reduction in the principal amount, interest
rate or fees payable with respect to any Loan in which such holder participates;
(b) any extension of the Term or the date fixed for any payment of interest or
fees payable with respect to any Loan in which such holder participates; and (c)
any release of substantially all of the Collateral (other than in accordance
with the terms of this Agreement or the Loan Documents). Borrower hereby
acknowledges and agrees that any participation will give rise to a direct
obligation of Borrower to the participant, and the participant shall for
purposes of subsections 2.8, 2.9, 2.10, 9.4 and 10.2 be considered to be a
"Lender".
Except as otherwise provided in this subsection 9.1, no Lender shall, as
between Borrower and that Lender, be relieved of any of its obligations
hereunder as a result of any sale, assignment, transfer or negotiation of, or
granting of participation in, all or any part of the Loans or other obligations
owed to such Lender. Each Lender may furnish any information concerning
Borrower and its Subsidiaries in the possession of that Lender from time to time
to an assignee or participant which is an institutional lender (including
prospective assignees and participants) and may furnish such information to
other Persons upon taking reasonable steps to assure the confidentiality
thereof.
Agent shall provide Borrower with written notice of the name and address of
any new Lender after the date hereof.
9.2 AGENT.
(A) APPOINTMENT. Each Lender hereby designates and appoints Heller as its
Agent under this Agreement and the Loan Documents, and each Lender hereby
irrevocably authorizes Agent to take such action or to refrain from taking such
action on its behalf under the provisions of this Agreement and the Loan
Documents and to exercise such powers as art set forth herein or therein,
together with such other powers as are reasonably incidental thereto. Agent is
authorized and empowered to amend, modify, or waive any provisions of this
Agreement or the other Loan Documents on behalf of Lenders subject to the
requirement that certain of Lenders' consent be obtained in certain instances as
provided in subsection 9.3 or otherwise specifically required under this
Agreement. Agent agrees to act as such on the express conditions contained in
this subsection 9.2. The provisions of this subsection 9.2 are solely for the
benefit of Agent and Lenders and neither Borrower nor any Loan Party shall have
any rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement, Agent does not assume
and shall not be deemed to have assumed any obligation toward or relationship of
agency or trust with or for Borrower or any Loan Party. Agent may perform any
of its duties hereunder, or under the Loan Documents, by or through its agents
or employees.
(B) NATURE OF DUTIES. Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement or in the Loan Documents.
The duties of Agent shall be mechanical and administrative in nature. Agent
shall not have by reason of this Agreement
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a fiduciary relationship in respect of any Lender. Nothing in this Agreement or
any of the Loan Documents, express or implied, is intended to or shall be
construed to impose upon Agent any obligations in respect of this Agreement or
any of the Loan Documents except as expressly set forth herein or therein. Each
Lender shall make its own independent investigation of the financial condition
and affairs of Borrower and its Subsidiaries in connection with the extension of
credit hereunder and shall make its own appraisal of the credit worthiness of
Borrower, and Agent shall have no duty or responsibility, either initially or on
a continuing basis, to provide any Lender with any credit or other information
with respect thereto (other than financial information received by it in
accordance herewith), whether coming into its possession before the Closing Date
hereunder or at any time or times thereafter. If Agent seeks the consent or
approval of any Lenders to the taking or refraining from taking any action
hereunder, then Agent shall send notice thereof to each Lender. Agent shall
promptly notify each Lender any time that the Requisite Lenders have instructed
Agent to act or refrain from acting pursuant hereto.
(C) RIGHTS, EXCULPATION, ETC. Neither Agent nor any of its officers,
directors, employees or agents shall be liable to any Lender for any action
taken or omitted by them hereunder or under any of the Loan Documents, or in
connection herewith or therewith, except that Agent shall be liable with respect
to its own gross negligence or willful misconduct. Agent shall not be liable
for any apportionment or distribution of payments made by it in good faith and
if any such apportionment or distribution is subsequently determined to have
been made in error, the sole recourse of any Lender to whom payment was due but
not made shall be to recover from other Lenders any payment in excess of the
amount to which they are determined to be entitled (and such other Lenders
hereby agree to return to such Lender any such erroneous payments received by
them). In performing its functions and duties hereunder, Agent shall exercise
the same care which it would in dealing with loans for its own account, but
Agent shall not be responsible to any Lender for any recitals, statements,
representations or warranties herein or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, or sufficiency of this
Agreement or any of the Loan Documents or the transactions contemplated thereby,
or for the financial condition of any Loan Party. Agent shall not be required
to make any inquiry concerning either the performance or observance of any of
the terms, provisions or conditions of this Agreement or any of the Loan
Documents or the financial condition of any Loan Party, or the existence or
possible existence of any Default or Event of Default. Agent may at any time
request instructions from Lenders with respect to any actions or approvals which
by the terms of this Agreement or of any of the Loan Documents Agent is
permitted or required to take or to grant, and if such instructions are promptly
requested, Agent shall be absolutely entitled to refrain from taking any action
or to withhold any approval and shall not be under any liability whatsoever to
any Person for refraining from any action or withholding any approval under any
of the Loan Documents until it shall have received such instructions from
Requisite Lenders or all of the Lenders, as applicable. In no event shall Agent
be required to take any action or to refrain from taking any action which, in
Agent's opinion, would expose Agent to any liability. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against Agent as
a result of
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Agent acting or refraining from acting under this Agreement or any of the other
Loan Documents in accordance with the instructions of Requisite Lenders.
(D) RELIANCE. Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message or
other communication (including any writing, telex, telecopy or telegram)
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Agreement or any of the Loan Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it. Agent shall be entitled to
rely upon the advice of legal counsel, independent accountants, and other
experts selected by Agent in its sole discretion.
(E) INDEMNIFICATION. Lenders Will reimburse and indemnify Agent for and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Agreement or any of
the Loan Documents or any action taken or omitted by Agent under this Agreement
for any of the Loan Documents, in proportion to each Lender's Pro Rata Share;
PROVIDED, HOWEVER, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, advances or disbursements resulting from Agent's gross
negligence or willful misconduct. The obligations of Lenders under this
subsection 9.2(E) shall survive the payment in full of the Obligations and the
termination of this Agreement.
(F) HELLER INDIVIDUALLY. With respect to its Commitments and the Loans
made by it, and the Notes issued to it, Heller shall have and may exercise the
same rights and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other Lender. The
terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the
context clearly otherwise indicates, include Heller in its individual capacity
as a Lender or one of the Requisite Lenders. Heller may lend money to, and
generally engage in any kind of banking, trust or other business with any Loan
Party as if it were not acting as Agent pursuant hereto.
(G) SUCCESSOR AGENT.
(1) RESIGNATION. Agent may resign from the performance of all its
functions and duties hereunder at any lime by giving at least thirty (30)
Business Days' prior written notice to Borrower and Lenders. Such resignation
shall take effect upon the acceptance by a successor Agent of its appointment
pursuant to clause (2) below or as otherwise provided below.
(2) APPOINTMENT OF SUCCESSOR. Upon any such notice of resignation
pursuant to clause (G) (1) above, Requisite Lenders shall appoint a successor
Agent. If a successor Agent shall not have been so appointed within said thirty
(30) Business Day period, the retiring
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Agent, shall then appoint a successor Agent who shall serve as Agent until such
time, if any, as Requisite Lenders, appoint a successor Agent as provided above.
(3) SUCCESSOR AGENT. Upon the acceptance of any appointment as Agent
under the Loan Documents by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under the Loan Documents. Even after any
retiring Agent's resignation as Agent under the Loan Documents, the provisions
of this subsection 9.2 shall continue to inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under the Loan Documents.
(H) COLLATERAL MATTERS.
(1) RELEASE OF COLLATERAL. (a) Lenders hereby irrevocably authorize
Agent, at its option and in its discretion, to release any Lien granted to or
held by Agent upon any property covered by this Agreement or the Loan Documents
(i) upon termination of the Commitments and payment and satisfaction of all
Obligations; (ii) constituting property being sold or disposed of if Borrower
certifies to Agent that the sale or disposition is made in compliance with the
provisions of this Agreement (and Agent may rely in good faith conclusively on
any such certificate, without further inquiry); (iii) constituting property
leased to Borrower under a lease which has expired or been terminated in a
transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by Borrower to be, renewed or extended; or (iv) on
assets of TNF Canada if required in connection with a Permitted Canadian
Financing (and Agent may rely in good faith conclusively on a certificate of
Borrower that the conditions to such Permitted Canadian Financing have been
met).
(b) In any year, without requiring the consent of any Lender,
Agent may release or compromise any Collateral and the proceeds thereof having a
value not greater than ten percent (10%) of the total book value of all
Collateral, and, with the prior consent of Requisite Lenders, may release or
compromise any Collateral and the proceeds thereof having a value not greater
than twenty-five percent (25%) of the book value of all Collateral. With the
consent of Lenders owning a total of at least eighty-five percent (85%) of the
Commitments of all Lenders, Agent may release or compromise any Collateral or
proceeds thereof in excess of that otherwise permitted hereunder. Lenders
hereby irrevocably authorize Agent to release or compromise Collateral or
proceeds as permitted under this subsection 9.2(H)(1)(b).
(c) Notwithstanding anything to the contrary contained herein,
Agent may, at its sole discretion, release or compromise Collateral and the
proceeds thereof to the extent permitted by subsection 9.2(H)(1)(a).
(2) CONFIRMATION OF AUTHORITY; EXECUTION OF RELEASES. Without in any
manner limiting Agent's authority to act without any specific or further
authorization of Lenders or with the consent by Requisite Lenders or with the
consent of less than all Lenders
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(as set forth in subsection 9.2(H)(1)), each Lender agrees to confirm in
writing, upon request by Borrower, the authority to release any property covered
by this Agreement or the Loan Documents conferred upon Agent under subsections
9.2(H)(1)(a) and (b). So long as no Event of Default is then continuing, upon
receipt by Agent of confirmation from the Requisite Lenders or from the
requisite percentage of Lenders specifically required by subsection
9.2(H)(1)(b), as the case may be, of its authority to release any particular
item or types of property covered by this Agreement or the Loan Documents, and
upon at least five (5) Business Days prior written request by Borrower, Agent
shall (and is hereby irrevocably authorized by Lenders to) execute such
documents as may be necessary to evidence the release of the Liens granted to
Agent for the benefit of Lenders herein or pursuant hereto upon such collateral;
PROVIDED, HOWEVER, that (i) Agent shall not be required to execute any such
document on terms which, in Agent's opinion, would expose Agent to liability or
create any obligation or entail any consequence other than the release of such
Liens without recourse or warranty, and (ii) such release shall not in manner
discharge, affect or impair the Obligations or any Liens upon (or obligations of
any Loan Party, in respect of), all interests retained by any Loan Party,
including (without limitation) the proceeds of any sale, all of which shall
continue to constitute part of the property covered by this Agreement or the
Loan Documents.
(3) ABSENCE OF DUTY. Agent shall have no obligation whatsoever to any
Lender or any other Person to assure that the property covered by this Agreement
or the Loan Documents exists or is owned by Borrower or is cared for, protected
or insured or has been encumbered or that the Liens granted to Agent, on behalf
of Lenders, herein or pursuant hereto have been properly or sufficiently or
lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to Agent in this subsection
9.2(H) or in any of the Loan Documents, it being understood and agreed that in
respect of the property covered by this Agreement or the Loan Documents or any
act, omission or event related thereto, Agent may act in any manner it may deem
appropriate, in its discretion, given Agent's own interest in property covered
by this Agreement or the Loan Documents as one of the Lenders and that Agent
shall have no duty or liability whatsoever to any of the other Lenders;
PROVIDED, that Agent shall exercise the same care which it would in dealing with
loans for its own account.
(I) AGENCY FOR PERFECTION. Agent and each Lender hereby appoints each
other Lender as agent for the purpose of perfecting Lenders' security interest
in assets which, in accordance with Article 9 of the Uniform Commercial Code in
any applicable jurisdiction, can be perfected only by possession. Should any
Lender (other than Agent) obtain possession of any such Collateral, such Lender
shall notify Agent thereof, and, promptly upon Agent's request therefor, shall
deliver such Collateral to Agent or in accordance with Agent's instructions.
Each Lender agrees that it will not have any right individually to enforce or
seek to enforce this Agreement or any Loan Document or to realize upon any
collateral security for the Loans, it being understood and agreed that such
rights and remedies may be exercised only by Agent.
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9.3 AMENDMENTS, CONSENTS AND WAIVERS FOR CERTAIN ACTIONS.
(A) Except as otherwise provided in this subsection 9.3 or in subsections
9.2 and 10.3 and except as to matters set forth in other subsections hereof as
requiring only Agent's consent, the consent of Requisite Lenders shall be
required to amend, modify, terminate, or waive any provision of this Agreement,
including, but not limited to, any amendment, modification, termination, or
waiver with regard to Sections 5, 6 and 7.
(B) In the event Agent requests the consent of a Lender and does not
receive a written denial thereof within five (5) Business Days after such
Lender's receipt of such request, then such Lender will be deemed to have given
such consent.
(C) In the event Agent requests the consent of a Lender and such consent
is denied, then Heller or the Lender which assigned its interest in the Loans to
such Lender (the "Assigning Lender") may, at its option, require such Lender to
reassign its interest in the Loans to Heller or the Assigning Lender, as
applicable, for a price equal to the then outstanding principal amount thereof
plus accrued and unpaid interest and fees due such Lender, which interest and
fees will be paid when collected from Borrower. In the event that Heller or the
Assigning Lender elects to require any Lender to reassign its interest to Heller
or the Assigning Lender, Heller or the Assigning Lender, as applicable, will so
notify such Lender in writing within forty-five (45) days following such
Lender's denial, and such Lender will reassign its interest to Heller or the
Assigning Lender, as applicable, no later than five (5) days following receipt
of such notice.
(D) In the event Agent waives (1) any Default arising under subsection
8.1(E) as a result of the breach of any of the provisions of Section 5 of this
Agreement (other than any such breach which constitutes an Event of Default) or
(2) any Default constituting a condition to the funding of any Revolving Loan or
issuance of any Lender Letter of Credit or execution of a Risk Participation
Agreement, such waiver shall expire on the date upon which the Default which was
the subject of such waiver matures into an Event of Default pursuant to the
terms of this Agreement.
9.4 SET OFF AND SHARING OF PAYMENTS. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default,
each Lender is hereby authorized by Borrower at any time or from time to time,
with reasonably prompt subsequent notice to Borrower or to any other Person (any
prior or contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (A) balances held by such Lender or such
holder at any of its offices for the account of Borrower or any of its
Subsidiaries (regardless of whether such balances are then due to Borrower or
its Subsidiaries), and (B) other property at any time held or owing by such
Lender or such holder to or for the credit or for the account of Borrower or any
of its Subsidiaries, against and on account of any of the Obligations which are
not paid when due; except that no Lender or any such holder shall exercise any
such right without the prior written consent of Agent. Any Lender having a
right to set off shall, to the
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extent the amount of any such set off exceeds its Pro Rata Share of the
Obligations, purchase for cash (and the other Lenders or holders shall sell)
participations in each such other Lender's or holder's Pro Rata Share of the
Obligations as would be necessary to cause such Lender to share such excess with
each other Lender or holder in accordance with their respective Pro Rata Shares.
Borrower agrees, to the fullest extent permitted by law, that (a) any Lender or
holder may exercise its right to set off with respect to amounts in excess of
its Pro Rata Share of the Obligations and may sell participations in such excess
to other Lenders and holders, and (b) any Lender or holder so purchasing a
participation in the Loans made or other obligations held by other Lenders or
holders may exercise all rights of set-off, bankers' lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender or
holder were a direct holder of Loans and other Obligations in the amount of such
participation.
9.5 DISBURSEMENT OF FUNDS. Agent may, on behalf of Lenders, disburse funds to
Borrower for Loans requested. Each Lender shall reimburse Agent on demand for
all funds disbursed on its behalf by Agent, or if Agent so requests, each Lender
will remit to Agent its Pro Rata Share of any Loan before Agent disburses same
to Borrower. If any Lender fails to pay the amount of its Pro Rata Share
forthwith upon Agent's demand, Agent shall promptly notify Borrower, and
Borrower shall immediately repay, such amount to Agent. Any repayment required
pursuant to this subsection 9.5 shall be without premium or penalty. Nothing in
this subsection 9.5 or elsewhere in this Agreement or the other Loan Documents,
including without limitation the provisions of subsection 9.6, shall be deemed
to require Agent to advance funds on behalf of any Lender or to relieve any
Lender from its obligation to fulfill its Commitments hereunder or to prejudice
any rights that Agent or Borrower may have against any Lender as a result of any
default by such Lender hereunder.
9.6 DISBURSEMENTS OF ADVANCES, PAYMENTS AND INFORMATION.
(A) REVOLVING LOAN ADVANCES AND PAYMENTS; FEE PAYMENTS.
(1) The Revolving Loan balance may fluctuate from day to day through
Agent's disbursement of funds to, and receipt of funds from, Borrower. In order
to minimize the frequency of transfers of funds between Agent and each Lender
notwithstanding terms to the contrary set forth in Section 2, Revolving Loan
advances and payments will be settled according to the procedures described in
subsection 9.6(A)(2) and 9.6(A)(3) of this Agreement. Payments of principal
interest and fees in respect of the Term Loan will be settled on the Business
Day received in accordance with the provisions of Section 2. Notwithstanding
these procedures, each Lender's obligation to fund its portion of any advances
made by Agent to Borrower will commence on the date such advances are made by
Agent. Such payments will be made by such Lender without set-off, counterclaim
or reduction of any kind.
(2) Once each week, or more frequently (including daily), if Agent
so elects, Agent will advise each Lender by telephone, telex, or telecopy of the
amount of each such Lender's Pro Rata Share of the Revolving Loan balance. In
the event that payments are necessary to adjust the amount of such Lender's Pro
Rata Share of the Revolving Loan balance
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to such Lender's Pro Rata Share of the Revolving Loan, the party from which such
payment is due will pay the other, in same day funds, by wire transfer to the
other's account not later than 3:00 p.m. (New York time) on such date.
Notwithstanding the foregoing, if Agent so elects, Agent may require that each
Lender make its Pro Rata Share of any requested Loan available to Agent for
disbursement on or prior to the Funding Date applicable to such Loan. If Agent
elects to require that such funds be made available, Agent shall promptly advise
each Lender by telephone, telex or telecopy of the amount of such Lender's Pro
Rata Share of such requested Loan. Each Lender shall pay Agent such Lender's
Pro Rata Share of such requested Loan in same day funds, by wire transfer to
Agent's account not later than 3:00 p.m. (New York) time on such Funding Date.
(3) For purposes of this subsection 9.6(A)(3) the following terms and
conditions will have the meanings indicated:
(a) "Daily Loan Balance" means an amount calculated as of the
end of each calendar day by subtracting (i) the cumulative principal amount paid
by Agent to a Lender on a Loan from the Closing Date through and including such
calendar day, from (ii) the cumulative principal amount on a Loan advanced by
such Lender to Agent on that Loan from the Closing Date through and including
such calendar day.
(b) "Daily Interest Rate" means an amount calculated by dividing
the interest rate payable to a Lender on a Loan (as set forth in subsection 2.2)
as of each calendar day by three hundred sixty (360).
(c) "Daily Interest Amount" means an amount calculated by
multiplying the Daily Loan Balance of a Loan by the associated Daily Interest
Rate on that Loan.
(d) "Interest Ratio" means a number calculated by dividing the
total amount of the interest on a Loan received by Agent with respect to the
immediately preceding month by the total amount of interest on that Loan due
from Borrower during the immediately preceding month.
On the first Business Day of each month ("Interest Settlement Date"), Agent will
advise each Lender by telephone, telex, or telecopy of the amount of such
Lender's share of interest and fees payable with respect to the Obligations
outstanding during the immediately preceding month. Provided that such Lender
has made all payments required to be made by it under this Agreement, Agent will
pay to such Lender, by wire transfer to such Lender's account (as specified by
such Lender on the signature page of this Agreement or the applicable Lender
Addition Agreement as amended by such Lender from time to time after the date
hereof pursuant to the notice provisions contained herein or in the applicable
Lender Addition Agreement) not later than 3:00 p.m. (New York time) on the next
Business Day following the Interest Settlement Date, such Lender's share of such
interest and fees. Such Lender's share of interest on each Loan will be
calculated for that Loan by adding together the Daily Interest Amounts for each
calendar day of the prior month for that Loan and multiplying the total
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thereof by the Interest Ratio for that Loan. Such Lender's share of the total
Unused Line Fee payable in respect thereto and received by Agent shall be equal
to the product of (i) (A) the Commitments of the Lenders minus the average daily
balance of Risk Participation Reserve during the preceding month, multiplied by
such Lender's Pro Rata Share of the Commitments, minus (B) the average daily
balance of such Lender's advances under the Revolving Loan during the preceding
month, multiplied by (ii) one-half of one percent (.50%) per annum. Such
Lender's share of any Lender Letter of Credit and Risk Participation Agreement
fees shall be equal to such fees received by Agent multiplied by such Lender's
Pro Rata Share of the Commitments.
(B) AVAILABILITY OF LENDER'S PRO RATA SHARE.
(1) Unless Agent has been notified by a Lender prior to a Funding
Date of such Lender's intention not to fund its Pro Rata Share of the Loan
amount requested by Borrower, Agent may assume that such Lender will make such
amount available to Agent on the Business Day following the next Settlement
Date. If such amount is not, in fact, made available to Agent by such Lender
when due, Agent will be entitled to recover such amount on demand from such
Lender without set-off, counterclaim or deduction of any kind.
(2) Nothing contained in this subsection 9.6(B) will be deemed to
relieve a Lender of its obligation to fulfill its Commitments or to prejudice
any rights Agent or Borrower may have against such Lender as a result of any
default by such Lender under this Agreement.
(3) Without limiting the generality of the foregoing, each Lender
shall be obligated to fund its Pro Rata Share of any Revolving Loan made after
any acceleration of the Obligations with respect to any draw on a Lender Letter
of Credit or Underlying L/C.
(C) RETURN OF PAYMENTS.
(1) If Agent pays an amount to a Lender under this Agreement in the
belief or expectation that a related payment has been or will be received by
Agent from Borrower and such related payment is not received by Agent, then
Agent will be entitled to recover such amount from such Lender without set-off,
counterclaim or deduction of any kind.
(2) If Agent determines at any time that any amount received by Agent
under this Agreement must be returned to Borrower or paid to any other Person
pursuant to any solvency law or otherwise, then, notwithstanding any other term
or condition of this Agreement, Agent will not be required to distribute any
portion thereof to any Lender.
In addition, each Lender will repay to Agent on demand any portion of such
amount that Agent has distributed to such Lender, together with interest at such
rate, if any, as Agent is required to pay to Borrower or such other Person,
without set-off, counterclaim or deduction of any kind.
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(D) DISSEMINATION OF INFORMATION. Agent will use its best efforts to
provide Lenders with any information received by Agent from Borrower which is
required to be provided to a Lender hereunder; provided, however, that Agent
shall not be liable to Lenders for any failure to do so, except to the extent
that such failure is attributable to Agent's gross negligence or willful
misconduct.
SECTION 10 MISCELLANEOUS
10.1 EXPENSES AND ATTORNEYS' FEES. Whether or not the transactions
contemplated hereby shall be consummated, Borrower agrees to promptly pay all
fees, costs and expenses incurred by Agent and, to the extent specified below,
Lenders in connection with any matters contemplated by or arising out of this
Agreement or any other Loan Document including the following, and all such fees,
costs and expenses shall be part of the Obligations, payable on demand and
secured by the Collateral: (a) fees, costs and expenses of Agent (including
attorneys' fees, allocated costs of internal counsel and fees of environmental
consultants, accountants and other professionals retained by Agent) incurred in
connection with the examination, review, due diligence investigation,
documentation and closing of the financing arrangements evidenced by the Loan
Documents; (b) fees, costs and expenses of Agent (including attorneys' fees,
allocated costs of internal counsel and fees of environmental consultants,
accountants and other professionals retained by Agent) incurred in connection
with the review, negotiation, preparation, documentation, execution and
administration of the Loan Documents, the Loans, and after the occurrence and
during the continuance of an Event of Default, the fees, costs and expenses of
Agent and Lenders (including attorney's fees and allocated costs of external
counsel) any amendments, waivers, consents, forbearance and other modifications
relating thereto or any subordination or intercreditor agreements; (c) fees,
costs and expenses incurred in creating, perfecting and maintaining perfection
of Liens in favor of Agent for the benefit of Lenders; (d) fees, costs and
expenses incurred in connection with forwarding to Borrower the proceeds of
Loans including Agent's standard wire transfer fee; (e) fees, costs, expenses
and bank charges, including bank charges for returned checks, incurred by Agent
in establishing, maintaining and handling lock box accounts, Blocked Accounts
or other accounts for collection of the Collateral; (f) fees, costs, and
expenses of Agent and Lenders (including attorneys' fees and allocated costs of
internal counsel) and costs of settlement incurred in collecting upon or
enforcing rights against the Collateral or incurred in any action to enforce
this Agreement or other Loan Document or to collect any payments due from
Borrower or any other Loan Party under this Agreement or any other Loan Document
or incurred in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement, whether in the nature of a "workout"
or in connection with any insolvency or bankruptcy proceedings or otherwise.
10.2 INDEMNITY. In addition to the payment of expenses pursuant to subsection
10.1, whether or not the transactions contemplated hereby shall be consummated,
Borrower agrees to indemnify, pay and hold Agent and each Lender and any holder
of the Notes or other assignee under section 9.1, and the officers, directors,
employees, agents, affiliates and attorneys of Agent and each Lender and such
holders or assignees (collectively called the "Indemnitees")
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harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including the fees and disbursements of
counsel for such Indemnitees in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
such Indemnitee shall be designated a party thereto) that may be imposed on,
incurred by, or asserted against that Indemnitee, in any manner relating to or
arising out of this Agreement or any other Loan Document, the consummation of
the transactions contemplated by this Agreement, the statements contained in the
commitment letters, if any, delivered by Agent or any Lender, Agent or any
Lender's agreement to make the Loans hereunder, the use or intended use of the
proceeds of any of the Loans or the exercise of any right or remedy hereunder or
under any other Loan Document (the "Indemnified Liabilities"); PROVIDED that
Borrower shall have no obligation to an Indemnitee hereunder with respect to
Indemnified Liabilities arising from the gross negligence or willful misconduct
of that Indemnitee as determined by a court of competent jurisdiction.
10.3 AMENDMENTS AND WAIVERS. Except as otherwise provided herein or in Section
9, no amendment, modification, termination or waiver of any provision of this
Agreement, the Note(s) or any other Loan Document, or consent to any departure
by any Loan Party therefrom, shall in any event be effective unless the same
shall be in writing and signed by Requisite Lenders or Agent, as applicable;
PROVIDED, no amendment, modification, termination or waiver shall, unless in
writing and signed by all Lenders, do any of the following: (a) increase the
Commitment of any Lender; (b) reduce the principal of, rate of interest on or
fees payable with respect to any Loan; (c) extend the scheduled maturity date of
the principal amount of the Loans; (d) change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Loans, or the percentage of
Lenders which shall be required for Lenders or any of them to take any action
hereunder; (e) release Collateral (except to the extent permitted under
subsection 9.2(H) and except if the sale or disposition of such Collateral is
permitted under any other provision of this Agreement or any other Loan
Document); (f) amend or waive this subsection 10.3 or the definitions of the
terms used in this subsection 10.3 insofar as the definitions affect the
substance of this subsection 10.3; (g) any increase in the advance rates
contained in the definition of "Borrowing Base" or in subsection 2.1(C); and
(h) consent to the assignment or other transfer by any Loan Party of any of its
rights and obligations under any Loan Document; and PROVIDED, FURTHER, that no
amendment, modification, termination or waiver affecting the rights or duties of
Agent under any Loan Document shall in any event be effective unless in writing
and signed by Agent, in addition to Lenders required hereinabove to take such
action. Each amendment, modification, termination or waiver shall be effective
only in the specific instance and for the specific purpose for which it was
given. No amendment, modification, termination or waiver shall be required for
Agent to take additional Collateral pursuant to any Loan Document. No
amendment, modification, termination or waiver of any provision of any Note
shall be effective without the written concurrence of the holder of that Note.
No notice to or demand on Borrower or any other Loan Party in any case shall
entitle Borrower or any other Loan Party to any other or further notice or
demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this subsection 10.3
shall be binding upon each holder of the
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Note[s] at the time outstanding, each future holder of the Note[s], and, if
signed by a Loan Party, on such Loan Party.
10.4 NOTICES. Unless otherwise specifically provided herein, all notices shall
be in writing addressed to the respective party as set forth below and may be
personally served, telecopied or sent by overnight courier service or United
States mail and shall be deemed to have been given: (9) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. (New York time) or, if not, on
the next succeeding Business Day; (c) if delivered by overnight courier, two (2)
days after delivery to such courier properly addressed; or (d) if by U.S. Mail,
four Business Days after depositing in the United States mail, with postage
prepaid and properly addressed.
If to Borrower: THE NORTH FACE, INC.
999 Harrison Street
Berkeley, California 94710
Attention: President
Telecopy No.: (510) 525-3346
With a copy to: Crosby, Heafey, Roach & May
1999 Harrison Street
Oakland, California 94612-3573
Attention: Philip L. Bush
Telecopy No.: (510) 273-8832
If to Agent: HELLER FINANCIAL, INC.
or Heller 101 Park Avenue
New York, New York 10178
Attention: Heller Business Credit
Portfolio Manager
Telecopy No.: (212) 880-2060
With a copy to: HELLER FINANCIAL, INC.
101 Park Avenue
New York, New York 10178
Attention: Heller Business Credit
Legal Department
Telecopy No.: (212) 880-7158
If to any Lender: its address indicated on the
signature page hereto, in a
Lender Addition Agreement or in
a notice to Agent and Borrower
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or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this
subsection 10.4.
10.5 SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrower set forth in subsections 10.1 and 10.2 and the
indemnities set forth in the Existing Loan Agreement shall survive the payment
of the Loans and the termination of this Agreement.
10.6 INDULGENCE NOT WAIVER. No failure or delay on the part of Agent, any
Lender or any holder of a Notes in the exercise of any power, right or privilege
hereunder or under a Note shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
10.7 MARSHALING; PAYMENTS SET ASIDE. Neither Agent nor any Lender shall be
under any obligation to marshal any assets in favor of any Loan Party or any
Shareholder or any other party or against or in payment of any or all of the
Obligations. To the extent that any Loan Party or any Shareholder makes a
payment or payments to Agent or any Lender or Agent and/or any Lender enforces
its security interests or exercise its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Obligations or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor, shall be revived and
continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
10.8 ENTIRE AGREEMENT. This Agreement, the Notes, and the other Loan Documents
referred to herein embody the final, entire agreement among the parties hereto
and supersede any and all prior commitments, agreements, representations, and
understandings, whether written or oral, relating to the subject matter hereof
and may not be contradicted or varied by evidence of prior, contemporaneous, or
subsequent oral agreements or discussions of the parties hereto or their agents
or attorneys. There are no oral agreements among the parties hereto.
10.9 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.
10.10 SEVERABILITY. The invalidity, illegality or unenforceability in any
jurisdiction of any provision in or obligation under this Agreement or the other
Loan Documents shall not affect
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or impair the validity, legality or enforceability of the remaining provisions
or obligations under this Agreement, or the other Loan Documents or of such
provision or obligation in any other jurisdiction.
10.11 LENDERS' OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The
obligation of each Lender hereunder is several and not joint and no Lender shall
be responsible for the obligation or commitment of any other Lender hereunder.
In the event that any Lender at any time should fail to make a Loan as herein
provided, the Lenders, or any of them, at their sole option, may make the Loan
that was to have been made by the Lender so failing to make such Loan. Nothing
contained in any Loan Document and no action taken by Agent or any Lender
pursuant hereto or thereto shall be deemed to constitute Lenders to be a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and, subject to the terms of any Lender Addition Agreement,
each Lender shall be entitled to protect and enforce its rights arising out of
this Agreement and it shall not be necessary for any other Lender to be joined
as an additional party in any proceeding for such purpose.
10.12 HEADINGS. Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.13 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.14 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
except that Borrower may not assign its rights or obligations hereunder without
the written consent of Lenders.
10.15 NO FIDUCIARY RELATIONSHIP; LIMITATION OF LIABILITIES.
(A) No provision in this Agreement or in any other Loan Document and no
course of dealing between the parties shall be deemed to create any fiduciary
duty by Agent or any Lender to Borrower.
(B) Neither Agent nor any Lender, nor any affiliate, officer, director,
employee, attorney, or agent of Agent or any Lender shall have any liability
with respect to, and Borrower hereby waives, releases, and agrees not to sue any
of them upon, any claim for any special, indirect, incidental, or consequential
damages suffered or incurred by Borrower in connection with, arising out of, or
in any way related to, this Agreement or any other Loan Document, or any of the
transactions contemplated by this Agreement or any other Loan Document.
Borrower hereby waives, releases, and agrees not to sue Agent or any Lender or
any of its affiliates, officers, directors, employees, attorneys, or agents for
punitive damages in respect
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of any claim in connection with, arising out of, or in any way related to, this
Agreement or any other Loan Document, or any of the transactions contemplated by
this Agreement or any of the transactions contemplated hereby.
10.16 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE BOROUGH OF MANHATTAN, STATE
OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S ELECTION, ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
NOTES OR ANY OTHER LOAN DOCUMENT SHALL BE LITIGATED IN SUCH COURTS, BORROWER
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE
NOTES, ANY OTHER LOAN DOCUMENT OR THE OBLIGATIONS.
10.17 WAIVER OF JURY TRIAL. BORROWER, AGENT AND EACH LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT. BORROWER,
AGENT AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER
IN ENTERING INTO THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS AND THAT
EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
BORROWER, AGENT AND EACH LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
10.18 CONSTRUCTION. Borrower, Agent and each Lender each acknowledge that it
has had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the other Loan Documents with its own
legal counsel and that this Agreement and the other Loan Documents shall be
construed without regard to which party may be deemed to have drafted the same
or any provision thereof.
10.19 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments, waivers,
consents, or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof
86
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by each of the parties hereto, and acceptance of the Borrower's counterpart by
Agent at its office in New York and satisfaction or waiver of the conditions set
forth in subsection 3.1. At the time of the effectiveness of this Agreement,
this Agreement shall amend and restate and thereby supersede the Existing Loan
Agreement. From and after the date on which this Agreement becomes effective,
all references in the other Loan Documents shall be deemed references to this
Agreement, as it may be amended, supplemented or otherwise modified from time to
time.
10.20 NO DUTY. All attorneys, accountants, appraisers, and other professional
Persons and consultants respectively retained by Agent, any Lender, Borrower and
Borrower's Affiliates shall have the right to act exclusively in the interest of
the party retaining then and shall have no duty of disclosure, duty of loyalty,
duty of care, or other duty or obligation of any type or nature whatsoever to
any other party; PROVIDED that this Section 10.20 shall not be deemed to reduce
the legal or contractual duty of any Person providing reports, opinions,
financial statements, audit reports or other documents to any Person.
[remainder of page intentionally blank]
87
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Witness the due execution of this Amended and Restated Loan and
Security Agreement by the respective duly authorized officers of the undersigned
as of the date first written above.
HELLER FINANCIAL, INC., THE NORTH FACE, INC.
As Agent and as Lender
By:/s/Jason D. Drattell By:/s/William A. McFarlane
------------------------- -------------------------
Name: Jason D. Drattell Name: William A. McFarlane
Title: Vice President Title: President
88
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
DATED AS OF June 7, 1994
between
TNF HOLDINGS COMPANY, INC,
as Borrower,
and
HELLER FINANCIAL, INC.,
as Lender
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . 14
1.3 Other Definitional Provisions. . . . . . . . . . . . . . . . . . 15
SECTION 2 LOANS AND COLLATERAL . . . . . . . . . . . . . . . . . . . . . . 15
2.1 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(A) Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . 15
(B) Revolving Loan. . . . . . . . . . . . . . . . . . . . . . . 16
(C) Seasonal Overadvance Facility . . . . . . . . . . . . . . . 16
(D) Eligible Collateral . . . . . . . . . . . . . . . . . . . . 16
(E) Borrowing Mechanics . . . . . . . . . . . . . . . . . . . . 19
(F) Term Note . . . . . . . . . . . . . . . . . . . . . . . . . 19
(G) Letters of Credit and Guaranties. . . . . . . . . . . . . . 19
(1) Maximum Amount. . . . . . . . . . . . . . . . . . . . . 19
(2) Reimbursement . . . . . . . . . . . . . . . . . . . . . 19
(3) Conditions of Issuance. . . . . . . . . . . . . . . . . 20
(4) Request for Letters of Credit or Guaranties . . . . . . 20
(H) Other Letter of Credit and Guaranty Provisions. . . . . . . 20
(1) Obligations Absolute. . . . . . . . . . . . . . . . . . 20
(2) Nature of Lenders' Duties . . . . . . . . . . . . . . . 21
2.2 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(A) Transaction Fee . . . . . . . . . . . . . . . . . . . . . . 23
(B) Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . 23
(C) Letter of Credit and Guaranty Fees. . . . . . . . . . . . . 23
(D) Prepayment Fees . . . . . . . . . . . . . . . . . . . . . . 23
(E) Collateral Monitoring Fee . . . . . . . . . . . . . . . . . 24
2.4 Payments and Prepayments . . . . . . . . . . . . . . . . . . . . 24
(A) Manner and Time of Payment. . . . . . . . . . . . . . . . . 24
(B) Mandatory Prepayments . . . . . . . . . . . . . . . . . . . 24
(1) Overadvance . . . . . . . . . . . . . . . . . . . . . . 24
(2) Seasonal Overadvances . . . . . . . . . . . . . . . . . 24
(3) Proceeds of Asset Dispositions and Securities Sales . . 25
(C) Voluntary Prepayments and Repayments. . . . . . . . . . . . 25
(D) Payments on Business Days . . . . . . . . . . . . . . . . . 25
2.5 Term of this Agreement . . . . . . . . . . . . . . . . . . . . . 25
2.6 Statements: Application of Payments. . . . . . . . . . . . . . . 26
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2.7 Grant of Security Interest . . . . . . . . . . . . . . . . . . . 26
2.8 Capital Adequacy and Other Adjustments . . . . . . . . . . . . . 27
2.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(A) No Deductions . . . . . . . . . . . . . . . . . . . . . 27
(B) Changes in Tax Laws . . . . . . . . . . . . . . . . . . 27
SECTION 3 CONDITIONS TO LOANS. . . . . . . . . . . . . . . . . . . . . . . 28
3.1 Conditions to Loans on the Closing Date. . . . . . . . . . . . . 28
(A) Closing Deliveries. . . . . . . . . . . . . . . . . . . . . 28
(B) Security Interests. . . . . . . . . . . . . . . . . . . . . 28
(C) Transaction Documents . . . . . . . . . . . . . . . . . . . 29
(D) Closing Date Availability and Cash Availability . . . . . . 29
(E) Fees and Costs. . . . . . . . . . . . . . . . . . . . . . . 29
(F) Confirmation Order. . . . . . . . . . . . . . . . . . . . . 29
(G) Bankruptcy Proceedings; Litigation. . . . . . . . . . . . . 29
(H) Bankruptcy Plan . . . . . . . . . . . . . . . . . . . . . . 29
(I) Acquisition . . . . . . . . . . . . . . . . . . . . . . . . 30
(J) Bulk Sales and Other Notices. . . . . . . . . . . . . . . . 30
(K) Subordination . . . . . . . . . . . . . . . . . . . . . . . 30
(L) Releases. . . . . . . . . . . . . . . . . . . . . . . . . . 30
(M) Budget. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(N) Tax Issues. . . . . . . . . . . . . . . . . . . . . . . . . 30
(0) Releases of Guaranties. . . . . . . . . . . . . . . . . . . 30
(P) No Prohibition. . . . . . . . . . . . . . . . . . . . . . . 30
(Q) Consents and Approvals. . . . . . . . . . . . . . . . . . . 31
(R) Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.2 Conditions to all Loans and Lender Guaranties . . . . . . . . . 31
(A) Loan Documents. . . . . . . . . . . . . . . . . . . . . . . 31
(B) Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 31
(C) Representations and Warranties. . . . . . . . . . . . . . . 31
(D) No Default . . . . . . . . . . . . . . . . . . . . . . . 31
(E) Performance of Agreements . . . . . . . . . . . . . . . . . 31
(F) No Prohibition. . . . . . . . . . . . . . . . . . . . . . . 31
(G) Margin Regulations. . . . . . . . . . . . . . . . . . . . . 32
(H) No Litigation . . . . . . . . . . . . . . . . . . . . . . . 32
(I) No Material Adverse Change. . . . . . . . . . . . . . . . . 32
SECTION 4 BORROWER'S REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . 32
4.1 Organization, Powers, Capitalization . . . . . . . . . . . . . . 32
(A) Organization and Powers . . . . . . . . . . . . . . . . . . 32
(B) Capitalization. . . . . . . . . . . . . . . . . . . . . . . 32
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4.2 Authorization of Borrowing and Acquisition, No Conflict. . . . . 33
4.3 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . 33
4.4 Indebtedness and Liabilities . . . . . . . . . . . . . . . . . . 33
4.5 Account Warranties . . . . . . . . . . . . . . . . . . . . . . . 33
4.6 Names. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.7 Locations: FEIN. . . . . . . . . . . . . . . . . . . . . . . . . 34
4.8 Title to Properties; Liens . . . . . . . . . . . . . . . . . . . 34
4.9 Litigation; Adverse Facts. . . . . . . . . . . . . . . . . . . . 34
4.10 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . 34
4.11 Performance of Agreements. . . . . . . . . . . . . . . . . . . . 35
4.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . 35
4.13 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 35
4.14 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.15 Environmental Compliance . . . . . . . . . . . . . . . . . . . . 35
4.16 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.17 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.18 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.19 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 36
4.20 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.21 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.22 Use of Proceeds and Margin Security. . . . . . . . . . . . . . . 37
4.23 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . 37
4.24 Governmental Regulation. . . . . . . . . . . . . . . . . . . . . 37
4.25 Purchase Agreements Transaction Documents. . . . . . . . . . . . 37
SECTION 5 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 37
5.1 Financial Statements and Other Reports . . . . . . . . . . . . . 38
(A) Monthly Financial . . . . . . . . . . . . . . . . . . . . . 38
(B) Quarterly Financial . . . . . . . . . . . . . . . . . . . . 38
(C) Year-End Financial .. . . . . . . . . . . . . . . . . . . . 38
(D) Accountants' Certification and Reports. . . . . . . . . . . 39
(E) Compliance Certificate. . . . . . . . . . . . . . . . . . . 39
(F) Borrowing Base Certificates, Registers and Journals . . . . 39
(G) Reconciliation Reports,
Inventory Reports and Listings and Agings . . . . . . . . . 39
(H) Management Report . . . . . . . . . . . . . . . . . . . . . 40
(I) Appraisals. . . . . . . . . . . . . . . . . . . . . . . . . 40
(j) Government Notices. . . . . . . . . . . . . . . . . . . . . 40
(K) Events of Default, etc. . . . . . . . . . . . . . . . . . . 40
(L) Trade Names . . . . . . . . . . . . . . . . . . . . . . . . 40
(M) Locations . . . . . . . . . . . . . . . . . . . . . . . . . 41
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(N) Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 41
(0) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 41
(P) Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(Q) Subordinated Debt and Equity Notices. . . . . . . . . . . . 41
(R) Other Information . . . . . . . . . . . . . . . . . . . . . 41
5.2 Access to Accountants. . . . . . . . . . . . . . . . . . . . . . 41
5.3 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.4 Collateral Records . . . . . . . . . . . . . . . . . . . . . . . 42
5.5 Account Covenants; Verification. . . . . . . . . . . . . . . . . 42
5.6 Collection of Accounts and Payments. . . . . . . . . . . . . . . 42
5.7 Endorsement. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.8 Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . 43
5.9 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . 43
5.10 Maintenance of Properties; Insurance . . . . . . . . . . . . . . 43
5.11 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 44
5.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 44
5.13 Collateral Locations . . . . . . . . . . . . . . . . . . . . . . 44
5.14 Bailees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.15 Mortgages: Title Insurance, Surveys. . . . . . . . . . . . . . . 45
(A) Mortgaged Property. . . . . . . . . . . . . . . . . . . . . 45
(B) Title Insurance . . . . . . . . . . . . . . . . . . . . . . 45
(C) Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.16 Post-closing Audit . . . . . . . . . . . . . . . . . . . . . . . 45
5.17 Interest Rate Protection . . . . . . . . . . . . . . . . . . . . 45
5.18 Name Change. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.19 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.20 Post-Closing Deliveries. . . . . . . . . . . . . . . . . . . . . 46
5.21 Inventory Aging and Accounting Systems . . . . . . . . . . . . . 46
SECTION 6 FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . 46
6.1 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . 46
6.2 Minimum EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.3 Capital Expenditure Limits . . . . . . . . . . . . . . . . . . . 47
6.4 Fixed Charge Coverage. . . . . . . . . . . . . . . . . . . . . . 47
6.5 Total Interest Coverage. . . . . . . . . . . . . . . . . . . . . 47
6.6 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 48
7.1 Indebtedness and Liabilities . . . . . . . . . . . . . . . . . . 48
7.2 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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7.3 Transfers, Liens and Related Matters . . . . . . . . . . . . . . 49
(A) Transfers . . . . . . . . . . . . . . . . . . . . . . . . . 49
(B) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(C) No Negative Pledges . . . . . . . . . . . . . . . . . . . . 49
(D) No Restrictions on Subsidiary Distributions to Borrower . . 49
7.4 Investments and Loans. . . . . . . . . . . . . . . . . . . . . . 50
7.5 Restricted Junior Payments . . . . . . . . . . . . . . . . . . . 50
7.6 Restriction on Fundamental Changes . . . . . . . . . . . . . . . 50
7.7 Changes Relating to Subordinated Debt. . . . . . . . . . . . . . 51
7.8 Transactions with Affiliates . . . . . . . . . . . . . . . . . . 51
7.9 Environmental Liabilities. . . . . . . . . . . . . . . . . . . . 51
7.10 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . 51
7.11 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . 51
7.12 Tax Consolidations . . . . . . . . . . . . . . . . . . . . . . . 52
7.13 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.14 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.15 Press Release; Public Offering Materials . . . . . . . . . . . . 52
7.16 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 8 DEFAULT, RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . 52
8.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 52
(A) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(B) Default in Other Agreements . . . . . . . . . . . . . . . . 52
(C) Breach of Certain Provisions. . . . . . . . . . . . . . . . 52
(D) Breach of Warranty. . . . . . . . . . . . . . . . . . . . . 53
(E) Other Defaults Under Loan Documents . . . . . . . . . . . . 53
(F) Change in Control . . . . . . . . . . . . . . . . . . . . . 53
(G) Involuntary Bankruptcy: Appointment of Receiver, etc. . . . 53
(H) Voluntary Bankruptcy; Appointment of Receiver, etc. . . . . 53
(I) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(J) Judgment and Attachments. . . . . . . . . . . . . . . . . . 54
(K) Dissolution . . . . . . . . . . . . . . . . . . . . . . . . 54
(L) Injunction. . . . . . . . . . . . . . . . . . . . . . . . . 54
(M) Invalidity of Loan Documents. . . . . . . . . . . . . . . . 54
(N) Failure of Security . . . . . . . . . . . . . . . . . . . . 54
(0) Damage, Strike, Casualty. . . . . . . . . . . . . . . . . . 54
(P) Licenses and Permits. . . . . . . . . . . . . . . . . . . . 54
8.2 Suspension of Commitments. . . . . . . . . . . . . . . . . . . . 55
8.3 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.5 Appointment of Attorney-in-Fact. . . . . . . . . . . . . . . . . 56
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8.6 Limitation on Duty of Lender with Respect to Collateral. . . . . 56
8.7 Application of Proceeds. . . . . . . . . . . . . . . . . . . . . 56
8.8 Waivers. Non-Exclusive Remedies. . . . . . . . . . . . . . . . . 57
SECTION 9 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.1 Assignments and Participations . . . . . . . . . . . . . . . . . 57
9.2 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.3 Expenses and Attorneys' Fees . . . . . . . . . . . . . . . . . . 58
9.4 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.5 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 59
9.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.7 Survival of Warranties and Certain Agreements. . . . . . . . . . 60
9.8 Indulgence Not Waiver. . . . . . . . . . . . . . . . . . . . . . 60
9.9 Marshaling; Payments Set Aside . . . . . . . . . . . . . . . . . 60
9.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 60
9.11 Independence of Covenants. . . . . . . . . . . . . . . . . . . . 61
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.14 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.15 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 61
9.16 No Fiduciary Relationship; Limitation of Liabilities . . . . . . 61
9.17 CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . . . . . . 62
9.18 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . 62
9.19 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 62
9.20 Counterparts: Effectiveness. . . . . . . . . . . . . . . . . . . 62
9.21 No Duty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
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EXHIBITS
Exhibit A Borrowing Base Certificate
Exhibit B Closing Certificate
Exhibit C Compliance Certificate
Exhibit D Inventory Report
Exhibit E Reconciliation Report
Exhibit F Term Note
Exhibit G Pledge Agreement
Exhibit H Trademark Agreement
Exhibit I Patent Agreement
Exhibit J Opinion of Borrower's Counsel
Exhibit K Opinion of Trademark Counsel
Exhibit L Confirmation Order
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SCHEDULES
Schedule 1.1 (A) Acquisition Documents
Schedule 1.1 (B) Liens
Schedule 1.1 (C) Pro Forma
Schedule 3.1 (A) Closing Deliveries
Schedule 3.1 (B) Closing Availability, Fees
Schedule 4.1 (B) Capitalization
Schedule 4.2 Consents
Schedule 4.6 Names
Schedule 4.7 Locations; FEIN
Schedule 4.9 Litigation; Adverse Facts
Schedule 4.10 Taxes
Schedule 4.11 Performance of Agreements
Schedule 4.13 Intellectual Property
Schedule 4.14 Broker's Fees
Schedule 4.20 Bank Accounts
Schedule 4.23 Employee Matters
Schedule 7.1 (C) Indebtedness and Liabilities
Schedule 7.3 (A) Trademarks to be Transferred to Goldwin
Schedule 7.3 (B) Leases to be Terminated
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is dated as of June 7, 1994 and entered
into by and between TNF HOLDINGS COMPANY, INC., a Delaware corporation which
will be known as "The North Face, Inc." after the Closing Date ("Borrower"),
with its principal place of business at 999 Harrison Street, Berkeley,
California 94710, and HELLER FINANCIAL, INC., a Delaware corporation ("Lender"),
with offices at 101 Park Avenue, New York, New York 10178. All capitalized
terms used herein are defined in Section 1 of this Agreement.
WHEREAS, Borrower desires that Lender extend a credit facility to Borrower
to finance a portion of the purchase price of the assets (including the name)
and certain liabilities of The North Face, a California corporation ("Old TNF"),
and thereafter to provide working capital financing for Borrower and to provide
funds for other general corporate purposes of Borrower; and
WHEREAS, promptly following consummation of the Acquisition, Borrower shall
change its name to "The North Face, Inc."; and
WHEREAS, Borrower desires to secure its obligations under the Loan
Documents by granting to Lender a security interest in and lien upon certain of
Borrower's property;
NOW, THEREFORE. in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower and Lender agree as follows:
SECTION 1 DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement shall
have the following meanings:
"Account(s)" means, as to the relevant Person, all "accounts" (as defined
in the UCC) now owned or hereafter created or acquired by such Person, including
all accounts receivable, contract rights and general intangibles relating
thereto, notes, drafts and other forms of obligations owed to or owned by such
Person arising or resulting from the sale of goods or the rendering of services,
all proceeds thereof, all guaranties and security therefor, and all goods and
rights represented thereby or arising therefrom including the right of stoppage
in transit, replevin and reclamation.
"Acquisition" means the acquisition by Borrower of substantially all of the
assets and certain liabilities of Old TNF pursuant to the Purchase Agreement.
"Acquisition Documents" means the Purchase Agreement, the documents listed
on Schedule 1.1(A) hereto, and all other agreements and instruments that Lender
may reasonably
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request as necessary or appropriate to transfer to Borrower all of the Purchased
Assets (as defined in the Purchase Agreement).
"Affiliate" means any Person (other than Lender): (a) directly or
indirectly controlling, controlled by, or under common control with, Borrower;
(b) directly or indirectly owning or holding five percent (5%) or more of any
equity interest in Borrower; or (c) five percent (5%) or more of whose voting
stock or other equity interest is directly or indirectly owned or held by
Borrower; PROVIDED, HOWEVER, that "Affiliate" shall not include a Whitney
Investor or any general or limited partner of a Whitney Investor or any Person
controlled by a Whitney Investor, other than Borrower and its Subsidiaries. For
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling", "controlled by" and "under common control with") means the
Possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities or by contract or otherwise.
"Agreement" means this Loan and Security Agreement as it may be amended,
supplemented or otherwise modified from time to time.
"Asset Disposition" means the disposition, whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise, of any of the
following: (a) any of the capital stock of any of Borrower's Subsidiaries, or
(b) any or all of the assets of Borrower or any of its Subsidiaries other than
sales of Inventory in the ordinary course of business.
"Assigned Agreements" means, collectively, the Acquisition Documents, the
Agreement dated as of February 18, 1994 among Old TNF, TNF Scotland, Sophia
Limited and Jean-Luc Derclaye, and the Trademark License Agreement dated as of
August 1, 1992 between Old TNF and TNF Scotland.
"Bankruptcy Plan" means the Second Amended Joint Plan of Reorganization
dated as of April 8, 1994 as filed by the Odyssey Bankruptcy Debtors in April,
1994, with the amendments thereto set forth on the Confirmation Order, and
without giving effect to any subsequent changes thereto that were not approved
in writing by Lender in its sole discretion. which approval shall not be
unreasonably withheld or delayed with respect to changes that Lender determines
would not have a Material Adverse Effect or would not adversely affect Lender's
security interest in the Collateral.
"Borrower" means the Delaware corporation known as TNF Holdings Company,
Inc. prior to consummation of the Acquisition and The North Face, Inc.
thereafter.
"Borrower Stock" means Common Stock and Series A Preferred Stock.
"Borrowing Base" has the meaning assigned to that term in subsection
2.1(B).
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"Borrowing Base Certificate" means a certificate and assignment schedule
duly executed by an officer of Borrower appropriately completed and in
substantially the form of Exhibit A.
"Budget" means the annual budget for Borrower and its Subsidiaries prepared
by the management of Borrower for the Board of Directors, including consolidated
and consolidating: (a) balance sheets; (b) statements of income; (c) cash flow
statements; and (d) statements of stockholder's equity, all prepared on a
division by division and Subsidiary by Subsidiary basis and otherwise consistent
with Old TNF's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
"Business Day" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the States of Illinois, Pennsylvania, New
York, or California or is a day on which banking institutions located in any
such states are closed.
"Capital Expenditures" means all expenditures for (including deposits), or
contracts for expenditures (excluding contracts for expenditures under or with
respect to Capital Leases but including any cash down payments for assets
acquired under Capital Leases) with respect to, any fixed assets or
improvements, or for replacements, substitutions or additions thereto, which
have a useful life of more than one year, including the direct or indirect
acquisition of such assets by way of increased product or service charges,
offset items or otherwise.
"Capital Lease" means any lease of any property (whether real, personal or
mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"Cash Equivalents" means: (a) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six (6) months from the date of acquisition thereof,
(b) commercial paper maturing no more than six (6) months from the date issued
and. at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; and (c)
certificates of deposit or bankers' acceptances maturing within six (6) months
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $250,000,000 and not subject to
setoff rights in favor of such bank.
"Change in Control" means (a) the Investor Group ceases to beneficially own
and control in the aggregate shares of Borrower Stock equal to at least seventy-
five percent (75%) of the sum of (i) the shares of Borrower Stock owned on the
Closing Date PLUS (ii) any additional shares of Borrower Stock issued as
dividends on the Series A Preferred Stock, or in respect of conversion of the
Series A Preferred Stock or the exercise of Management Options (adjusted for any
stock splits, combinations or reclassifications) or (b) the Investor Group
ceases to own at least fifty-one percent (51%) of the Borrower Stock entitled to
vote for the election of a majority of members of the Board of Directors or
other matters on which
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shareholders are entitled to vote under the General Corporation Law of the State
of Delaware or the Securityholders Agreement.
"Closing Certificate" means a certificate duly executed by the chief
executive officer or chief financial officer of Borrower appropriately completed
and in substantially the form of Exhibit B.
"Closing Date" means the date on which all conditions precedent to the
initial Loans hereunder are satisfied or waived by Lender, and the Acquisition
is consummated in accordance with the Purchase Agreement and the Confirmation
Order.
"Collateral" means, collectively, (a) all capital stock pledged to Lender
pursuant to the Pledge Agreement, (b) all property of Borrower, now owned or
hereafter acquired, in which a Lien is granted to Lender pursuant to this
Agreement and any other Loan Document; (c) all property of Borrower or any of
its Subsidiaries, now owned or hereafter acquired, in which a Lien is granted to
Lender pursuant to any Loan Document; (d) any property or interest provided in
addition to or in substitution for any of the foregoing; and (e) all proceeds
thereof.
"Commitment" or "Commitments" means the commitment or commitments of Lender
to make Loans as set forth in subsections 2.1(A) and/or 2.1(B) and to issue
Lender Letters of Credit and Lender Guaranties as set forth in subsection
2.1(G).
"Common Stock" means the Common Stock, par value S.01 per share, of
Borrower, or any other capital stock of Borrower into which such stock is
reclassified or reconstituted.
"Compliance Certificate" means a certificate duly executed by the chief
executive officer or chief financial officer of Borrower appropriately completed
and in substantially the form of Exhibit C.
"Confirmation Order" means an order of the Bankruptcy Court for the
Northern District of California which is duly entered in that certain Chapter 11
case, Case No. 93-40358-N (jointly administered) of the Odyssey Bankruptcy
Debtors, in the form and on the terms set forth in the draft attached hereto as
Exhibit L.
"Default" means a condition or event that, after notice or lapse of time
or both, would constitute an Event of Default if that condition or event were
not cured or removed within any applicable grace or cure period.
"Domestic Subsidiary" means any Subsidiary of Borrower or any of its
Subsidiaries organized in the United States or having any business operations in
the United States.
"Dollars" and "$" means the lawful money of the United States of America.
"Default Rate" has the meaning assigned to that term in subsection 2.2.
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<PAGE>
"EBITDA" means, for any period, without duplication, the total of the
following for Borrower and its Domestic Subsidiaries on a consolidated basis,
each calculated for such period: (1) net income determined in accordance with
GAAP PLUS, to the extent included in the calculation of net income (2) the sum
of (a) taxes paid or accrued; (b) Interest Expenses, net of interest income,
paid or accrued; (c) depreciation and amortization; and (d) other non-cash
charges (excluding accruals for cash expenses made in the ordinary course of
business), LESS (or PLUS in the case of non-cash losses), to the extent included
in the calculation of net income, (3) the sum of (e) the income of any Person
(other than wholly-owned Domestic Subsidiaries of Borrower) in which Borrower or
any of its wholly-owned Domestic Subsidiaries has an ownership interest unless
such income is received by Borrower or such wholly-owned Domestic Subsidiary in
a cash distribution; (f) gains or losses from sales or other dispositions of
assets (other than Inventory in the normal course of business); and (g)
extraordinary or non-recurring gains or non-cash losses, but not net of
extraordinary or nonrecurring "cash" losses.
"Eligible Accounts" has the meaning assigned to that term in subsection
2.1(D).
"Eligible Inventory" has the meaning assigned to that term in subsection
2.1(D).
"Employee Benefit Plan" means any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) is maintained for employees of any Loan Party
or any ERISA Affiliate or (b) has at any time within the preceding six (6) years
been maintained for the employees of any Loan Party or any Seller or any current
or former ERISA Affiliate.
"Environmental Laws" means any present or future federal, foreign, state or
local law, rule, regulation or order relating to pollution, waste disposal,
industrial hygiene or the protection of human health or safety, plant life or
animal life, natural resources or the environment.
"Equipment" means as to the relevant Person, all "equipment" (as defined
in the UCC) now owned or hereafter acquired by such Person including, without
limitation, all machinery, motor vehicles, trucks, trailers, vessels, aircraft
and rolling stock and all parts thereof and all additions and accessions thereto
and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party or any Seller, means any
Person who is a member of a group which is under common control with such
Person, who together with such Person is treated as a single employer within the
meaning of Section 414(b) and (c) of the IRC.
"Event of Default" means each of the events set forth in subsection 8.1.
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"Federal Funds Effective Rate" means, for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Federal Reserve Bank of New York or,
if such rate is not published for any Business Day, the average of the
quotations for the day of the requested Loan received by Lender from three
Federal funds brokers of recognized standing selected by Lender.
"Fiscal Year" means each twelve month period ending on the last day of
March in each year.
"Fixed Charge Coverage" means, for any period, Operating Cash Flow DIVIDED
BY Fixed Charges.
"Fixed Charges" means, for any period, without duplication, for Borrower
and its Domestic Subsidiaries on a consolidated basis, and each calculated for
such period, (a) Interest Expenses; PLUS (b) scheduled payments of principal
with respect to all Indebtedness; PLUS (c) any provision for (to the extent it
is greater than zero) income or franchise taxes included in the determination of
net income, excluding any provision for deferred taxes included in net income;
LESS (d) payment of deferred taxes accrued in any prior period.
"Funding Date" means the date of each funding of a Loan or issuance of a
Lender Letter of Credit or a Lender Guaranty.
"GAAP" means generally accepted accounting principles in effect in the
United States of America and set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board that are applicable to the circumstances as of the date of
determination.
"Goldwin" means Kabushiki Kaisha Goldwin, a Japanese corporation.
"Goldwin Stock Purchase Agreement" means that certain Stock Purchase
Agreement dated as of December 28, 1993 between Borrower and Goldwin, as amended
prior to the date hereof, and as it may be further amended with the prior
written approval of Lender.
"Hazardous Material" means all or any of the following: (a) substances that
are defined or listed in, or otherwise classified pursuant to, any applicable
laws or regulations as "hazardous substances". "hazardous materials",
"hazardous wastes", "toxic substances" or any other formulation intended to
define, list or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity or
"EP toxicity"; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in
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<PAGE>
any form or electrical equipment which contains any oil or dielectric fluid
containing levels of polychlorinated b1phenyls in excess of fifty parts per
million.
"Indebtedness". as applied to any Person, means, without duplication: (a)
all indebtedness for borrowed money; (b) obligations under leases which in
accordance with GAAP constitute Capital Leases; (c) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money, including reimbursement obligations in respect
of letters of credit; (d) any obligation owed for all or any part of the
deferred purchase price of property or services if the purchase price is due
more than six months from the date the obligation is incurred or is evidenced by
a note or similar written instrument (but excluding any operating leases); and
(e) all indebtedness secured by any Lien on any property or asset owned or held
by that Person regardless of whether the indebtedness secured thereby shall have
been assumed by that Person or is nonrecourse to the credit of that Person (but,
only as to indebtedness which is non-recourse to the credit of such Person, not
in excess of the value of the asset so secured).
"Intangible Assets" means the amount of intangible assets (determined in
conformity with GAAP) of Borrower and its Subsidiaries, including, without
limitation, goodwill, trademarks, tradenames, licenses, organizational costs,
deferred amounts, covenants not to compete unearned income and restricted
funds.
"Intellectual Property" means, with respect to the applicable Person, all
of such Person's present and future designs, patents, patent rights and
applications therefor, trademarks and registrations or applications therefor,
trade names, trade styles, logos, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights, trade
secrets, methods, processes, knowhow, drawings, specifications, descriptions,
and all memoranda, notes and records with respect to any research and
development, whether now owned or hereafter acquired by such Person, all
goodwill associated with any of the foregoing, and proceeds of all of the
foregoing, including, without limitation, proceeds of insurance policies
thereon.
"Interest Expenses" means, without duplication, for any period, the
following for Borrower and its Domestic Subsidiaries, each calculated for such
period: interest expenses deducted in the determination of net income (excluding
(i) the amortization of fees and costs with respect to the transactions
contemplated hereunder on the Closing Date which have been capitalized as
transaction costs; and (ii) interest paid in kind).
"Inventory" means, with respect to the applicable Person, all "inventory"
(as defined in the UCC) now owned or hereafter acquired by such Person, wherever
located including finished goods, raw materials, work in process and other
materials and supplies used or consumed in its business and goods which are
returned to or repossessed by such Person.
"Inventory Report" means a report duly executed by an officer of Borrower
and each of its Subsidiaries appropriately completed and in substantially the
form of Exhibit D.
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"Investor Group" means, collectively, the Whitney Investors, Marsden S.
Cason and William A. McFarlane.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"Lender" means Heller Financial, Inc. together with its successors and
permitted assigns pursuant to subsection 9.1.
"Lender Guaranty" has the meaning assigned to that term in subsection 2.1
(G).
"Lender Guaranty Liability" means, as to each Lender Letter of Credit and
each Lender Guaranty, all liabilities of Borrower or any of its Subsidiaries to
the bank that issued the Lender Letter of Credit or to the obligee with respect
to the transaction for which the Lender Guaranty was issued, whether contingent
or otherwise, including with respect to any letter of credit: (a) the amount
available to be drawn or which may become available to be drawn; (b) all amounts
which have been paid or made available by the issuing bank to the extent not
reimbursed; and (c) all unpaid interest, fees and expenses.
"Lender Guaranty Reserve" means, at any time, an amount equal to (a) the
aggregate amount of Lender Guaranty Liability with respect to all Lender Letters
of Credit and all Lender Guaranties outstanding at such time PLUS (b) the
aggregate amount theretofore paid by any Lender under Lender Letters of Credit
or Lender Guaranties and not debited to the Loan Account pursuant to subsection
2.1(G)(2).
"Lender Letter of Credit" has the meaning assigned to that term in
subsection 2.1(G).
"Lender's Account" has the meaning assigned to that term in subsection
2.4(A).
"Lender's Depository Account" has the meaning assigned to that term in
subsection 5.6.
"Leverage Ratio" means as of any date of determination, the ratio of (a)
the sum of all long term Indebtedness of Borrower and its Domestic
Subsidiaries (including the current portion thereof but excluding any
Revolving Loan) outstanding PLUS the average daily balance of the Revolving
Loan during the applicable period to (b) EBITDA for such period.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Term Loan
Commitment or the Revolving Loan Commitment or a Seasonal Overadvance.
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"Loan Documents" means this Agreement, the Term Note, the Pledge Agreement,
the Trademark and Patent Agreements, any Mortgages, and all other instruments,
documents and agreements executed by or on behalf of any Loan Party and
delivered concurrently herewith or at any time hereafter to or for Lender in
connection with the Loans and other transactions contemplated by this Agreement,
all as amended, restated, supplemented or modified from time to time.
"Loan Party" means, collectively, Borrower, Borrower's Subsidiaries, and
any other Person (other than Lender or a Shareholder) which is or becomes a
party to any Loan Document.
"Loan Year" has the meaning assigned to that term in subsection 2.3(D).
"Management Options" means options to acquire Common Stock issued on the
Closing Date and from time to time thereafter pursuant to Borrower's 1994 Stock
Incentive Plan.
"Management Restricted Shares" means shares of Common Stock issued as
"restricted stock" on the Closing Date and from time to time thereafter pursuant
to Borrower's 1994 Stock Incentive Plan, which shares have not vested.
"Management Stock Purchase Agreement" means the Stock Purchase and
Non-Competition Agreement dated as of the date hereof among Borrower, Marsden
S. Cason and William A. McFarlane.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets or condition (financial or otherwise)
of Borrower on an individual basis or on Borrower and its Subsidiaries, taken as
a whole or (b) the impairment in any material respect of the ability of any Loan
Party to perform its obligations under any Loan Document to which it is a party
or of Lender to enforce or collect any of the Obligations or (c) prior to
consummation of the Acquisition, a material adverse effect upon the business,
operations. properties, assets or condition (financial or otherwise) of Old TNF
on an individual basis or on Old TNF and TNF Scotland, taken as a whole.
"Maximum Revolving Loan Amount" has the meaning assigned to that term in
subsection 2.1(B).
"Mortgage" means any mortgage, deed of trust, leasehold mortgage, leasehold
deed of trust, collateral assignments of leases or other documents under the
laws of any applicable jurisdiction granting Liens on interests in real property
and delivered by any Loan Party to Lender with respect to Mortgaged Property,
all in form and substance acceptable to Lender.
"Mortgaged Property" has the meaning assigned to that term in subsection
5.15(a).
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<PAGE>
"Obligations" means all obligations, liabilities and indebtedness of every
nature of each Loan Party from time to time owed to Lender under the Loan
Documents including the principal amount of all debts, claims and indebtedness,
accrued and unpaid interest and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from
time to time hereafter owing, due or payable.
"Odyssey Bankruptcy Debtors" means Odyssey International Inc., Odyssey
Holding Inc., Odyssey International Pte. Ltd. and Odyssey Worldwide Holdings
B.V.
"Odyssey Banks" means Chemical Bank, The First National Bank of Boston, and
The Hong Kong & Shangai Banking Corporation Limited and each and all of their
successors and assigns in respect of any claim against or interest in any member
of the Odyssey Group.
"Odyssey Group" means each United States and foreign entity that was an
affiliate of the Odyssey Bankruptcy Debtors in 1992, as described in the
disclosure statement approved with respect to the Bankruptcy Plan, except those
subsequently sold in a sale of stock and not of assets.
"Old TNF" means the California corporation that is known as The North Face
prior to the Closing Date.
"Operating Cash Flow" means, for any period, (a) EBITDA; LESS (b) Capital
Expenditures.
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Laws or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent or which are being
contested in good faith if Borrower has notified Lender of the assertion of such
Liens. and, if required by Lender, an adequate reserve against the Borrowing
Base shall have been made therefor: (c) Liens (other than any Lien imposed by
ERISA) incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, statutory obligations, surety and appeal bonds, bids, leases,
utilities, government contracts, trade contracts, licenses of computer software
or hardware, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money); (d) easements,
rights-of-way, restrictions, and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
any Loan Party or any of its Subsidiaries; (e) Liens for purchase money
obligations or Capital Leases, PROVIDED that (i) the purchase of the asset
subject to any such Lien is permitted under subsection 6.3, (ii) the
Indebtedness secured by any such Lien is permitted under subsection 7.1, and
(iii) such Lien encumbers only the asset so purchased; (f) Liens in favor of
Lender; (g) judgment Liens which do not create an Event of Default; (h)
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Liens set forth on Schedule 1.1(B); and (i) Liens securing Indebtedness of TNF
Scotland permitted to be incurred under subsection 7.1(d).
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"Pledge Agreement" means the stock pledge agreement to be executed and
delivered by Borrower in favor of Lender on the Closing Date, substantially in
the form attached hereto as Exhibit G.
"Preferred Stock Purchase Agreement" means the Preferred Stock Purchase
Agreement dated as of the date hereof among Borrower, Whitney 1990 Equity Fund,
L.P. and J.H. Whitney & Co., as amended, supplemented or otherwise modified as
permitted under subsection 7.7.
"Prime Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in Federal
Reserve Statistical Release H.15(519) entitled "Selected Interest Rates" or any
successor publication of the Federal Reserve System reporting the Bank Prime
Loan rate or its equivalent, or (b) the Federal Funds Effective Rate. The
statistical release generally sets forth a Bank Prime Loan rate for each
Business Day. In the event the Board of Governors of the Federal Reserve System
ceases to publish a Bank Prime Loan rate or its equivalent, the term "Prime
Rate" shall mean a variable rate of interest per annum equal to the highest of
the "prime rate", "reference rate", "base rate", or other similar rate
announced from time to time by any of Bankers Trust Company, The Chase Manhattan
Bank, National Association or Chemical Bank (with the understanding that any
such rate may merely be a reference rate and may not necessarily represent the
lowest or best rate actually charged to any customer by the any such bank).
"Pro Forma" means the unaudited consolidated and consolidating balance
sheet of Borrower and its Subsidiaries as of the Closing Date after giving
effect to the transactions contemplated by this Agreement and the other
Transaction Documents. On the Closing Date, the Pro Forma shall be annexed
hereto as Schedule 1.1(C).
"Purchase Agreement" means that certain Purchase and Sale Agreement [Short
Form] dated as of May 25, 1994 among Sellers and Borrower, as purchaser,
including all exhibits and schedules thereto, as it may be amended prior to the
Closing Date with the prior written approval of Lender.
"Reconciliation Report" means a report duly executed by the chief executive
officer or chief financial officer of Borrower appropriately completed and in
substantially the form of Exhibit E.
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"Restated Certificate of Incorporation" means the Restated Certificate of
Incorporation of Borrower in the form approved by Lender to be filed on the
Closing Date.
"Restricted Junior Payment" means: (a) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock of Borrower
or any of its Subsidiaries now or hereafter outstanding; (b) any payment or
prepayment of principal of, premium, if any, or interest on, or any redemption,
conversion, exchange, retirement, defeasance, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any Subordinated
Debt or any shares of any class of stock of Borrower or any of its Subsidiaries
now or hereafter outstanding; (c) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of Borrower or any of its Subsidiaries now or
hereafter outstanding; (d) any payment by Borrower or any of its Subsidiaries of
any management fees, director's fees, guarantee fees or similar fees to any
Affiliate, whether pursuant to a management agreement or otherwise, and (e)
fees, salaries or other compensation to any Shareholder or to the chief
executive officer and second most senior executive officer of Borrower.
"Revolving Loan" means all advances made by Lender pursuant to subsection
2.1(B) and any amounts added to the principal balance of the Revolving Loan
pursuant to this Agreement.
"Revolving Loan Commitment" means the commitment of Lender to make
Revolving Loans as set forth in subsection 2.1(B).
"Scheduled Installment" has the meaning assigned to that term in subsection
2.1(A).
"Seasonal Overadvance" means all advances made by Lender pursuant to
subsection 2.1(C).
"Securityholders Agreement" means that certain Securityholders Agreement
dated as of the date hereof among the members of the Investor Group, the other
Shareholders named therein and Borrower.
"Sellers" means, collectively, Odyssey Holding Inc. and Old TNF as sellers
under the Purchase Agreement.
"Series A Preferred Stock" means the Series A Convertible Preferred Stock,
par value $1.00 per share, of Borrower to be issued pursuant to the Preferred
Stock Purchase Agreement and the Restated Certificate of Incorporation, or any
other capital stock of Borrower into which such stock is reclassified or
reconstituted.
"Shareholder" means each Person which owns shares of the capital stock of
Borrower, whether beneficially or of record.
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"Subordinated Debt" means all Indebtedness owing by Borrower to Whitney
Subordinated Debt Fund, L.P., a Delaware limited partnership, or its successors
and assigns pursuant to the Subordinated Debt Agreement.
"Subordinated Debt Agreement" means the Subordinated Note and Common Stock
Purchase Agreement dated as of the date hereof between Borrower and Whitney
Subordinated Debt Fund, L.P., and the Subordinated Promissory Note due June 7,
2001 in the aggregate principal amount of $24,333,333 issued by Borrower
thereunder, each as amended, supplemented or otherwise modified as permitted
under subsection 7.7 or increased as permitted by subsection 7.1.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which 50% or more of the total voting
power of shares of stock (or equivalent ownership or controlling interest)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Tangible Net Worth" means an amount equal to (a) Borrower's and its
Domestic Subsidiaries' net worth; plus (b) the principal amount of Subordinated
Debt to the extent permitted pursuant to subsection 7.1, less (c) Borrower's and
its Domestic Subsidiaries' Intangible Assets; less (d) Borrower's and its
Domestic Subsidiaries' prepaid expenses; less (e) all obligations owed to
Borrower or any of its Domestic Subsidiaries by an Affiliate of Borrower or any
of its Subsidiaries; less (f) all loans by Borrower or any of its Domestic
Subsidiaries to officers, stockholders or employees of Borrower or any of its
Subsidiaries; and less (g) any investment in TNF Scotland.
"Term" has the meaning assigned to that term in subsection 2.5.
"Term Loan" means the advance made pursuant to subsection 2.1(A).
"Term Loan Commitment" means the commitment of Lender to make the Term Loan
as set forth in this Agreement.
"Term Note" or "Term Notes" means each promissory note made by Borrower in
substantially the form of Exhibit F and issued pursuant to subsection 2.1(A).
"Termination Date" means the date this Agreement is terminated as set forth
in subsection 2.5.
"TNF Scotland" means The North Face (Scotland) Limited, a private limited
company incorporated in Scotland under the Companies Acts.
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"Total Interest Coverage" means, for any period, Operating Cash Flow
DIVIDED BY Interest Expenses.
"Trademark and Patent Agreements" means, collectively, the agreement
entitled Confirmation and Grant of Security Interest in Trademarks and Trademark
Applications and the agreement entitled Confirmation and Grant of Security
Interest in Patents, each dated as of the Closing Date, between Borrower and
Lender, substantially in the forms attached hereto as Exhibits H and I,
respectively, as amended, supplemented or otherwise modified from time to time.
"Transaction Documents" means collectively, the Loan Documents, the
Subordinated Debt Agreement, the Preferred Stock Purchase Agreement, the Goldwin
Stock Purchase Agreement, the Management Stock Purchase Agreement, the
Management Options, the Securityholders Agreement, the 1994 Stock Option Plan,
the Restated Certificate of Incorporation, the Borrower Stock and the
Acquisition Documents and all other documents and agreements executed and
delivered by Borrower on the Closing Date in connection with the Acquisition,
including the financing thereof.
"UCC" means the Uniform Commercial Code as in effect on the date hereof in
the State of New York, as amended from time to time, and any successor statute,
or as in effect in any jurisdiction in which Collateral is located (PROVIDED,
that with respect to the shares pledged under the Pledge Agreement, UCC means
the Uniform Commercial Code as in effect in the State of New York).
"Whitney Investor" means each of J.H. Whitney & Co., Whitney 1990 Equity
Fund, L.P. and Whitney Subordinated Debt Fund, L.P., and each of their
"Permitted Transferees" (as defined in the Securityholders Agreement) which is
bound by the terms of the Securityholders Agreement.
1.2 ACCOUNTING TERMS. For purposes of this Agreement, all accounting terms not
otherwise defined herein shall have the meanings assigned to such terms in
conformity with GAAP. Financial statements and other information furnished to
Lender pursuant to subsection 5.1 shall be prepared in accordance with GAAP as
in effect at the time of such preparation. In the event any "Accounting
Changes" (as defined below) shall occur and such changes affect financial
covenants, standards or terms in this Agreement, then Borrower and Lender agree
to enter into negotiations in order to amend such provisions of this Agreement
so as to equitably reflect such Accounting Changes with the desired result that
the criteria for evaluating the financial condition of Borrower and its
Subsidiaries shall be the same after such Accounting Changes as if such
Accounting Changes had not been made, and until such time as such an amendment
shall have been executed and delivered by Borrower and Lender, (A) all financial
covenants, standards and terms in this Agreement shall be calculated and/or
construed as if such Accounting Changes had not been made, and (B) Borrower
shall prepare footnotes to each Compliance Certificate and the financial
statements required to be delivered hereunder that show the differences between
the financial statements delivered (which reflect such Accounting
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Changes) and the basis for calculating financial covenant compliance (without
reflecting such Accounting Changes). "Accounting Changes" means: (a) changes in
accounting principles required by GAAP and implemented by Borrower and/or any of
its Subsidiaries; (b) changes in accounting principles recommended by the
certified public accountants for Borrower and/or any of its Subsidiaries (which
certified public accountants have been approved by Lender); and (c) changes in
carrying value of Borrower's (or any of its Subsidiaries') assets, liabilities
or equity accounts resulting from (i) the application of purchase accounting
principles (A.P.B. 16 and/or 17 and EITF 88-16 and FASB 109) to the Acquisition
or (ii) as the result of any other adjustments that, in each case, were
applicable to, but not included in, the Pro Forma. All such adjustments
resulting from expenditures made subsequent to the Closing Date (including, but
not limited to, capitalization of costs and expenses or payment of pre-Closing
Date liabilities) shall be treated as expenses in the period the expenditures
are made and deducted as part of the calculation of EBITDA in such period.
1.3 OTHER DEFINITIONAL PROVISIONS. References to "Sections", "subsections",
"Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. In this Agreement, words importing any gender include the other
genders; the words "including," "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to agreements and other
contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
SECTION 2 LOANS AND COLLATERAL
2.1 Loans
(A) TERM LOAN. Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Borrower herein set
forth, Lender agrees to lend to Borrower on the Closing Date the Term Loan in
the amount of One Million Five Hundred Thousand Dollars ($1,500,000). Amounts
of the Term Loan which are repaid may not be reborrowed. Borrower shall make
principal repayments in the amounts of the applicable Scheduled Installments (or
such lesser principal amount of the Term Loan as shall then be outstanding) on
the dates and in the amounts set forth below.
"Scheduled Installment" means, for each date set forth below, the amount in
Dollars set forth opposite such date.
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Date Scheduled Installment
---- ---------------------
October 1, 1994 $250,000
January 1, 1995 $250,000
April 1, 1995 $250,000
July 1, 1995 $250,000
October 1, 1995 $250,000
January 1, 1996 $250,000
(B) REVOLVING LOAN. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Borrower herein set
forth, Lender agrees to lend to Borrower from time to time an aggregate amount
not to exceed at any time Twenty-Six Million Five Hundred Thousand Dollars
($26,500,000) (the "Revolving Loan Commitment"). Amounts borrowed under this
subsection 2.1(B) may be repaid and reborrowed at any time prior to the earlier
of (i) the termination of the Revolving Loan Commitment pursuant to subsection
8.3 or (ii) the Termination Date. Lender shall have no obligation to make
advances under this subsection 2.1(B) to the extent any requested advance would
cause the balance of the Revolving Loans then outstanding to exceed the Maximum
Revolving Loan Amount; PROVIDED that Lender may, in its sole discretion, elect
from time to time to make Loans in excess of the Maximum Revolving Loan Amount
or the Revolving Loan Commitment.
(1) "Maximum Revolving Loan Amount" means, as of any date of
determination, the lesser of (a) the Revolving Loan Commitment minus the
Lender Guaranty Reserve and minus the outstanding principal amount of all
Seasonal Overadvances and (b) the Borrowing Base minus the Lender Guaranty
Reserve.
(2) "Borrowing Base" means, as of any date of determination, an
amount equal to the sum of (a) seventy-five percent (75%) of Eligible
Accounts less such reserves as Lender in its sole, reasonable discretion
elects to establish from time to time plus (b) the sum of fifty percent (50%)
of Eligible Inventory and fifty percent (50%) of the face amount of Lender
Guaranties issued for documentary letters of credit to purchase Inventory
(net of provisions for duty and freight charges) less such reserves as Lender
in its sole, reasonable discretion elects to establish from time to time.
(C) Seasonal Overadvance Facility.
During a period not to exceed one hundred eighty (180) consecutive
days in the first Loan Year, ninety (90) consecutive days in the second Loan
Year and sixty (60) consecutive days in the third Loan Year, Lender may, in its
sole and absolute discretion, elect to make loans to Borrower in excess of the
Borrowing Base (each advance, a "Seasonal Overadvance"). In no event may the
aggregate outstanding Seasonal Overadvances exceed the lesser of (i) twenty
percent (20%) of Eligible Inventory and (ii) Four Million Dollars ($4,000,000),
nor may the aggregate outstanding amount of Revolving Loans plus Seasonal
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Overadvances plus the Lender Guaranty Reserve exceed the Revolving Loan
Commitment. All Seasonal Overadvances shall be repaid no later than December 31
of each year.
(D) Eligible Collateral
"Eligible Accounts" means, as at any date of determination, the aggregate
of all Accounts of Borrower that Lender, in its reasonable credit judgment,
deems to be eligible for borrowing purposes. Without limiting the generality of
the foregoing, unless otherwise agreed by Lender, the following Accounts are not
Eligible Accounts:
(1) Any Account which, at the date of issuance of the respective
invoice therefor, was (i) payable more than sixty (60) days after the date of
issuance of such invoice or (ii) solely with respect to Accounts under a payment
dating program which is consistent with normal industry practices and approved
by Lender ("Dating Program"), payable later than the last day of the Dating
Program;
(2) Any Dating Program Account which remains unpaid for more than
thirty (30) days after the due date under the Dating Program or any other
Account which remains unpaid for more than sixty (60) days after the due date
specified in the original invoice or for more than ninety (90) days after
invoice date if no due date was specified;
(3) Any Account due from a customer whose principal place of business
is located outside the United States of America or Canada unless such Account is
backed by a letter of credit, in form and substance and issued by a bank
reasonably acceptable to Lender, in its sole discretion, provided that such
letter of credit is by its terms transferrable and has been delivered to Lender
as additional collateral;
(4) Any Account due from a customer which Lender has notified
Borrower does not have a an acceptable credit standing (as determined in the
sole discretion of Lender);
(5) Any Account with respect to which the customer is the United
States of America or any department, agency or instrumentality thereof unless
Borrower has, with respect to such Account, fully complied with the Federal
Assignment of Claims Act (31 U.S.C. Section 3727);
(6) Any Account with respect to which the customer is an Affiliate of
Borrower or a director, officer, agent, stockholder or employee of Borrower or
any of its Affiliates (other than an Account from Goldwin);
(7) Any Account due from a customer if more than twenty-five percent
(25%) of the aggregate amount of Accounts of such customer have at the time
remained unpaid for more than sixty (60) days after the due date and/or, with
respect to Dating Program Accounts, more than thirty (30) days after the end of
the Dating Program;
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(8) Any Account with respect to which there is any unresolved dispute
with the respective customer (but only to the extent of such dispute);
(9) Any Account evidenced by an "instrument" (as defined in the UCC)
not in the possession of Lender;
(10) Any Account with respect to which Lender does not have a valid,
first priority and fully perfected security interest;
(11) Any Account subject to any Lien except those in favor of Lender;
(12) Any Account with respect to which the customer is the subject of
any bankruptcy or other insolvency proceeding;
(13) Any Account due from a customer to the extent that such Account,
if taken together with all Accounts due from the same customer, would exceed in
the aggregate an amount equal to twenty percent (20%) of the aggregate of all
Accounts at said date; or, solely with respect to Accounts due from REI, an
amount equal to thirty percent (30%) of the aggregate of all Accounts at that
date;
(14) Any Account with respect to which the customer's obligation to
pay is conditional or subject to a repurchase obligation or right to return or
with respect to which the goods or services giving rise to such Account have not
been delivered (or performed, as applicable) and accepted by such account
debtor, including progress billings, bill and hold sales, guarantied sales, sale
or return transactions, sales on approval or consignment sales (PROVIDED, that
express warranties to retail customers in the ordinary course of business
consistent with past practice shall not, of themselves, make an Account
ineligible);
(15) Any Account with respect to which the customer is located in New
Jersey, Minnesota, or any other state denying creditors access to its courts in
the absence of a Notice of Business Activities Report or other similar filing,
unless Borrower has either qualified as a foreign corporation authorized to
transact business in such state or has filed a Notice of Business Activities
Report or similar filing with the applicable state agency for the then current
year; and
(16) Any Account with respect to which the customer is a creditor of
Borrower (including a customer to which Borrower owes a credit balance);
provided, however, that any such Account shall only be ineligible as to that
portion of such Account which is less than or equal to the amount owed by
Borrower to such customer.
"Eligible Inventory" means, as at any date of determination, the value
(determined at the lower of cost or market on a first-in, first-out basis) of
all Inventory owned by and in the possession of Borrower and located in the
United States of America that Lender, in its reasonable credit judgment, deems
to be eligible for borrowing purposes. Without limiting the
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generality of the foregoing, unless otherwise agreed by Lender, the following is
not Eligible Inventory: (a) work-in-process ; (b) finished goods which do not
meet the specifications of the purchase order for such as goods; (c) Inventory
which Lender determines, in the exercise of reasonable discretion and in
accordance with Lender's or Borrower's customary business practices, to be
unacceptable for borrowing purposes due to age, quality, type, category and/or
quantity; (d) Inventory with respect to which Lender does not have a valid,
first priority and fully perfected security interest; (e) Inventory with respect
to which there exists any Lien in favor of any Person other than Lender; and (f)
Inventory produced in violation of the Fair Labor Standards Act and subject to
the so-called "hot goods" provisions contained in Title 29 U.S.C. 215 (a)(i).
(E) BORROWING MECHANICS. On any day when Borrower desires to borrow
under this subsection 2.1. Borrower shall give Lender telephonic notice by
noon (New York time) of the proposed borrowing. Lender shall not incur any
liability to Borrower for acting upon any telephonic notice that Lender
believes in good faith to have been given by a duly authorized officer or
other person authorized to borrow on behalf of Borrower or for otherwise
acting in good faith under this subsection 2.1(E). Lender will not make any
advance pursuant to any telephonic notice unless Lender has also received the
most recent Borrowing Base Certificate and all other documents required under
subsection 5.1(F) by noon (New York time). The making of an advance pursuant
to telephonic notice shall constitute a Loan under this Agreement. Each such
advance made to Borrower under the Revolving Loan and each Seasonal
Overadvance, if any, shall be deposited by wire transfer in immediately
available funds in such account as Borrower may from time to time designate
to Lender in writing.
(F) TERM NOTE. Borrower shall execute and deliver to Lender a Term Note
to evidence the Term Loan, such Term Note to be in the principal amount of the
Term Loan Commitment and with other appropriate insertions.
(G) LETTERS OF CREDIT AND GUARANTIES. Subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties of
Borrower herein set forth, the Revolving Loan Commitment may, in addition to
advances under the Revolving Loan be utilized, upon the request of Borrower, for
(i) the issuance of letters of credit by Lender (each such letter of credit, a
"Lender Letter of Credit") or (ii) the issuance of guaranties by Lender (each
such guaranty, a "Lender Guaranty") to guaranty payment to banks which issue
sight or standby letters of credit for the account of Borrower or to guaranty
other obligations of Borrower under written contracts.
(1) MAXIMUM AMOUNT. The aggregate amount of Lender Guaranty
Liability with respect to all Lender Letters of Credit and Lender Guaranties
outstanding at any time shall not exceed Ten Million Dollars ($10,000,000),
subject to, and reduced by, any reductions in the Revolving Loan Commitment
under subsection 2.4.
(2) REIMBURSEMENT. Borrower shall be irrevocably and unconditionally
obligated forthwith without presentment, demand, protest or other formalities of
any kind, to
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reimburse Lender for any amounts paid by Lender with respect to any Lender
Letter of Credit or any Lender Guaranty including all fees, costs and expenses
paid by Lender to any bank that issues letters of credit. Borrower hereby
authorizes and directs Lender, at Lender's option, to debit Borrower's account
(by increasing the principal balance of the Revolving Loan) in the amount of any
payment made by Lender with respect to any Lender Letter of Credit or any Lender
Guaranty. All amounts paid by Lender with respect to any Lender Letter of
Credit or Lender Guaranty that are not immediately repaid by Borrower with the
proceeds of a Revolving Loan or otherwise shall bear interest at the Default
Rate applicable to Revolving Loans.
(3) CONDITIONS OF ISSUANCE. In addition to all other terms and
conditions set forth in this Agreement, the issuance by Lender of any Lender
Letter of Credit or any Lender Guaranty shall be subject to the conditions
precedent that the Lender Letter of Credit or the letter of credit or written
contract for which Borrower requests a Lender Guaranty be in such form, be for
such amount, contain such terms and support such transactions as are reasonably
acceptable to Lender. Each Lender Letter of Credit and each Lender Guaranty
shall be in form and substance acceptable to Lender. The expiration date of
each Lender Letter of Credit shall be on a date which is at least thirty (30)
days before the Termination Date. Each Lender Guaranty shall provide that the
guaranty terminates and all demands or claims for payment must be presented by a
date certain, which date will be at least thirty (30) days before the
Termination Date.
(4) REQUEST FOR LETTERS OF CREDIT OR GUARANTIES. Borrower shall give
Lender at least two (2) Business Days prior notice specifying the date a Lender
Letter of Credit or Lender Guaranty is to be issued, identifying the beneficiary
and describing the nature of the transactions proposed to be supported thereby.
The notice shall be accompanied by the form of the requested Lender Letter of
Credit or the letter of credit or other written contract to be guarantied.
(H) OTHER LETTER OF CREDIT AND GUARANTY PROVISIONS.
(1) OBLIGATIONS ABSOLUTE. The obligation of Borrower to reimburse
Lender for payments made under any Lender Letter of Credit or Lender Guaranty
shall be unconditional and irrevocable and shall be paid strictly in accordance
with the terms of this Agreement under all circumstances including the following
circumstances:
(a) any lack of validity or enforceability of any Lender Letter
of Credit or Lender Guaranty or any other agreement;
(b) the existence of any claim, setoff, defense or other right
which Borrower, any of its Subsidiaries or Affiliates or Lender, on the one hand
may at any time have against any beneficiary or transferee of any Lender Letter
of Credit or any Lender Guaranty (or any Persons for whom any such transferee
may be acting), Lender or any other
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Person, on the other hand, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Borrower or any of its Subsidiaries or Affiliates
and the beneficiary for which the Lender Letter of Credit or Lender Guaranty was
procured);
(c) any draft, demand, certificate or any other document presented
under any Lender Letter of Credit or Lender Guaranty proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(d) payment by Lender under any Lender Letter of Credit or Lender
Guaranty against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Lender Letter of Credit or
Lender Guaranty; PROVIDED that, in the case of any payment by Lender under any
Lender Letter of Credit or Lender Guaranty, Lender has not acted with gross
negligence or willful misconduct (as determined by a court of competent
jurisdiction) in determining that the demand for payment under such Lender
Letter of Credit or Lender Guaranty complies on its face with any applicable
requirements for a demand for payment under such Lender Letter of Credit or
Lender Guaranty;
(e) any other circumstance or happening whatsoever, which is similar
to any of the foregoing; or
(f) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(2) NATURE OF LENDERS' DUTIES. As between Lender and Borrower, Borrower
assumes all risks of the acts and omissions of, or misuse of any Lender Letter
of Credit or Lender Guarantv by beneficiaries of any Lender Letter of Credit or
Lender Guaranty. In furtherance and not in limitation of the foregoing, Lender
shall not be responsible: (a) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and issuance of any Lender Letter of Credit or Lender
Guaranty, even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (b) for the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any Lender Letter of Credit or Lender Guaranty or the rights
or benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason; (c) for failure of the beneficiary
of any Lender Letter of Credit or Lender Guaranty to comply fully with
conditions required in order to demand payment under such Lender Letter of
Credit or Lender Guaranty; PROVIDED that, in the case of any payment by Lender
under any Lender Letter of Credit or Lender Guaranty, Lender has not acted with
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction) in determining that the demand for payment under such Lender
Letter of Credit or Lender Guaranty complies on its face with any applicable
requirements for a demand for payment under such Lender Letter of Credit or
Lender Guaranty; (d) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher;
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(e) for errors in interpretation of technical terms; (f) for any loss or delay
in the transmission or otherwise of any document required in order to make a
payment under any Lender Letter of Credit or Lender Guaranty or of the proceeds
thereof; (g) for the credit of the proceeds of any drawing under any Lender
Letter of Credit or Lender Guaranty; and (h) for any consequences arising from
causes beyond the control of Lender. None of the above shall affect, impair, or
prevent the vesting of any of Lender's rights or powers hereunder.
(3) In furtherance and extension of and not in limitation of, the
specific provisions hereinabove set forth, any action taken or omitted by Lender
under or in connection with any Lender Letter of Credit or Lender Guaranty, if
taken or omitted in good faith, shall not put Lender under any resulting
liability to Borrower.
2.2 INTEREST. So long as no Event of Default has occurred and is
continuing, (a) the Revolving Loans shall bear interest from the date such
Revolving Loans are made to the date paid at a rate per annum equal to two
percent (2.0%) plus the Prime Rate and (b) the Term Loan, any Seasonal
Overadvances and all other Obligations shall bear interest from the date such
Term Loan or Seasonal Overadvances are made or such other Obligations become
due to the date paid at a rate per annum equal to two and one-half percent
(2.5%) plus the Prime Rate (each, an "Interest Rate"). After the occurrence
of an Event of Default and for so long as such Event of Default continues,
the Loans and all other Obligations shall, at Lender's option, bear interest
at a rate per annum equal to two percent (2.0%) plus the applicable Interest
Rate (the "Default Rate"). Interest on the Loans and all other Obligations
shall be computed on the daily principle balance on the basis of a 360 day
year for the actual number of days elapsed in the period during which it
accrues and shall be payable monthly in arrears on the first day of each
month. Any publicly announced change in the Prime Rate shall result in an
adjustment to the Interest Rate on the next Business Day.
Notwithstanding any provision to the contrary contained in this Agreement
or any other Loan Document, Borrower shall not be required to pay, and Lender
shall not be permitted to collect, any amount of interest in excess of the
maximum amount of interest permitted by law ("Excess Interest"). If any Excess
Interest is provided for or determined by a court of competent jurisdiction to
have been provided for in this Agreement or in any other Loan Document, then in
such event: (1) the provisions of this subsection shall govern and control; (2)
neither Borrower nor any Loan Party shall be obligated to pay any Excess
Interest; (3) any Excess Interest that Lender may have received hereunder shall
be, at Lender's option, (a) applied as a credit against the outstanding
principal balance of the Obligations or accrued and unpaid interest (not to
exceed the maximum amount permitted by law), (b) refunded to the payor thereof,
or (c) any combination of the foregoing; (4) the interest rate(s) provided for
herein shall be automatically reduced to the maximum lawful rate allowed from
time to time under applicable law (the "Maximum Rate"), and this Agreement and
the other Loan Documents shall be deemed to have been and shall be, reformed and
modified to reflect such reduction; and (5) neither Borrower nor any Loan Party
shall have any action against Lender for any damages arising out of the payment
or collection of any Excess Interest. Notwithstanding the foregoing, if for any
period of time interest on any Obligations is
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calculated at the Maximum Rate rather than the applicable rate under this
Agreement, and thereafter such applicable rate becomes less than the Maximum
Rate, the rate of interest payable on such Obligations shall remain at the
Maximum Rate until Lender shall have received the amount of interest which
Lender would have received during such period on such Obligations had the rate
of interest not been limited to the Maximum Rate during such period.
2.3 FEES
(A) TRANSACTION FEE. Borrower shall pay to Lender on the Closing
Date a closing fee in the amount of Seven Hundred Thousand Dollars ($700,000)
LESS the amount of Two Hundred Seventy-five Thousand Dollars ($275,000)
constituting the commitment fee heretofore paid by Borrower to Lender.
(B) UNUSED LINE FEE. From and after the Closing Date, Borrower
shall pay to Lender a fee in an amount equal to the Revolving Loan Commitment
less the sum of the average daily balance of the Revolving Loan plus the
average daily face amount of the Lender Guaranty Reserve plus the average
daily balance of the Seasonal Overadvances), if any, during the preceding
month multiplied by one-half percent (.5%) per annum, such fee to be payable
monthly in arrears on the first day of the first month following the Closing
Date and the first day of each month thereafter.
(C) LETTER OF CREDIT AND GUARANTY FEES. Borrower shall pay to Lender
fees for each Lender Letter of Credit and each Lender Guaranty for the period
from and including the date of issuance of same to and excluding the date of
expiration or termination, equal to the average daily face amount of Lender
Guaranty Liability multiplied by two percent (2.0% per annum, such fees to be
calculated on the basis of a 360-day year for the actual number of days elapsed
and to be payable quarterly in arrears on the first day of each July, October,
January and April. Borrower shall also reimburse Lender for any and all fees
and expenses, if any, paid by the Lender to the issuer of the letter of credit
or other written contract guarantied.
(D) PREPAYMENT FEES. The Term Loan may not be voluntarily prepaid
nor may the Commitments be terminated during the first Loan Year (defined below)
and Borrower may not prepay the Term Loan in part or reduce the Commitments
except in connection with a mandatory prepayment. If Borrower prepays the
Obligations in full or (other than voluntary prepayments of the Revolving Loans
or Seasonal Overadvances) in part, prior to the Termination Date, Borrower, at
the time of such prepayment, shall pay to Lender, as compensation for the costs
of being prepared to make funds available to Borrower under this Agreement, and
not as a penalty, an amount determined by multiplying the percentage set forth
below by (1) in the case of a prepayment in full of the Obligations, the sum of
the outstanding principal balance of the Term Loan at the date of such
prepayment plus the amount of the Revolving Loan Commitment, or (2) in the case
of a prepayment of the Term Loan, in whole or in part, or a reduction in the
Revolving Loan Commitment, the amount of such prepayment or reduction: three
percent (3.0%) upon a mandatory prepayment during the first Loan Year,
two percent (2.0%) upon any prepayment during the second Loan Year; and one
percent (1.0%)
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upon any prepayment during the third Loan Year; PROVIDED that no amount shall be
due with respect to a partial prepayment of the Term Loan (or reduction in the
Revolving Loan Commitment) as a result of any Asset Disposition in the ordinary
course of business. "Loan Year" means each period of twelve (12) consecutive
months commencing on the Closing Date and on each anniversary thereof.
(E) COLLATERAL MONITORING FEE. Borrower shall pay to Lender on the
Closing Date and on each anniversary date thereof an annual fee in advance (the
"Collateral Monitoring Fee") in the amount of Fifty Thousand Dollars ($50,000)
per year. Such Collateral Monitoring Fee shall be nonrefundable.
2.4 PAYMENTS AND PREPAYMENTS
(A) MANNER AND TIME OF PAYMENT. In its sole discretion, Lender may charge
interest and other amounts payable hereunder to the Revolving Loan, all as set
forth on Lender's books and records. Unless otherwise directed by Lender, all
payments to Lender hereunder shall be made by delivery thereof to Lender to the
account specified below or, with respect to the Revolving Loan and any Seasonal
Overadvance only, by delivery to Lender of all proceeds of Accounts or other
Collateral deposited in Lender's Depository Accounts in accordance with
subsection 5.6 hereof. If Lender elects to bill Borrower for any amount due
hereunder, such amount shall be immediately due and payable with interest
thereon as provided herein. All payments made directly by Borrower of the
Obligations shall be made in Dollars without deduction, defense, setoff or
counterclaim and in same day funds and delivered to Lender by wire transfer to
Lender's account ("Lender's Account"), ABA No. 071-0000-13, Account No. 52-98695
at First National Bank of Chicago, One First National Plaza, Chicago, IL 60670,
Reference: Heller Business Credit for the benefit of The North Face or at such
other place as Lender may direct from time to time by notice to Borrower.
Proceeds remitted from the Lender's Depository Accounts or otherwise wire
transferred to Lender's Account shall be credited to the Obligations on the
Business Day on which Lender receives immediately available funds in Lender's
Account if received prior to 3 p.m. (New York time); PROVIDED, HOWEVER, for the
purposes of calculating interest on the Obligations, such funds shall be deemed
received two (2) Business Days following such date of receipt.
(B) MANDATORY PREPAYMENTS
(1) OVERADVANCE. At any time that the principal balance of the
Revolving Loan exceeds the Maximum Revolving Loan Amount, Borrower shall
immediately repay the Revolving Loan to the extent necessary to reduce the
principal balance to an amount that is equal to or less than the Maximum
Revolving Loan Amount. Such prepayments shall be applied first to any Seasonal
Overadvances and then to Revolving Loans.
(2) SEASONAL OVERADVANCES. At any time that the principal balance of
the Seasonal Overadvances exceeds the amounts determined by Lender in its
discretion pursuant to subsection 2.1(C), Borrower shall immediately repay the
Seasonal Overadvances to the
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extent necessary to reduce the principal balance to such amount. In addition,
in no event may Seasonal Overadvances remain outstanding beyond the time period
permitted in subsection 2.1(C), and all Seasonal Overadvances shall be
immediately repaid at the end of the applicable period, and in no event later
than December 31 of each year.
(3) PROCEEDS OF ASSET DISPOSITIONS AND SECURITIES SALES. Immediately
upon receipt by Borrower or any of its Subsidiaries of proceeds of any Asset
Disposition in one or a series of related transactions), which proceeds
exceed Fifty Thousand Dollars ($50,000) , net of taxes and other customary
closing costs payable in connection therewith and the amount applied to repay
Indebtedness secured by any Permitted Encumbrance (it being understood that
if the net proceeds exceed Fifty Thousand Dollars ($50,000), the entire
amount and not just the portion above Fifty Thousand Dollars ($50,000) shall
be subject to this paragraph), or the proceeds from the issuance of
securities of Borrower or any of its Subsidiaries (net of reasonable
underwriting fees and customary closing costs payable in connection
therewith), Borrower shall prepay the Obligations in an amount equal to such
proceeds. Notwithstanding the foregoing, (a) no prepayment shall be required
in connection with the sale of trademarks listed on Schedule 7.3(A) to
Goldwin pursuant to the Goldwin Stock Purchase Agreement; and (b) if Borrower
reasonably expects the proceeds of any Asset Disposition to be reinvested
within 180 days to repair or replace any assets with like assets, Borrower
shall deliver the proceeds to Lender to be applied to the Revolving Loan, and
Borrower may, so long as no Default or Event of Default shall have occurred
and be continuing, borrow Revolving Loans for such repair or replacement. If
Borrower fails to reinvest such proceeds within 180 days, Borrower hereby
authorizes Lender to make a Revolving Loan to repay the Term Loan as required
hereby and/or if the Term Loan has been repaid, the Revolving Loan Commitment
shall be permanently reduced as provided herein. All such prepayments shall
first be applied in payment of Scheduled Installments in the inverse order of
maturity and, at any time after the Term Loan shall have been repaid in full,
such payments shall be applied as a permanent reduction of the Revolving Loan
Commitment.
(C) VOLUNTARY PREPAYMENTS AND REPAYMENTS. Except as provided in subsection
2.4(B), Borrower's Obligations may only be prepaid or repaid in full and not in
part. Borrower may, at any time after the end of the first Loan Year and upon
not less than three (3) Business Days prior notice to Lender, prepay the Term
Loan and any Seasonal Overadvance in full and terminate the Revolving Loan
Commitment, PROVIDED, HOWEVER, the Revolving Loan Commitment may not be
terminated by Borrower until the Term Loan and any Seasonal Overadvance and all
Revolving Loans are paid in full. Upon termination of the Revolving Loan
Commitment, Borrower shall cause Lender to be released to the satisfaction of
Lender from all liability under any Lender Letters of Credit or Lender
Guaranties or, at Lender's option, Borrower will deposit cash collateral with
Lender in an amount equal to the Lender Guaranty Liability with respect to each
Lender Letter of Credit and each Lender Guaranty that will remain outstanding
after prepayment or repayment or provide one or more letters of credit to
Lender, from a bank and on terms acceptable to Lender.
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(D) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made hereunder
shall be stated to be due on a day that is not a Business Day, the payment may
be made on the next succeeding Business Day and such extension of time shall be
included in the computation of the amount of interest or fees due hereunder.
2.5 TERM OF THIS AGREEMENT. This Agreement shall be effective until June 1,
1997 (the "Termination Date"). The Commitments shall (unless earlier
terminated) terminate on the Termination Date. In addition, this Agreement may
be terminated as set forth in Section 8.3 hereof. Upon termination in
accordance with Section 8.3 or on the Termination Date, all Obligations shall be
immediately due and payable without notice or demand. Notwithstanding any
termination, until all Obligations have been fully paid and satisfied, Lender
shall be entitled to retain security interests in and liens upon all Collateral,
and even after payment of all Obligations hereunder, the obligation of Borrower
and its Subsidiaries to indemnify Lender in accordance with the terms hereof or
of any other Loan Document shall continue.
2.6 STATEMENTS: APPLICATION OF PAYMENTS. Lender shall render a monthly
statement of account to Borrower within twenty (20) days after the end of each
month. Such statement of account shall constitute an account stated unless
Borrower makes written objection thereto in reasonable detail (including
appropriate calculations) within thirty (30) days from the date such
statement is mailed to Borrower. Borrower promises to pay all of its
Obligations as such amounts become due or are declared due pursuant to the terms
of this Agreement. Except for payments on the Term Loan and mandatory
prepayments, principal payments of the Loans shall be applied first to Seasonal
Overadvances and then to Revolving Loans. After the occurrence and during the
continuance of an Event of Default, Borrower irrevocably waives the right to
direct the application of any and all payments at any time or times thereafter
received by Lender from or on behalf of Borrower, and Borrower hereby
irrevocably agrees that Lender shall have the continuing exclusive right to
apply and to reapply any and all payments received at any time or times after
the occurrence and during the continuance of an Event of Default against the
Obligations in such manner as Lender may deem advisable notwithstanding any
previous entry by Lender upon any books and records.
2.7 GRANT OF SECURITY INTEREST. To secure the payment and performance when
due of the Obligations, including all renewals, extensions, restructurings
and refinancings of any or all of the Obligations, Borrower hereby grants to
Lender a continuing first priority security interest, lien and mortgage in
and to all right, title and interest of Borrower in the following property of
Borrower, whether now owned or existing or hereafter acquired or arising and
regardless of where located (all being collectively included within the
"Collateral"): (A) Accounts; (B) Inventory; (C) general intangibles (as
defined in the UCC), including Borrower's rights and claims under the
Assigned Agreements; (D) documents (as defined in the UCC) or other receipts
covering, evidencing or representing goods; (E) instruments (as defined in
the UCC); (F) chattel paper (as defined in the UCC); (G) Equipment; (H)
Mortgaged Property; (I) Intellectual Property, including without limitation
that set forth on Schedule 4.13 hereof; (J) all deposit accounts of Borrower
maintained with any bank or financial institution; (K) all cash and other
monies and property of Borrower in the possession or under the control of
Lender
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or any participant; (L) all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software that at any
time evidence or contain information relating to any of the property described
above or are otherwise necessary or helpful in the collection thereof or
realization thereon; (M) rights under this Agreement or any other Loan Document
and the proceeds of any Loans hereunder; and (N) proceeds of all or any of the
property described above, including, without limitation, the proceeds of any
insurance policies covering any of the above described property.
2.8 CAPITAL ADEQUACY AND OTHER ADJUSTMENTS. In the event that Lender shall
have determined that the adoption after the date hereof of any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by Lender or any corporation controlling Lender with any request or
directive regarding capital adequacy, reserve requirements or similar
requirements (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) from any central bank or governmental
agency or body having jurisdiction does or shall have the effect of increasing
the amount of capital, reserves or other funds required to be maintained by
Lender or any corporation controlling Lender with respect to the Obligations and
thereby reducing the rate of return on Lender's or such corporation's capital as
a consequence of its obligations hereunder, then Borrower shall from time to
time within fifteen (15) days after notice and demand from Lender (together with
the certificate referred to in the next sentence) pay to Lender additional
amounts sufficient to compensate such Lender for such reduction, so long as
Lender is then requiring such payments from other borrowers, the demand does not
seek payment for a period more than 90 days in arrears and the demand is made
prior to payment in full of the Obligations and termination of all Commitments.
A certificate as to the amount of such cost and showing the basis of the
computation of such cost submitted by Lender to Borrower shall, absent manifest
error, be final, conclusive and binding for all purposes. If Lender makes a
demand for compensation pursuant to this subsection 2.8, Borrower may obtain, at
Borrower's expense but without payment of any fee under subsection 2.3)(D), a
replacement lender who agrees to acquire Lender's interest in the Loans and the
Commitments on the terms set forth in this Agreement and Lender shall assign to
such replacement lender its interest in the Loans and the Commitments, PROVIDED
that Borrower has paid all amounts then due to Lender (including any amounts due
under this subsection 2.8).
2.9 TAXES.
(A) NO DEDUCTIONS. Any and all payments or reimbursements made hereunder
or under the Term Notes shall be made free and clear of and without deduction
for any and all taxes, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto; excluding, however, the following: taxes
imposed on the net income of Lender by the jurisdiction under the laws of which
Lender is organized or doing business or any political subdivision thereof and
taxes imposed on its net income by the jurisdiction of Lender's applicable
lending office or any political subdivision thereof. If Borrower shall be
required by law to deduct any such amounts from or in respect of any sum payable
hereunder to Lender,
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then the sum payable hereunder shall be increased as may be necessary so that,
after making all required deductions, Lender receives an amount equal to the
sum it would have received had no such deductions been made.
(B) CHANGES IN TAX LAWS. In the event that, subsequent to the Closing
Date, (1) any changes in any existing law, regulation, treaty or directive or in
the interpretation or application thereof, (2) any new law, regulation, treaty
or directive enacted or any interpretation or application thereof, or (3)
compliance by Lender with any request or directive (whether or not having the
force of law) from any governmental authority, agency or instrumentality:
(1) does or shall subject Lender to any tax of any kind whatsoever
with respect to this Agreement, the other Loan Documents or any Loans made or
Lender Guaranties or Lender Letters of Credit issued hereunder, or change the
basis of taxation of payments to Lender of principal, fees, interest or any
other amount payable hereunder (except for net income taxes, or franchise taxes
imposed in lieu of net income taxes, imposed generally by federal, state or
local taxing authorities with respect to interest or commitment or other fees
payable hereunder or changes in the rate of tax on the overall net income of
Lender); or
(2) does or shall impose on Lender any other condition or
increased cost in connection with the transactions contemplated hereby or
participations herein; and the result of any of the foregoing is to increase
the cost to Lender of issuing any Lender Guaranty or Lender Letter of Credit
or making or continuing any Loan hereunder, as the case may be, or to reduce
any amount receivable hereunder, then, in any such case, Borrower shall
promptly pay to Lender, upon its demand, any additional amounts necessary to
compensate Lender, on an after-tax basis, for such additional cost or reduced
amount receivable, as determined by Lender with respect to this Agreement or
the other Loan Documents. If Lender becomes entitled to claim any additional
amounts pursuant to this subsection, it shall promptly notify Borrower of the
event by reason of which Lender has become so entitled. A certificate as to
any additional amounts payable pursuant to the foregoing sentence submitted
by Lender to Borrower shall, absent manifest error, be final, conclusive and
binding for all purposes.
SECTION 3 CONDITIONS TO LOANS
3.1 CONDITIONS TO LOANS ON THE CLOSING DATE. The obligations of Lender to make
Loans or to issue Lender Letters of Credit or Lender Guaranties on the Closing
Date are subject to the prior or concurrent satisfaction of all of the
conditions set forth below.
(A) CLOSING DELIVERIES. Lender shall have received, in form and substance
acceptable to Lender, all documents, instruments and information identified on
Schedule 3.1(A), and all other agreements, notes, certificates, legal opinions,
orders, authorizations, financing statements, mortgages and other documents
which Lender may in good faith request and each and all of the foregoing must be
in form and substance acceptable to Lender.
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(B) SECURITY INTERESTS. The Pledge Agreement and the Trademark and Patent
Agreements shall have been executed and delivered by Borrower and Lender shall
have received satisfactory evidence that all security interests and liens
granted to Lender pursuant to this Agreement or the other Loan Documents have
been duly perfected and constitute first priority liens on the Collateral,
subject only to Permitted Encumbrances. Lender shall have received UCC
termination statements and other releases of Liens, duly executed by the
applicable secured parties, releasing any and all Liens against the Collateral,
except Permitted Encumbrances.
(C) TRANSACTION DOCUMENTS. On the Closing Date, Borrower shall have
issued Borrower Stock and Subordinated Debt in accordance with the Management
Stock Purchase Agreement, the Goldwin Stock Purchase Agreement, the Preferred
Stock Purchase Agreement and the Subordinated Debt Agreement in amounts and on
terms and conditions acceptable to Lender and used the proceeds thereof to fund
a portion of the purchase price of the Acquisition. In addition, Borrower shall
have sold the trademarks listed on Schedule 7.3(A) to Goldwin pursuant to the
Goldwin Stock Purchase Agreement for a price not less than $10,800,000 (net of
withholding tax obligations). The amount of Borrower's cash equity capital from
the Whitney Investors at closing shall be not less than fifty percent (50%) of
the principal amount of the Subordinated Debt.
(D) CLOSING DATE AVAILABILILY AND CASH AVAILABILITY. After giving effect
to the consummation of the Acquisition and the transactions contemplated by the
Transaction Documents, and the payment of fees and costs relating thereto,
Borrower shall have the ability to borrow additional Loans under this Agreement
in at least the amount set forth on Schedule 3.1 (D).
(E) FEES AND COSTS. Borrower shall have paid the fees payable on the
Closing Date referred to in subsections 2.3(A) and (E). The fees and costs in
connection with the Acquisition and the Transaction Documents shall not exceed
the amount set forth on Schedule 3.1 (D)
(F) CONFIRMATION ORDER. The Confirmation Order shall have been entered
and the conditions set forth in Section 6.2 of the Purchase Agreement shall have
been satisfied.
(G) BANKRUPTCY PLAN. The Bankruptcy Plan shall not have been modified,
whether before or after confirmation, except as set forth in the Confirmation
Order and all actions required to be taken and conditions required to be met
under the terms of the Bankruptcy Plan in order for the Bankruptcy Plan to
become effective or for the consummation of the Acquisition shall have been
timely and fully taken or met (whether or not the Bankruptcy Plan contemplates
that the Odyssey Bankruptcy Debtors or any other Person may waive such action or
condition and without giving effect to any such waiver). The Effective Date
under and as defined in the Bankruptcy Plan shall have occurred.
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(H) ACQUISITION. The Acquisition shall be consummated in accordance with
the Purchase Agreement, with no amendment or waiver of any provisions thereof
(including the conditions to the Acquisition) by any party thereto except such
as have been approved in writing by Lender. None of Sellers nor Borrower, nor
any other Person, shall have failed to perform timely any covenant or obligation
required to be performed by it under the Purchase Agreement and the Acquisition
Documents prior to the Closing Date. The terms and form of the Acquisition
Documents shall be effective to transfer to Borrower all right, title and
interest in the Assets (as defined in the Purchase Agreement) free and clear of
all Liens (other than Permitted Encumbrances), and claims (other than the
Assumed Liabilities, as defined in the Purchase Agreement) and all Acquisition
Documents shall have been duly executed and delivered (and where appropriate
acknowledged) by the applicable Seller.
(1) BULK SALES AND OTHER NOTICES. All actions required to comply with all
applicable "bulk sale" or "vendor in possession" laws shall have been duly and
timely completed.
(J) SUBORDINATION. All Indebtedness of Borrower not repaid upon
consummation of the Acquisition shall be subordinated to the Obligations, on
terms and conditions acceptable to Lender (including that no principal payments
shall be made until the Obligations have been repaid in full in cash), and any
Liens securing such Indebtedness shall have been released.
(K) RELEASES. A release meeting the requirements of the Purchase
Agreement shall have been duly executed, attested and delivered and acknowledged
on behalf of each of (i) the members of the Odyssey Group, (ii) the Receivers
(as defined in the Bankruptcy Plan) for and on behalf of the persons and assets
in receivership, and (iii) the Odyssey Banks.
(L) BUDGET. Lendcr shall have received and approved the Budget of
Borrower and its Subsidiaries for the forthcoming three Fiscal Years, year by
year, and for the forthcoming Fiscal Year, month bv month.
(M) NO PROHIBITION. No provision of any law or regulation, and no order,
judgment or decree of any court, arbitrator or governmental authority, shall
purport to enjoin or restrain Borrower from consummating the Acquisition or
issuing the Borrower Stock or the Subordinated Debt or purport to restrain,
prohibit, or otherwise interfere with the effective operation or enjoyment by
Borrower or any of its Subsidiaries of all or any portion of the assets to be
acquired pursuant to the Purchase Agreement.
(O) OPINIONS. Lender shall have received legal opinions from Borrower's
counsel and from Borrower's trademark counsel substantially in the forms
attached hereto as Exhibits J and K.
3.2 CONDITIONS TO ALL LOANS AND LENDER GUARANTIES. The obligations of Lender
to make Loans or to issue Lender Letters of Credit or Lender Guaranties on any
Funding Date (including the Closing Date) are subject to satisfaction of all of
the conditions set forth below.
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(A) LOAN DOCUMENTS. Lender shall have received, in form and substance
satisfactory to Lender, all agreements, mortgages, financing statements and
other documents as required to perfect or continue the perfection of Lender's
first priority security interests in the Collateral.
(B) CONSENTS. All consents, approvals or authorizations of any Person
required for the execution, delivery or performance of the Loan Documents shall
have been obtained and remain in full force and effect.
(C) REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained herein and in the Loan Documents shall be true, correct and complete
in all material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except for any representation or warranty
limited by its terms to a specific date and taking into account any amendments
to the Schedules or Exhibits as a result of any disclosures made by Borrower to
Lender after the Closing Date and approved by Lender.
(D) NO DEFAULT. No event shall have occurred and be continuing or would
result from the consummation of the requested borrowing or notice requesting
issuance of a Lender Letter of Credit or Lender Guarantv that would constitute a
Default or an Event of Default.
(E) PERFORMANCE OF AGREEMENTS. Each Loan Party shall have performed in
all material respects all agreements and satisfied all conditions which any Loan
Document or (if failure to perform would have a Material Adverse Effect or
permit other parties to exercise remedies against a Loan Party) any other
Transaction Document provides shall be performed by it on or before that Funding
Date.
(F) NO PROHIBITION. No provision of any law or regulation, and no
order, judgment or decree ofany court, arbitrator or governmental authority,
shall purport to enjoin or restrain Lender from making any Loans or issuing
any Lender Letters of Credit or Lender Guaranties or impair any security
interest in the Collateral.
(G) MARGIN REGULATIONS. The making of the Loans requested on such
Funding Date shall not violate Regulation G, Regulation T, Regulation U or
Regulation X of the Board of Governors of the Federal Reserve System.
(H) NO LITIGATION. There shall not be pending or, to the knowledge of
Borrower, threatened, any action, charge, claim, demand, suit, proceeding,
petition, governmental investigation or arbitration against or affecting any
Loan Party or any of its Subsidiaries or any property of any Loan Party or any
of its Subsidiaries that has not been disclosed by Borrower in writing, and
that, in the opinion of Lender, would reasonably be expected to have a Material
Adverse Effect and there shall have occurred no development in any such action,
charge, claim, demand, suit, proceeding, petition, governmental investigation or
arbitration that, in the opinion of Lender, would reasonably be expected to have
a Material Adverse Effect.
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(I) NO MATERIAL ADVERSE CHANGE. No event shall have occurred since
November 30, 1993 which has resulted in any material adverse change in the
business, properties, assets or condition (financial or otherwise) of (i)
Borrower individually or Borrower and TNF Scotland, taken as a whole, in each
case giving effect to the Acquisition, or (ii) prior to the Acquisition, of Old
TNF.
SECTION 4 BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce Lender to enter into this Agreement, to make Loans
and to issue Lender Letters of Credit and Lender Guaranties, Borrower represents
and warrants to Lender that the following statements are and will be true,
correct and complete both before and after giving effect to the Acquisition and
the transactions contemplated by the Transaction Documents:
4.1 ORGANIZATION, POWERS, CAPITALIZATION.
(A) ORGANIZATION AND POWERS. Each of the Loan Parties is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and qualified to do business in all jurisdictions
where such qualification is required. Each of the Loan Parties has all
requisite corporate power and authority to own and operate its properties, to
carry on its business as now conducted and proposed to be conducted and to enter
into each Loan Document and other Transaction Document to which such Loan Party
is a signatory.
(B) CAPITALIZATION. The authorized capital stock of each of the Loan
Parties is as set forth on Schedule 4.1(B). All issued and outstanding shares of
capital stock of each of the Loan Parties are duly authorized and validly
issued, fully paid, nonassessable, free and clear of all Liens other than those
in favor of Lender and such shares were issued in compliance with all applicable
state and federal (domestic or foreign) laws concerning the issuance of
securities. As of the Closing Date, the capital stock of Borrower is owned by
the Shareholders and in the amounts set forth on Schedule 4.1 (B). All of the
capital stock of TNF Scotland is owned by Borrower (except one director's
qualifying share). There are no preemptive or other outstanding rights,
options, warrants, conversion rights or similar agreements or understandings for
the purchase or acquisition from any Loan Party or any other Person of any
shares of capital stock or other securities of any such entity, except as
described in Schedule 4.1(B).
4.2 AUTHORIZATION OF BORROWING AND ACQUISITION, NO CONFLICT. Borrower has the
corporate power and authority to incur the Obligations and to grant security
interests in the Collateral. On the Closing Date, the execution, delivery and
performance of the Loan Documents and the other Transaction Documents by each
Loan Party signatory thereto will have been duly authorized by all necessary
corporate and shareholder action. The execution, delivery and performance by
each Loan Party of each Loan Document and other Transaction Document to which it
is a party and the consummation of the transactions contemplated by this
Agreement and the Transaction Documents do not and will not be in contravention
of any applicable law,
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the corporate charter or bylaws of any Loan Party or any agreement or order by
which any Loan Party or any of its property is bound. No consents,
authorizations or permits are required to be obtained by Borrower, Old TNF or
TNF Scotland for the execution, delivery or performance of any of the
Transaction Documents, except as set forth on Schedule 4.2. Failure to obtain
any such consent will not have a Material Adverse Effect. No filing by
Borrower, Old TNF or any Shareholder is required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 in connection with the Acquisition. This
Agreement is, and the other Transaction Documents, including the Term Note, when
executed and delivered will be, the legally valid and binding obligations of the
applicable Loan Parties, respectively, and will be enforceable against the Loan
Parties in accordance with the respective terms of the respective Transaction
Documents.
4.3 FINANCIAL CONDITION. The financial statements of Old TNF and its
Subsidiaries as of November 30, 1993 and for each period thereafter (but prior
to the Closing Date) which have been, and all financial statements concerning
Borrower and its Subsidiaries which will hereafter be, furnished by Borrower and
its Subsidiaries to Lender pursuant to this Agreement have been or will be
prepared in accordance with GAAP consistently applied throughout the periods
involved (except as disclosed therein) and do or will present fairly in all
material respects the financial condition of the Persons covered thereby as at
the dates thereof and the results of their operations for the periods then
ended. The Pro Forma was prepared by Borrower based on the audited consolidated
balance sheet of Old TNF dated March 31, 1994. The Budgets delivered and to be
delivered have been and will be prepared by Borrower in light of the past
operations of the business of Old TNF and its Subsidiaries.
4.4 INDEBTEDNESS AND LIABILITIES. As of the Closing Date and upon giving
effect to the Acquisition and the transactions contemplated by the Transaction
Documents, neither Borrower nor any of its Subsidiaries has (a) any Indebtedness
except as stated in the Pro Forma; or (b) any liabilities other than as stated
in the Pro Forma or trade credit to Persons other than members of the Odyssey
Group incurred in the ordinary course of business following the date of the Pro
Forma.
4.5 ACCOUNT WARRANTIES. Borrower represents, warrants and covenants as to
each Account of Borrower or any of its Subsidiaries which is a party to a
Loan Document that, at the time of its creation, the Account is a valid, bona
fide account, representing an indebtedness incurred by the named account
debtor for goods actually sold and delivered or for services completely
rendered; there are no setoffs, or counterclaims, genuine or otherwise,
against the Account; the Account does not represent a sale to an Affiliate
(other than Goldwin) or a consignment, sale or return or a bill and hold
transaction; no agreement exists permitting any deduction or discount (other
than the discount stated on the invoice); Borrower or the applicable
Subsidiary is the lawful owner of the Account and Borrower or such Subsidiary
has the right to assign the same to Lender; each Account is free of all
security interests, liens and encumbrances other than those in favor of
Lender, and the Account is due and payable in accordance with its terms.
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4.6 NAMES. Borrower does not conduct business, nor has it at any time during
the past five years conducted business, under any name, trade name or fictitious
business name other than those names set forth on Schedule 4.6.
4.7 LOCATIONS: FEIN. Schedule 4.7 sets forth the locations of Borrower's and
each Subsidiary's principal places of business, the locations of their books and
records, the locations of all other offices of Borrower and its Subsidiaries and
all Collateral locations, and such locations are Borrower's and its Subsidiaries
sole locations for their respective businesses and the Collateral. Borrower's
federal employer identification number is 94-320-4082.
4.8 TITLE TO PROPERTIES: LIENS. Borrower and each of its Subsidiaries has
good, sufficient and legal title, subject to Permitted Encumbrances, to all its
respective material properties and assets. Except for Permitted Encumbrances,
all such properties and assets are free and clear of Liens. To the best
knowledge of the Borrower after due inquiry, there are no actual, threatened or
alleged defaults with respect to any leases of real property under which
Borrower or any of its Subsidiaries is lessee or lessor which would have a
Material Adverse Effect.
4.9 LITIGATION: ADVERSE FACTS. Except as set forth on Schedule 4.9, there are
no judgments outstanding against any Loan Party or Old TNF or affecting any
property of any Loan Party or Old TNF nor is there anv action, charge, claim,
demand, suit, proceeding, petition, governmental investigation or arbitration
now pending or, to the best knowledge of Borrower after due inquiry, threatened
against or affecting any Loan Party or Old TNF or any property of any Loan Party
or Old TNF which could reasonably be expected to result in any Material Adverse
Effect. No Loan Party has received any opinion or memorandum or legal advice
from legal counsel to the effect that such Loan Party is exposed to any
liability which could reasonably be expected to result in any Material Adverse
Effect.
4.10 PAYMENT OF TAKES. Except as set forth on Schedule 4.10 or permitted
pursuant to Section 5.9, all tax returns and reports of Borrower and each of its
Subsidiaries required to be filed by any of them have been timely filed, and all
taxes, assessments, fees and other governmental charges upon such Persons and
upon their respective properties, assets, income and franchises which are shown
on such returns as due and payable have been paid when due and payable. None of
the income tax returns of Borrower or any of its Subsidiaries are under audit.
No tax liens have been filed against any assets of Borrower or its Subsidiaries
and not discharged and no claims are being asserted with respect to any taxes
against Borrower or its Subsidiaries. The charges, accruals and reserves on the
books of Borrower and each of its Subsidiaries in respect of any taxes or other
governmental charges are in accordance with GAAP.
4.11 PERFORMANCE OF AGREEMENTS. None of the Loan Parties, nor Old TNF and none
of their respective Subsidiaries is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
contractual obligation of any such Person, and no condition exists that, with
the giving of notice or the lapse of time or both, would
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constitute such a default, except as set forth in Schedule 4.11 and for such
defaults which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.12 EMPLOYEE BENEFIT PLANS. Borrower, each Subsidiary of Borrower, Old TNF and
each ERISA Affiliate is in compliance in all material respects with all
applicable provisions of ERISA, the IRC and all other applicable laws and the
regulations and interpretations thereof with respect to all Employee Benefit
Plans and, as to TNF Scotland, with all applicable laws relating to any employee
benefit or retirement plans. No liability has been incurred by Borrower, any
Subsidiary of Borrower, Old TNF or any ERISA Affiliate which remains unsatisfied
for anv funding obligation, taxes or penalties with respect to any Employee
Benefit Plan or any similar plan of TNF Scotland, except the liability of TNF
Scotland for underfunding of its pension plan as disclosed prior to the date
hereof, for which Borrower has no liability. Neither Borrower, any Subsidiary
of Borrower, Old TNF or any ERISA Affiliate has any withdrawal liability under
any multi-employer plan.
4.13 INTELLECTUAL PROPERTY. Borrower and each of its Subsidiaries owns, is
licensed to use or otherwise has the right to use all Intellectual Property used
in or necessary for the conduct of its business as currently conducted and as
conducted by Old TNF and its Subsidiaries prior to the Closing Date and all such
Intellectual Property is identified on Schedule 4.13, except that the trademarks
identified on Schedule 7.3(A) will be sold to Goldwin on the Closing Date in
accordance with the terms of the Goldwin Stock Purchase Agreement.
4.14 BROKER'S FEES. No broker's or finder's fee or commission will be payable
with respect to the Acquisition, the issuance and sale of the Term Note or any
of the other transactions contemplated hereby, except as described on Schedule
4.14.
4.15 ENVIRONMENTAL COMPLIANCE. Each Loan Party and Old TNF has been and is
currently in compliance in all material respects with all applicable
Enviromnental Laws, including obtaining and maintaining in effect all
permits, licenses or other authorizations required by applicable
Environmental Laws. There are no claims, liabilities, investigations,
litigation, administrative proceedings, whether pending or threatened, or
judgments or orders relating to any Hazardous Materials asserted or (to the
best knowledge of Borrower) threatened against any Loan Party or Old TNF or
relating to any real property currently or formerly owned, leased or operated
by any Loan Party or Old TNF which could have a Material Adverse Effect.
4.16 SOLVENCY. As of and from and after the date of this Agreement, Borrower
and each of its Subsidiaries: (a) owns and will own assets the fair saleable
value of which are (i) greater than the total amount of its liabilities
(including contingent liabilities); (ii) greater than the amount that will be
required to pay its probable liabilities as they mature; (b) has capital that is
not unreasonably small in relation to its business as presently conducted or any
contemplated or undertaken transaction; and (c) does not intend to incur and
does not believe that it will incur debts beyond its ability to pay such debts
as they become due.
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4.17 DISCLOSURE. No representation or warranty of Borrower, any of its
Subsidiaries or any other Loan Party contained in this Agreement, the Purchase
Agreement, or any other Transaction Document, the financial statements described
in subsection 4.3 or delivered by Borrower under this Agreement, the other Loan
Documents, or any other document, certificate or written statement in final form
furnished to Lender by or on behalf of any such Person for use in connection
with the Loan Documents contains any untrue statement of a material fact or
omitted, omits or will omit (in each case at the time made) to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which the same were made. The
Budgets and pro forma financial information contained in such materials are
based upon good faith estimates and assumptions believed by such Persons to be
reasonable at the time made, it being recognized by Lender that such projections
as to future events are not to be viewed as facts and that actual results during
the period or periods covered by any such projections may differ from the
projected results. There is no material fact known to Borrower that has had or
could reasonably be expected to have a Material Adverse Effect and that has not
been disclosed herein or in such other documents, certificates and statements
furnished to Lender for use in connection with the transactions contemplated
hereby.
4.18 INSURANCE. Borrower and each of its Subsidiaries maintains insurance
policies for business interruptions and public liability and property and
casualty damage for its business and properties as required by subsection 5.10,
no notice of cancellation has been received with respect to such policies and
Borrower and each of its Subsidiaries is in compliance with all conditions
contained in such policies. Lender has been named as an additional insured and
loss payee, respectively, on all such insurance policies.
4.19 COMPLIANCE WITH LAWS. Neither Borrower, nor Old TNF nor any of their
Subsidiaries is in violation of any law, ordinance, rule, regulation, order,
policy, guideline or other requirement of any domestic or foreign government or
any instrumentality or agency thereof, having jurisdiction over the conduct of
its business or the ownership of its properties, including, without limitation,
any violation relating to any use, release, storage, transport or disposal of
any Hazardous Material, which violation would subject Borrower or any such
Subsidiary, or any of their respective officers to criminal liability or have a
Material Adverse Effect and no such violation has been alleged.
4.20 BANK ACCOUNTS. Schedule 4.20 sets forth the account numbers and locations
of all bank accounts of Borrower and its Subsidiaries after consummation of the
Acquisition.
4.21 SUBSIDIARIES. Borrower has no Subsidiaries other than TNF Scotland and a
dormant Subsidiary of TNF Scotland, Black & Edgington (Exports) Limited, which
conducts no business and has no assets or liabilities other than a guaranty of
the indebtedness and/or obligations of TNF Scotland.
4.22 USE OF PROCEEDS AND MARGIN SECURITY. Borrower shall use the proceeds of
all Loans for proper business purposes (as described in the recitals to this
Agreement) consistent with all
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applicable laws, statutes, rules and regulations. No portion of the proceeds of
any Loan shall be used by Borrower or any of its Subsidiaries in any manner that
might cause the borrowing or the application of such proceeds to violate
Regulation G, Regulation U, Regulation T or Regulation X or any other regulation
of the Board of Governors of the Federal Reserve System or to violate the
Exchange Act.
4.23 EMPLOYEE MATTERS. Except as set forth on Schedule 4.23, (a) no Loan Party
nor Old TNF nor any of such Loan Party's employees is subject to any collective
bargaining agreement, (b) no petition for certification or union election is
pending with respect to the employees of any Loan Party or Old TNF and no union
or collective bargaining unit has sought such certification or recognition with
respect to the employees of any Loan Party or Old TNF within the past three (3)
years and (c) there are no strikes, slowdowns, work stoppages or controversies
pending or, to the best knowledge of Borrower after due inquiry, threatened
between any Loan Party or Old TNF and its respective employees, other than
employee grievances arising in the ordinary course of business which could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. Except as set forth on Schedule 4.23, neither Borrower
nor any of its Subsidiaries is or will be after consummation of the Acquisition
subject to an employment contract or any liability for severance pay.
4.24 GOVERNMENTAL REGULATION. None of the Loan Parties is, or after giving
effect to any Loan will be, subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act or the Investment Company Act
of 1940 or to any federal or state statute or regulation limiting its ability to
incur Indebtedness for borrowed money.
4.25 PURCHASE AGREEMENT: TRANSACTION DOCUMENTS. Borrower represents and
warrants that each of the representations and warranties of Sellers and
Borrower in the Purchase Agreement and each representation and warranty of
Borrower in any other Transaction Document, all of which are incorporated
herein by this reference, are true and correct in all material respects on
the date hereof and as of the Closing, Date. Notwithstanding anything in the
Purchase Agreement or any Transaction Document to the contrary, all such
representations and warranties incorporated herein shall, solely for purposes
of this Agreement, survive the execution and delivery of the Purchase
Agreement or any Transaction Document and the consummation of the
Acquisition, the execution and delivery of this Agreement and the making of
the Loans.
SECTION 5 AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any of the Commitments
hereunder shall be in effect and until payment in full of all Obligations and
termination of all Lender Letters of Credit and Lender Guaranties, unless Lender
shall otherwise give its prior written consent, Borrower shall perform, and
shall cause each of its Subsidiaries to perform, all covenants in this Section 5
applicable to such Person.
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5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will maintain, and cause
each of its Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP. Borrower will deliver to
Lender the financial statements and other reports described below.
(A) MONTHLY FINANCIALS. As soon as available and in any event within
twenty-five (25) days after the end of each month (or for the first three (3)
months following the Closing Date, within thirty (30) days after the end of
such month, Borrower will deliver (1) the consolidated and consolidating
balance sheet of Borrower and its Subsidiaries as at the end of such month
and the related consolidated and consolidating statements of income,
stockholders' equity and cash flow for such month and for the period from the
beginning of the then current Fiscal Year to the end of such month, (2)
during the first Loan Year, the consolidated and consolidating balance sheet
and the related consolidated and consolidating statements of income,
stockholders' equity and cash flow for Old TNF for the same period of the
prior year and (3) a schedule of the outstanding Indebtedness for borrowed
money of Borrower and its Subsidiaries describing in reasonable detail each
such debt issue or loan outstanding and the principal amount and amount of
accrued and unpaid interest with respect to each such debt issue or loan.
(B) QUARTERLY FINANCIALS. As soon as available and in any event within
forty-five (45) days after the end of each quarter of a Fiscal Year, Borrower
will deliver the consolidated and consolidating balance sheet of Borrower and
its Subsidiaries as at the end of such period and the related consolidated and
consolidating statements of income, stockholders' equity and cash flow for such
quarter of a Fiscal Year and for the period from the beginning of the then
current Fiscal Year to the end of such quarter of a Fiscal Year. During the
first Loan Year, Borrower will also deliver the consolidated and consolidating
balance sheet, and the related consolidated and consolidating statements of
income, stockholders' equity and cash flow, of Old TNF and its Subsidiaries for
the same periods in the prior Fiscal Year.
(C) YEAR-END FINANCIALS. As soon as available and in any event within
ninety (90) days after the end of each Fiscal Year, Borrower will deliver: (1)
the consolidated balance sheet of Borrower and its Subsidiaries as at the end of
such year and the related consolidated statements of income, stockholders'
equity and cash flow for such Fiscal Year; (2) for the Fiscal Year ending during
the first Loan Year, the consolidated balance sheet, and the related
consolidated statements of income, stockholders' equity and cash flow for Old
TNF for the prior Fiscal Year; (3) a schedule of the outstanding Indebtedness of
Borrower and its Subsidiaries describing in reasonable detail each such debt
issue or loan outstanding and the principal amount and amount of accrued and
unpaid interest with respect to each such debt issue or loan; and (4) a report
with respect to the financial statements of Borrower and its Subsidiaries from a
firm of independent certified public accountants selected by Borrower and
acceptable to Lender, which report shall be unqualified as to going concern and
scope of audit and shall state that (a) such consolidated financial statements
present fairly the consolidated financial position of Borrower and its
Subsidiaries as at the dates indicated and the results of
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their operations and cash flow for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years and (b) that the examination by
such accountants in connection with such consolidated financial statements has
been made in accordance with generally accepted auditing standards; and (5)
copies of the consolidating financial statements of Borrower and its
Subsidiaries, including (a) consolidating balance sheets of Borrower and its
Subsidiaries as at the end of such Fiscal Year showing intercompany eliminations
and (b) related consolidating statements of earnings of Borrower and its
Subsidiaries showing intercompany eliminations and (c) consolidating cash flows
of Borrower and its Subsidiaries.
(D) ACCOUNTANTS' CERTIFICATION AND REPORTS. Together with each
delivery of consolidated financial statements of Borrower and its
Subsidiaries pursuant to subsection 5.1(C), Borrower will deliver (1) a
written statement by its independent certified public accountants (a) stating
that the examination has included a review of the terms of Agreement as same
relate to accounting matters and (b) stating whether, in connection with the
examination, any condition or event that constitutes a Default or an Event of
Default has come to their attention and, if such a condition or event has
come to their attention, specifying the nature and period of existence
thereof and (2) a letter addressed to Lender from such accountants stating
that such accountants have been informed that a primary intent of Borrower
was to have the professional services such accountants provided to Borrower
in preparing their audit report and the letter referred to in this subsection
5.1(D) benefit or influence Lender, and identifying Lender as a party that
Borrower has indicated intends to rely on such professional services provided
to Borrower by such accountants. Promptly upon receipt thereof, Borrower
will deliver copies of all significant reports submitted to Borrower by
independent public accountants in connection with each annual, interim or
special audit of the financial statements of Borrower made by such
accountants, including the comment letter submitted by such accountants to
management in connection with their annual audit.
(E) COMPLIANCE CERTIFICATE. Together with the delivery of each set of
financial statements referenced in subparts (A), (B) and (C) of this subsection
5.1, Borrower will deliver to Lender a Compliance Certificate.
(F) BORROWING BASE CERTIFICATES, REGISTERS AND JOURNALS. On each
Business Day, Borrower shall deliver to Lender (1) a completed Borrowing Base
Certificate updated to reflect the most recent sales and collections of
Borrower; (2) a completed assignment schedule of all Accounts created by
Borrower on that day; (3) an invoice register or sales journal describing all
sales and credits of Borrower for that day, in form and substance acceptable
to Lender, and, if Lender so requests, copies of invoices evidencing such
sales and proofs of delivery relating thereto; and (4) a completed cash
receipts journal (including information regarding non-cash credits and
adjustments) for that day.
(G) RECONCILIATION REPORTS, INVENTORY REPORTS AND LISTINGS AND AGINGS. On
the Closing Date and within five (5) Business Days after the last day of each
month and from time to time upon the request of Lender, Borrower will deliver
to Lender: (1) an aged trial balance of all then existing Accounts of Borrower
and its Subsidiaries; and (2) an Inventory Report as
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of the last day of such period. As soon as available and in any event within
five (5) Business Days after the last day of each month, and from time to time
upon the request of Lender, Borrower will deliver to Lender: (1) a
Reconciliation Report as at the last day of such period; (2) an aged trial
balance of all then existing accounts payable of Borrower and its Subsidiaries;
and (3) a detailed inventory listing and cover summary report. All such reports
shall be in form and substance acceptable to Lender.
(H) MANAGEMENT REPORT. Together with each delivery of financial
statements of Borrower and its Subsidiaries pursuant to subdivisions (A), (B)
and (C) of this subsection 5.1, Borrower will deliver a management report: (1)
describing the operations and financial condition of Borrower and its
Subsidiaries for the month then ended and the portion of the current Fiscal Year
then elapsed (or for the Fiscal Year then ended in the case of year-end
financials); (2) setting forth in comparative form the corresponding figures for
the corresponding periods of the previous Fiscal Year (or for the first Fiscal
Year of Old TNF) and the corresponding figures from the most recent Budget for
the current Fiscal Year delivered to Lender puruant to 5.1(P); and (3)
discussing the reasons for significant variations. The information above shall
be presented in reasonable detail and shall be certified by the chief financial
officer of Borrower to the effect that such information fairly presents the
results of operations and financial condition of Borrower and its Subsidiaries
as at the dates and for the periods indicated.
(I) APPRAISALS. From time to time after the occurrence of an Event of
Default, upon the request of Lender, Borrower will obtain and deliver to Lender,
at Borrower's expense, appraisal reports in form and substance and from
appraisers acceptable to Lender, stating the then current fair market and
orderly liquidation values of all or any portion of the Collateral.
(J) GOVERNMENT NOTICES. Borrower will deliver to Lender promptly after
receipt by Borrower or any of its Subsidiaries copies of all notices, requests,
subpoenas, inquiries or other writings received from any governmental agency
concerning any Employee Benefit Plan, the violation or alleged violation of any
Environmental Laws, the storage, use or disposal of any Hazardous Material, the
violation or alleged violation of the Fair Labor Standards Act or Borrower's or
any Subsidiary's payment or nonpayment of any taxes, including any tax audit.
(K) EVENTS OF DEFAULT, etc. Promptly upon any officer of Borrower or of
any of its Subsidiaries obtaining knowledge of any of the following events or
conditions, Borrower shall deliver a certificate of Borrower's chief executive
officer specifying the nature and period of existence of such condition or event
and what action Borrower and/or its Subsidiary has taken, is taking and proposes
to take with respect thereto: (1) any condition or event that constitutes an
Event of Default or Default; (2) any notice of default that any Person has given
to Borrower or any of its Subsidiaries or any other action taken with respect to
a claimed default; or (3) any Material Adverse Effect.
(L) TRADE NAMES. Borrower and its Subsidiaries will give Lender at least
thirty (30) days advance written notice of any change of name or of any new
trade name or fictitious
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business name. Borrower's and each of its Subsidiaries' use of any trade name
or fictitious business name will be in compliance with all laws regarding the
use of such names.
(M) LOCATIONS. Borrower will give Lender at least thirty (30) days
advance written notice of any change in the principal place of business of
Borrower or of any of its Subsidiaries which is a party to any Loan Document or
any change in the location of the books and records or any of the Collateral or
of any new location for the books and records or any of the Collateral.
(N) BANK ACCOUNTS. Borrower will give Lender at least fifteen (15)
days' advance written notice of any new bank accounts established by Borrower
or any of its Subsidiaries which is a party to any Loan Document.
(O) LITIGATION. Promptly upon any officer of Borrower or of any of its
Subsidiaries obtaining knowledge of (1) the institution of any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
Loan Party or any property of any Loan Party not previously disclosed by
Borrower to Lender (other than any such action, suit, proceeding, investigation
or arbitration which seeks only money damages in an amount not in
excess of $25,000) or (2) any material development in any action, suit,
proceeding, governmental investigation or arbitration at any time pending
against or affecting any Loan Party or any property of any Loan Party which is
reasonably likely to have a Material Adverse Effect, Borrower will promptly give
notice thereof to Lender and provide such other information as may be reasonably
available to them to enable Lender and its counsel to evaluate such matter.
(P) BUDGETS. As soon as available and in any event no later than thirty
(30) days prior to the end of each Fiscal Year of Borrower, Borrower will
deliver a consolidated and consolidating Budget of Borrower and its Subsidiaries
for the forthcoming three Fiscal Years, year by year, and for the forthcoming
Fiscal Year, month by month.
(Q) SUBORDINATED DEBT AND EQUITY NOTICES. Borrower shall promptly deliver
to Lender copies of all notices given or received by Borrower or any of its
Subsidiaries with respect to noncompliance with any term or condition related to
any Subordinated Debt, and shall promptly notify Lender of any potential or
actual event of default with respect to any Subordinated Debt. Borrower shall
deliver to Lender copies of notices given or received by Borrower under the
Preferred Stock Purchase Agreement.
(R) OTHER INFORMATION. With reasonable promptness, Borrower will deliver
such other information and data with respect to any Loan Party, any Subsidiary
of any Loan Party or any of the Collateral as Lender may reasonably request from
time to time.
5.2 ACCESS TO ACCOUNTANTS. Borrower authorizes Lender to discuss the financial
condition and financial statements of Borrower and its Subsidiaries with
Borrower's or any of its
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Subsidiaries' independent public accountants upon reasonable notice to Borrower
of its intention to do so and authorizes such accountants to respond to all of
Lender's inquiries.
5.3 INSPECTION. Borrower shall permit Lender and any authorized representatives
designated by Lender to visit and inspect any of the properties of Borrower or
any of its Subsidiaries, including its and their financial and accounting
records, and to make copies and take extracts therefrom, and to discuss its and
their affairs, finances and business with its and their employees and
independent public accountants, at such reasonable times during normal business
hours and as often as may be reasonably requested. Borrower acknowledges that
Lender intends to make such inspections on at least a quarterly basis, and
Borrower agrees to pay to Lender, an audit fee for each inspection equal to
Five Hundred Dollars ($500.00) per auditor per day or any portion thereof,
excluding all full days spent by Lender traveling to or from Borrower's
locations, plus out of pocket expenses, for any audit conducted during such time
as any Event of Default exists.
5.4 COLLATERAL RECORDS. Borrower shall keep and shall cause each of its
Subsidiaries to keep full and accurate books and records relating to the
Collateral and shall mark such books and records to indicate Lender's security
interests in the Collateral.
5.5 ACCOUNT COVENANTS: VERIFICATION. Borrower shall, at its own expense:
(a) cause all invoices evidencing Accounts of Borrower and each of its
Subsidiaries which is a party to any Loan Document and all copies thereof to
bear a notice that such invoices are payable in the name of Borrower to
Lender's Depository Accounts established in accordance with subsection 5.6
and (b) use its best efforts to assure prompt payment of all amounts due or
to become due under such Accounts. No discounts, credits or allowances will
be issued, granted or allowed by Borrower or any Subsidiary to customers and
no returns will be accepted without Lender's prior written consent except in
the ordinary course of business; provided, that until Lender notifies
Borrower to the contrary after the occurrence and during the continuance of
an Event of Default, Borrower may presume consent. Borrower will promptly
notify Lender in the event that a customer alleges any dispute or claim with
respect to an Account of Borrower and each of its Subsidiaries in excess of
$50,000 or of any other circumstances known to Borrower that may impair the
validity or collectibility of such an Account. Lender shall have the right,
at any time or times hereafter, to verify the validity, amount or any other
matter relating to an Account, by mail, telephone or in person. After the
occurrence of a Default or an Event of Default, Borrower shall not, and shall
not permit any Subsidiary to, without the prior consent of Lender, adjust,
settle or compromise the amount or payment of any Account, or release wholly
or partly any customer or obligor thereof, or allow any credit or discount
thereon.
5.6 COLLECTION OF ACCOUNTS AND PAYMENTS. Borrower shall, and shall cause each
of its Subsidiaries which is a party to any Loan Document to, establish such
lockboxes and depository accounts (collectively, "Lender's Depository Accounts")
in Lender's name with such banks as are acceptable to Lender to which all
account debtors shall directly remit all payments on Accounts of Borrower and
such Subsidiary and in which Borrower or such Subsidiary will immediately
deposit all cash payments made for Inventory or other cash payments constituting
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proceeds of Collateral in the identical form in which such payment was made,
whether by cash or check. Borrower hereby agrees that all payments received by
Lender, whether by cash, check, wire transfer or any other instrument, made to
such Lender Depository Accounts or otherwise received by Lender and whether on
the Accounts or as proceeds of other Collateral or otherwise will be the sole
and exclusive property of Lender. Borrower, and any of its Affiliates,
employees, agents or other Persons acting for or in concert with Borrower,
shall, acting as trustee for Lender, receive, as the sole and exclusive property
of Lender, any monies, checks, notes, drafts or any other payments relating to
and/or proceeds of Accounts or other Collateral which come into the possession
or under the control of Borrower or any of Borrower's Affiliates, employees,
agents or other Persons acting for or in concert with Borrower, and immediately
upon receipt thereof, Borrower or such Persons shall remit the same or cause the
same to be remitted, in kind, to Lender's Depository Accounts, Lender's Account
or to Lender at its address set forth in subsection 9.6 below.
5.7 ENDORSEMENT. Borrower hereby constitutes and appoints, and shall cause
each of its Subsidiaries which is a party to any Loan Document to constitute and
appoint, Lender and all Persons designated by Lender for that purpose as
Borrower's true and lawful attorney-in-fact, with power to endorse Borrower's
name to any of the items of payment described in subsection 5.6 above and all
proceeds of Collateral that come into Lender's possession or under Lender's
control. Both the appointment of Lender as Borrower's or its Subsidiary's
attorney and Lender's rights and powers are coupled with an interest and are
irrevocable until payment in full and complete performance of all of the
Obligations.
5.8 CORPORATE EXISTENCE. Borrower will, and will cause each of its
Subsidiaries to, at all times preserve and keep in full force and effect its
corporate existence and all rights and franchises material to its business.
Borrower will promptly notify Lender of any change in its or any of its
Subsidiaries' corporate structures.
5.9 PAYMENT OF TAXES. Borrower will, and will cause each of its Subsidiaries
to, pay all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or with respect to any of its franchises,
business, income or property before any penalty accrues thereon: provided that
no such tax need be paid if Borrower or such Subsidiary is contesting same in
good faith by appropriate proceedings promptly instituted and diligently
conducted and if Borrower or such Subsidiary has established appropriate
reserves as shall be required in conformity with GAAP.
5.10 MAINTENANCE OF PROPERTIES; INSURANCE. Borrower will maintain or cause to
be maintained in good repair, working order and condition all material
properties used in the business of Borrower and its Subsidiaries and will make
or cause to be made all appropriate repairs, renewals and replacements thereof.
Borrower will maintain or cause to be maintained, with financially sound and
reputable insurers, business interruption insurance (with no exclusion for
earthquakes), public liability and property damage and casualty insurance with
respect to its business and properties and the business and properties of its
Subsidiaries against loss or damage of the kinds customarily carried or
maintained by corporations of established reputation
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engaged in similar businesses and in amounts acceptable to Lender. Borrower
shall cause Lender to be named as loss payee on all insurance policies relating
to any Collateral and as additional insured under all liability policies, in
each case pursuant to appropriate endorsements in form and substance acceptable
to Lender. Borrower shall apply any proceeds received from any policies of
insurance relating to any Collateral to the Obligations as set forth in
subsection 2.4(B).
5.11 COMPLIANCE WITH LAWS. Borrower will, and will cause each of its
Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority as now in effect and which
may be imposed in the future in all jurisdictions in which Borrower or any of
its Subsidiaries is now doing business or may hereafter be doing business, other
than those laws the noncompliance with which would not have a Material Adverse
Effect.
5.12 FURTHER ASSURANCES. Borrower shall, and shall cause each of its
Subsidiaries to, from time to time, execute such guaranties. financing or
continuation statements, documents, security agreements, reports and other
documents or deliver to Lender such instruments, certificates of title or
other documents as Lender at any time may reasonably request to evidence,
perfect or otherwise implement the guaranties and security for repayment of
the Obligations provided for in the Loan Documents. At Lender's request,
Borrower shall cause any of its Subsidiaries promptly to guaranty the
Obligations and to grant to Lender security interests in the real, personal
and mixed property of such Subsidiary to secure the Obligations; provided
that, so long as Borrower does not loan or advance funds (by capital
contribution or otherwise) to TNF Scotland, TNF Scotland shall not be
required to guaranty the Obligations or grant Liens to Lender on its assets.
5.13 COLLATERAL LOCATIONS. Borrower will keep its Collateral at the
locations specified as Borrower's locations on Schedule 4.7. With respect to
any new location (which as to Borrower in any event shall be within the
continental United States), Borrower will execute such documents and take
such actions as Lender deems necessary to perfect and protect the security
interests of Lender in the Collateral, including obtaining agreements from
any landlord in form and substance acceptable to Lender. Borrower will
segregate its Collateral from any Inventory of any other member of the
Odyssey Group, and undertake such procedures as may be requested by Lender to
identify all such Collateral.
5.14 BAILEES. If any Collateral is at any time in the possession or control of
any warehouseman, bailee or any of Borrower's or any Subsidiary's agents or
processors, Borrower shall, upon the request of Lender, notify, or cause its
Subsidiary to notify, such warehouseman, bailee, agent or processor of the
security interests in favor of Lender created hereby and shall instruct such
Person to hold all such Collateral for Lender's account subject to Lender's
instructions.
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5.15 MORTGAGES; TITLE INSURANCE; SURVEYS.
(A) MORTGAGED PROPERTY. Lender may from time to time designate real
property or leasehold interests of any Loan Partv or any Subsidiary of any Loan
Party after the date hereof as "Mortgaged Property", in which case Borrower
shall as promptly as possible (and in any event within sixty (60) days after
such designation) deliver to Lender a fully executed Mortgage, in form and
substance acceptable to Lender, together with title insurance policies and
surveys as required by this subsection 5.15. Borrower agrees that, following the
taking of the actions with respect to any Mortgaged Property required by the
immediately preceding sentence, Lender shall have a valid and enforceable
mortgage on the respective Mortgaged Property, free and clear of all defects and
encumbrances except for Permitted Encumbrances. Notwithstanding the foregoing,
Lender shall not require a leasehold mortgage or deed of trust to the extent
that it is prohibited by the applicable lease, nor any Mortgage on the real
property owned by TNF Scotland so long as TNF Scotland is not required to
guaranty the Obligations.
(B) TITLE INSURANCE. Within thirty (30) days following delivery of any
Mortgage with respect to Mortgaged Property, Borrower shall deliver or cause to
be delivered to Lender ALTA lender's title insurance policies issued by title
insurers reasonably satisfactory to Lender (the "Mortgage Policies") in form and
substance and in amounts reasonably acceptable to Lender assuring Lender that
the Mortgages are valid and enforceable first priority mortgage liens on the
respective Mortgaged Property, free and clear of all defects and encumbrances
except Permitted Encumbrances. The Mortgage Policies shall be in form and
substance reasonably acceptable to Lender and shall include an endorsement
insuring against the effect of future advances under this Agreement, for
mechanics' liens and for any other matter that Lender mav reasonably request,
and shall provide for affirmative insurance and such reinsurance as Lender may
reasonably request. In the case of each leasehold constituting Mortgaged
Property, Lender shall have received such estoppel letters, consents and waivers
from the landlords and non-disturbance agreements from any holders of mortgages
or deeds of trust on such real estate as may have been requested by Lender,
which letters shall be in form and substance satisfactory to Lender.
(C) SURVEYS. Within thirty (30) days following delivery of any Mortgage
with respect to Additional Mortgaged Property, Borrower shall deliver or cause
to be delivered to Lender current surveys, certified by a licensed surveyor, for
all real property that is the subject of the Mortgage Policies. All such
surveys shall be sufficient to allow the issuer of the mortgage policy to issue
an ALTA lender's policy.
5.16 POST-CLOSING AUDIT. Promptly following the Closing Date, Borrower shall
cause an audit of its balance sheet to be undertaken by Deloitte & Touche, and
shall provide the results thereof to Lender on or before the date which is
forty-five (45) days after the Closing Date.
5.17 INTEREST RATE PROTECTION. Within ninety (90) days after the
Closing Date, Borrower shall enter into one or more interest rate swap
agreements, interest rate cap agreements or other
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agreements designed to protect against fluctuations in interest rates, for a
term of not less than two (2) years, and otherwise in form and substance and in
amount acceptable to Lender.
5.18 NAME CHANGE. No later than the Business Day following the Closing Date,
Borrower shall change its name to The North Face, Inc.
5.19 DIVIDENDS. Borrower will not pay any cash dividends on any Borrower Stock.
5.20 POST-CLOSING DELIVERIES. (A) Within thirty (30) days after the Closing
Date, Borrower shall take such actions as necessary to cause an amendment to the
Articles of Association of TNF Scotland, in form and substance satisfactory to
Lender, to create and pledge to Lender a class of non-voting capital shares and
to permit Lender's exercise of remedies under the Pledge Agreement. (B) Borrower
shall take such actions as may be required to perfect Lender's Liens on the
Intellectual Property in foreign jurisdictions. (C) Borrower shall obtain
consents and agreements from lessors of its real and personal property, and take
such other actions as described on Schedule 3.1(A) under "Post Closing Matters."
5.21 INVENTORY AGING AND ACCOUNTING SYSTEMS. Within ninety (90) days after
the Closing Date, Lender shall have received from Borrower and approved a
plan to dispose of aged Inventory, and Borrower shall complete such
disposition by March 31, 1995. Within ninety (90) days after the Closing
Date, Borower will provide Lender with improved reporting (to Lender's
reasonable satisfaction) regarding the identification of aged Inventory, and
within one hundred eighty (180) days after the Closing Date, Lender shall
have received and approved a detailed proposal for implementation of an
improved system of accounting for Inventory, including identification and
tracking of aged Inventory.
SECTION 6 FINANCIAL COVENANTS
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations and termination of
all Lender Letters of Credit and Lender Guaranties, Borrower shall comply with
and shall cause each of its Subsidiaries to comply with all covenants in this
Section 6 applicable to such Person.
6.1 TANGIBLE NET WORTH. Tangible Net Worth shall be at least the amount set
forth below as of the dates set forth below.
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Date Amount
---- ------
9/30/94 $ 5,300,000
12/31/94 $ 6,400,000
3/31/95 $ 6,800,000
6/30/95 $ 5,600,000
9/30/95 $ 9,300,000
12/31/95 $10,000,000
3/31/96 $10,000,000
6/30/96 $ 9,100,000
9/30/96 $14,6O0,000
12/31/96 $14,6OO,000
3/31/97 and each Fiscal Quarter thereafter $14,6OO,000
6.2 MINIMUM EBITDA. Minimum EBITDA at the end of each fiscal quarter set
forth below for the rolling four (4) quarter period (or such lesser period as
may equal the number of fiscal quarters elapsed since June 30, 1994 (not
including the quarter ended June 30, 1994)) ending on the last day of each
fiscal quarter set forth below shall not be less than the amount set forth
below opposite such date.
Fiscal Quarter Amount
-------------- ------
9/30/94 $4,500,000
12/31/94 $6,750,000
3/31/95 $8,500,000
6/30/95 $7,100,000
9/30/95 $7,300,000
12/31/95 $7,500,000
3/31/96 $7,5O0,000
6/30/96 $7,500,000
9/30/96 $8,200,000
12/31/96 $8,800,000
3/31/97 and thereafter $8,900,000
and in each Fiscal Year, minimum EBITDA for the fiscal quarter ending September
30 shall not be less than $4,500,000.
6.3 CAPITAL EXPENDITURE LIMITS. The aggregate amount of all Capital
Expenditures of Borrower and its Domestic Subsidiaries (excluding trade-ins
and excluding Capital Expenditures in respect of replacement assets to the
extent funded with casualty insurance proceeds) will not exceed $600,000 in
the Fiscal Year ended March 31, 1995, and $800,000 in each Fiscal Year
thereafter. In the event that Borrower or any of its Domestic Subsidiaries
enters into a Capital Lease or other contract with respect to fixed assets,
for purposes of calculating Capital Expenditures under this subsection only,
the amount of the Capital Lease
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initially capitalized on Borrower's balance sheet prepared in accordance with
GAAP shall be considered expended in full on the date that Borrower or any of
its Domestic Subsidiaries enters into such contract or Capital Lease.
6.4 FIXED CHARGE COVERAGE. Fixed Charge Coverage at the end of each fiscal
quarter for the rolling four (4) quarter period (or such lesser period as may
equal the number of fiscal quarters which have elapsed since June 30, 1994 (not
including the quarter ended June 30, 1994)) ending on the last day of each
fiscal quarter shall not be less than 1.2.
6.5 TOTAL INTEREST COVERAGE. Total Interest Coverage at the end of each fiscal
quarter for the rolling four (4) quarter period (or such lesser period as may
equal the number of fiscal quarters which have elapsed since June 30, 1994 (not
including the quarter ended June 30, 1994)) ending on the last day of each
fiscal quarter shall not be less than 1.75.
6.6 LEVERAGE RATIO. Commencing with the fiscal quarter ending March 31, 1995,
the Leverage Ratio at the end of each fiscal quarter for the rolling four (4)
quarter period (or three (3) fiscal quarters as of March 31, 1995) ending on the
last day of each fiscal quarter shall not be less than 5.0.
SECTION 7 NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any of the
Commitments remain in effect and until payment in full of all Obligations and
termination of all Lender Letters of Credit and Lender Guaranties, Borrower
shall comply, and shall cause each of its Subsidiaries to comply, with all
covenants in this Section 7 applicable to such Person.
7.1 INDEBTEDNESS AND LIABILITIES. Borrower will not, and will not permit
any of its Subsidiaries to, directly or indirectly create, incur, assume,
guaranty, or otherwise become or remain directly or indirectly liable, on a
fixed or contingent basis, with respect to any Indebtedness except: (a) the
Obligations; (b) Indebtedness not to exceed One Hundred Thousand Dollars
($100,000) in the aggregate at any time outstanding secured by purchase money
Liens; (c) Indebtedness with respect to Capital Leases not to exceed Seven
Hundred Fifty Thousand Dollars ($750,000) In the aggregate at any time
outstanding; (d) Indebtedness existing on the Closing Date and identified on
Schedule 7.1(C) and refinancings thereof in amounts not in excess of that set
forth on such Schedule 7.1(C); provided, that in no event may any refinancing
of the Indebtedness of TNF Scotland require any guaranty of payment or other
credit support by Borrower; (e) Subordinated Debt in an amount not in excess
of the amount outstanding on the Closing Date; and (f) additional
Subordinated Debt issued on the same terms as the Subordinated Debt issued on
the Closing Date in a principal amount not to exceed five percent (5%) of the
amount outstanding on the Closing Date if, at the time of and after giving
effect to the issuance thereof no Event of Default has occurred and is
continuing or would result therefrom and Borrower is in compliance on a pro
forma basis with the covenants contained in Section 6 of this Agreement.
Except for Indebtedness described in the preceding sentence and agreements
required by subsection 5.17, Borrower will not, and will not permit
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any of its Subsidiaries to, incur any indebtedness or liabilities except for
trade payables and other liabilities not constituting Indebtedness in the
ordinary course of business not yet due and payable or with respect to which
Borrower or any of its Subsidiaries is contesting in good faith the amount or
validity thereof by appropriate proceedings and then only to the extent that
Borrower or any of its Subsidiaries has established adequate reserves therefor,
if appropriate under GAAP.
7.2 GUARANTIES. Except for guaranties issued to Lender or endorsements of
instruments or items of payment for collection in the ordinary course of
business, Borrower shall not, and shall not permit any of its Subsidiaries to,
guaranty, endorse, or otherwise in any way become or be responsible for any
obligations of any other Person, whether directly or indirectly by
agreement to purchase the indebtedness of any other Person or through the
purchase of goods, supplies or services, or maintenance of working capital or
other balance sheet covenants or conditions, or by way of stock purchase,
capital contribution, advance or loan for the purpose of paying or discharging
any indebtedness or obligation of such other Person or otherwise. The foregoing
shall not prohibit Subsidiaries from guarantying the Obligations.
7.3 TRANSFERS, LIENS AND RELATED MATTERS.
(A) TRANSFERS. Borrower shall not, and shall not permit any of its
Subsidiaries to, sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to any of the Collateral or the
assets of such Person, except that Borrower and its Subsidiaries may (i) sell
Inventory in the ordinary course of business; (ii) sell the trademarks listed on
Schedule 7.3(A) pursuant to the Goldwin Stock Purchase Agreement; (iii) with the
prior written consent of Lender not to be unreasonably withheld or delayed,
license trademarks and tradenames in the ordinary course of business consistent
with past practices of Old TNF prior to the Closing Date; (iv) terminate the
leases described on Schedule 7.3(B); and (v) make voluntary Asset Dispositions
if all of the following conditions are met: (1) the market value of assets sold
or otherwise disposed of in any single transaction or series of related
transactions does not exceed Twenty-five Thousand Dollar ($25,000) and the
aggregate market value of assets sold or otherwise disposed of in any Fiscal
Year does not exceed Seventy-five Thousand Dollars ($75,000); (2) the
consideration received is at least equal to the fair market value of such
assets; (3) the sole consideration received is cash; (4) the net proceeds of
such Asset Disposition are applied as required by subsection 2.4(B); (5) after
giving effect to the sale or other disposition of the assets included within the
Asset Disposition and the repayment of the Obligations with the proceeds
thereof, Borrower is in compliance on a pro forma basis with the covenants set
forth in Section 6 recomputed for the most recently ended month for which
information is available and is in compliance with all other terms and
conditions contained in this Agreement; and (6) no Default or Event of Default
shall result from such sale or other disposition.
(B) LIENS. Except for Permitted Encumbrances, Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly create, incur,
assume or permit to exist
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any Lien on or with respect to any of the Collateral or the assets of such
Person or any proceeds, income or profits therefrom.
(C) NO NEGATIVE PLEDGES. Neither Borrower nor any Subsidiary of Borrower
shall enter into or assume any agreement (other than the Loan Documents and the
Subordinated Debt Agreement) prohibiting the creation or assumption of any Lien
upon its properties or assets, whether now owned or hereafter acquired, other
than any such agreement entered into by TNF Scotland prior to the Closing Date
or in connection with a refinancing of Indebtedness of TNF Scotland permitted by
subsection 7.1(d).
(D) NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO BORROWER. Except as
provided herein and for any agreement entered into by TNF Scotland prior to the
Closing Date, Borrower will not and will not permit any of its Subsidiaries
directly or indirectly to create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any such Subsidiary to: (1) pay dividends or make any other distribution on
any of such Subsidiary's capital stock owned by Borrower or any Subsidiary of
Borrower; or (2) subject to subordination provisions, pay any indebtedness owed
to Borrower or any other Subsidiary; (3) make loans or advances to Borrower or
any other Subsidiary; or (4) transfer any of its property or assets to Borrower
or any other Subsidiary.
7.4 INVESTMENTS AND LOANS. Borrower shall not, and shall not permit any of
its Subsidiaries to, make or permit to exist investments in or loans to any
other Person, except: (a) Cash Equivalents; (b) loans and advances to
employees for moving, entertainment, travel and other similar expenses in the
ordinary course of business in an aggregate outstanding amount not in excess
of Fifty Thousand Dollars ($50,000) at any time; and (c) the investment of
Borrower in the stock of TNF Scotland and of TNF Scotland, in the stock of
Black & Edgington (Exports) Limited, in each case existing on the Closing
Date (but excluding in each case any additional investments, by capital
contribution or otherwise, or loans).
7.5 RESTRICTED JUNIOR PAYMENTS. Borrower will not, and will not permit any
of its Subsidiaries to, directly or indirectly declare, order, pay, make or
set apart any sum for any Restricted Junior Payment, except that: (a)
Subsidiaries of Borrower may make Restricted Junior Payments to Borrower with
respect to their common stock; (b) Borrower may make payments of principal of
and interest on the Subordinated Debt and indemnity payments and expense
reimbursements in accordance with the terms of the Subordinated Debt
Agreement provided that Borrower shall have notified Lender at least five (5)
Business Days prior to making any indemnity payments; (c) Borrower may sell
the trademarks listed on Schedule 7.3 to Goldwin pursuant to the Goldwin
Stock Purchase Agreement; (d) Borrower may pay dividends on the Series A
Preferred Stock in additional shares of such Borrower Stock and may issue
Common Stock upon conversion of the Series A Preferred Stock or exercise of
Management Options; (e) Borrower may pay the fees required to be paid on the
Closing Date under the Preferred Stock Purchase Agreement and the
Subordinated Debt Agreement; and (f) so long as no Default or Event of
Default shall have occurred and be continuing or shall result from the
Restricted Junior Payment and Borrower is in compliance on a pro forma basis
with
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the covenants set forth in Section 6, Borrower may (i) repurchase Common Stock
or Management Options or Management Restricted Stock held by an employee of
Borrower upon termination of employment of such employee in an aggregate amount
in each Fiscal Year not to exceed Five Hundred Thousand Dollars ($500,000); (ii)
pay management fees in an amount not to exceed Sixty-two Thousand Five Hundred
Dollars ($62,500) in each fiscal quarter pursuant to the Preferred Stock
Agreement; (iii) pay director's fees in an amount not in excess of $50,000.00
per year; and (g) Borrower may pay base compensation to Borrower's two top
executive officers in amount not in excess, in the aggregate, of One Million
Dollars ($1,000,000.00) in each Fiscal Year and such incentive compensation as
may be approved by the Compensation Commitee of Borrower's Board of Directors.
7.6 RESTRICTION ON FUNDAMENTAL CHANGES. Neither Borrower nor any of its
Subsidiaries will: (a) enter into any transaction of merger or consolidation;
(b) liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution); (c) convey, sell, lease, sublease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its business or assets, or the capital stock of any of its Subsidiaries,
whether now owned or hereafter acquired; or (d) acquire by purchase or otherwise
all or any substantial part of the business or assets of, or stock or other
evidence of beneficial ownership of, any Person.
7.7 CHANGES RELATING TO SUBORDINATED DEBT AND SERIES A PREFERRED STOCK.
Borrower will not, and will not permit any of its Subsidiaries to, change or
amend the terms of the Subordinated Debt or the Series A Preferred Stock if
the effect of such amendment is to: (a) increase the interest rate on the
Subordinated Debt; (b) change the dates upon which payments of principal or
interest are due on the Subordinated Debt; (c) change any event of default or
add any covenant with respect to the Subordinated Debt or the Series A
Preferred Stock; (d) change the payment provisions of the Subordinated Debt
or the Series A Preferred Stock; (e) change the subordination provisions the
Subordinated Debt Agreement; (f) change or amend any other term if such
change or amendment would materially increase the obligations of the obligor
or confer additional material rights on the holder of such Indebtedness or
the Series A Preferred Stock in a manner adverse to Borrower, any of its
Subsidiaries, or Lender; (g) increase the outstanding principal amount of the
Subordinated Debt in excess of that permitted under subsection 7.1 hereof, or
(h) require the cash payment of dividends on the Series A Preferred Stock or
any mandatory redemption thereof.
7.8 TRANSACTIONS WITH AFFILIATES. Borrower will not, and will not permit
any Loan Party to, directly or indirectly, enter into or permit to exist any
transaction (including the purchase, sale or exchange of property or the
rendering of any service) with any Affiliate or with any officer, director or
employee of any Loan Party, except for (a) transactions in the ordinary
course of, and pursuant to the reasonable requirements of, Borrower's or a
Subsidiary's business and upon fair and reasonable terms which are fully
disclosed to Lender and which are no less favorable to Borrower or such
Subsidiary than it would obtain in a comparable arm's length transaction with
an unaffiliated Person; (b) the transactions set forth in the Goldwin Stock
Purchase Agreement; (c) the issuance of Management Options; and (d) the
payment of fees pursuant to the Subordinated Debt Agreement and the Preferred
Stock Purchase Agreement to the extent
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permitted under subsection 7.5 hereof. The foregoing shall not prohibit the
transactions contemplated by the Transaction Documents or Borrower's performance
of the terms thereof so long as Borrower fully complies with all restrictions
contained in any other covenant in this Agreement.
7.9 ENVIRONMENTAL LIABILITIES. Borrower will not, and will not permit any Loan
Party to: (a) violate in any material respect any applicable Environmental Law;
(b) dispose of any Hazardous Materials (except in accordance with applicable
law) into or onto or from, any real property owned, leased or operated by any
Loan Party; or (c) permit any Lien imposed pursuant to any Environmental Law to
be imposed or to remain on any real property owned, leased or operated by any
Loan Party.
7.10 CONDUCT OF BUSINESS. From and after the Closing Date, Borrower will not,
and will not permit any of its Subsidiaries to, engage in any business other
than businesses of the type engaged in by Old TNF or TNF Scotland on the Closing
Date.
7.11 COMPLIANCE WITH ERISA. Borrower will not, and will not permit any of its
Subsidiaries to establish any new Employee Benefit Plan or amend any existing
Employee Benefit Plan if the liability or increased liability resulting from
such establishment or amendment is material. Neither Borrower nor any
Subsidiary shall fail to establish, maintain and operate each Employee Benefit
Plan in compliance in all material respects with the provisions of ERISA, the
IRC and all other applicable laws and the regulations and interpretations
thereof.
7.12 TAX CONSOLIDATIONS. Borrower will not, and will not permit any of its
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person other than Borrower or any of its Subsidiaries.
7.13 SUBSIDIARIES. Borrower will not, and will not permit any of its
Subsidiaries to, establish, create or acquire any new Subsidiaries without
Lender's prior written consent.
7.14 FISCAL YEAR. Neither Borrower nor any Subsidiary of Borrower shall change
its Fiscal Year.
7.15 PRESS RELEASE; PUBLIC OFFERING MATERIALS. Borrower will not, and will not
permit any Loan Party to, disclose the name of Lender in any press release or in
any prospectus, proxy statement or other materials filed with any governmental
entity relating to a public offering of the capital stock of any Loan Party
without prior notice to Lender and Lender's approval of the terms of the
disclosure concerning Lender, which approval will not be unreasonably withheld.
7.16 BANK ACCOUNTS. Borrower will not, and will not permit any of its
Subsidiaries to, establish any new bank accounts, or amend or terminate any
Lender Depository Account or lockbox agreement without Lender's prior written
consent.
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SECTION 8 DEFAULT, RIGHTS AND REMEDIES
8.1 EVENT OF DEFAULT. "Event of Default" shall mean the occurrence or
existence of any one or more of the following:
(A) PAYMENT. Failure to make payment of the principal of any of the
Obligations when due (in installments, by mandatory prepayment, acceleration or
otherwise) or failure to pay interest or any other amount due to Lender under
the Loan Documents when due and such default is not remedied within five (5)
days after such interest or other amount becomes due; or
(B) DEFAULT IN OTHER AGREEMENTS. (1) Default of Borrower or any of its
Subsidiaries in payment when due of any principal or interest on any
Indebtedness or (2) breach or default of Borrower or any of its Subsidiaries
with respect to any Indebtedness, if such failure to pay, breach or default
entitles the holder to cause such Indebtedness having an individual principal
amount in excess of $250,000 or having an aggregate principal amount in excess
of $500,000 to become or be declared due prior to its stated maturity; or
(C) BREACH OF CERTAIN PROVISIONS. Failure of Borrower to perform or
comply with any term or condition contained in subsections 5.1, 5.3, 5.5, 5.6,
5.8 or contained in Section 6 or Section 7; or
(D) BREACH OF WARRANTY. Any representation, warranty, certification or
other statement made by any Loan Party in any Loan Document or in any statement
or certificate at any time given by such Person in writing pursuant or in
connection with any Loan Document is false in any material respect on the date
made; or
(E) OTHER DEFAULTS UNDER LOAN DOCUMENTS. Borrower or any other Loan Party
defaults in the performance of or compliance with any term contained in this
Agreement or the other Loan Documents and such default is not remedied or waived
within ten (10) days after receipt by Borrower of notice from Lender of such
default (other than occurrences described in other provisions of this subsection
8.1 for which a different grace or cure period is specified or which constitute
immediate Events of Default); or
(F) CHANGE IN CONTROL. Any Change in Control occurs; or
(G) INVOLUNTARY BANKRUPTCY: APPOINTMENT OF RECEIVER, ETC. (1) A court
enters a decree or order for relief with respect to Borrower or any of its
Subsidiaries in an involuntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, which
decree or order is not stayed or other similar relief is not granted under any
applicable federal or state law; or (2) the continuance of any of the following
events for forty-five (45) days unless dismissed, bonded or discharged: (a) an
involuntary case is commenced against Borrower or any of its Subsidiaries, under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or (b) a
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decree or order of a court for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over
Borrower or any of its Subsidiaries, or over all or a substantial part of their
respective property, is entered; or (c) an interim receiver, trustee or other
custodian is appointed without the consent of Borrower or any of its
Subsidiaries, for all or a substantial part of the property of Borrower or any
such Subsidiary; or
(H) VOLUNTARY BANKRUPTCY; Appointment of Receiver, etc. (1) An order for
relief is entered with respect to Borrower or any of its Subsidiaries or
Borrower or any of its Subsidiaries commences a voluntary case under the
Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case or to the conversion of an involuntary case to a voluntary
case under any such law or consents to the appointment of or taking possession
by a receiver, trustee or other custodian for all or a substantial part of its
property; or (2) Borrower or any of its Subsidiaries makes any assignment for
the benefit of creditors; or (3) the board of directors of Borrower or any of
its Subsidiaries adopts any resolution or otherwise authorizes action to approve
any of the actions referred to in this subsection 8.1(H); or
(I) LIENS. Any lien, levy or assessment is filed or recorded with
respect to or otherwise imposed upon all or any part of the Collateral or the
assets of Borrower or any of its Subsidiaries by the United States or any
department or instrumentality thereof or by any state, county, municipality
or other Governmental agency, domestic or foreign (other than Permitted
Encumbrances) and such lien, levy or assessment is not stayed, vacated, paid
or discharged within ten (10) days; or
(J) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process involving (1) an amount in any individual case
in excess of $250,000 or (2) an amount in the aggregate at any time in excess
of $500,000 (in either case not adequately covered by insurance, subject to
the deductibles approved by Lender, as to which the insurance company has
acknowledged coverage) is entered or filed against Borrower or any of its
Subsidiaries or any of their respective assets or any Collateral and remains
undischarged, unvacated, unbonded or unstayed for a period of forty-five (45)
days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
(K) DISSOLUTION. Any order, judgment or decree is entered against
Borrower or any of its Subsidiaries decreeing tile dissolution or split up of
Borrower or that Subsidiary and such order remains undischarged or unstayed for
a period in excess of twenty (20) days; or
(L) INJUNCTION. Borrower or any of its Subsidiaries is enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business and such order continues for more than thirty (30) days; or
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(M) INVALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents for any
reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party or Shareholder denies that it has any further liability
under any Loan Documents to which it is party, or gives notice to such effect;
or
(N) FAILURE OF SECURITY. Lender does not have or ceases to have a valid
and perfected first priority security interest in the Collateral (subject to
Permitted Encumbrances), in each case, for any reason other than the failure of
Lender to take any action within its control; or
(0) DAMAGE, STRIKE, CASUALTY. Any material damage to, or loss, theft or
destruction of, any Collateral, whether or not insured, or any strike, lockout,
labor dispute, embargo, condemnation, act of God or public enemy, or other
casualty which causes, for more than fifteen (15) consecutive days beyond the
coverage period of any applicable business interruption insurance as to which
Borrower has received payments, the cessation or substantial curtailment of
revenue producing activities at any facility of Borrower or any of its
Subsidiaries if any such event or circumstance could reasonably be expected to
have a Material Adverse Effect; or
(P) LICENSES AND PERMITS. The loss, suspension or revocation of, or
failure to renew, any license or permit now held or hereafter acquired by
Borrower or any of its Subsidiaries, if such loss, suspension, revocation or
failure to renew could have a Material Adverse Effect.
8.2 SUSPENSION OF COMMITMENTS. Upon the occurrence of any Default or Event of
Default, notwithstanding any grace period or right to cure, Lender, without
notice or demand, may immediately cease making additional Loans and the
Commitments shall be suspended; PROVIDED that, in the case of a Default, if the
subject condition or event is waived, cured or removed within any applicable
grace or cure period, the Commitments shall be reinstated.
8.3 ACCELERATION. Upon the occurrence of any Event of Default described in
the foregoing subsections 8.1(G) or 8.1(H), all Obligations shall
automatically and immediately be immediately due and payable, without
presentment, demand protest or other requirements of any kind, all of which
are hereby expressly waived by Borrower, and the Commitments shall thereupon
terminate. Upon the occurrence and during the continuance of any other Event
of Default, Lender may, by written notice to Borrower, (a) declare all or any
portion of the Obligations to be, and the same shall forthwith become,
immediately due and payable and the Commitments shall thereupon terminate and
(b) demand that Borrower immediately deposit with Lender an amount equal to
the Lender Guaranty Liability to enable Lender to make payments under the
Lender Letters of Credit and Lender Guaranties when required and such amount
shall become immediately due and payable.
8.4 REMEDIES. If any Event of Default shall have occurred and be
continuing, Lender may exercise in respect of the Collateral, in addition to
all other rights and remedies provided for
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herein or in any other Loan Documents or otherwise available to Lender, all the
rights and remedies of a secured party on default under the UCC (whether or not
the UCC applies to the affected Collateral) and may also (a) notify any or all
obligors on the Accounts to make all payments directly to Lender; (b) require
Borrower and any other Loan Party to, and Borrower hereby agrees that it will,
at its expense and upon request of Lender forthwith, assemble all or part of the
Collateral as directed by Lender and make it available to Lender at a place to
be designated by Lender which is reasonably convenient to both parties; (c)
withdraw all cash in the Blocked Accounts and apply such monies in payment of
the Obligations in the manner provided in subsection 8.7; (d) without notice or
demand or legal process, enter upon any premises of Borrower and any other Loan
Party and take possession of the Collateral; and (e) without notice except as
specified below, sell the Collateral or any part thereof in, n one or more
parcels at public or private sale, at any of the Lender's offices or elsewhere,
at such time or times, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as Lender may deem commercially
reasonable. Borrower agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days notice to Borrower of the time and place
of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. At any sale of the Collateral, if permitted
by law, Lender may bid (which bid may be, in whole or in part, in the form of
cancellation of indebtedness) for the purchase of the Collateral or any portion
thereof for the account of Lender. Lender shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. Borrower
shall remain liable for any deficiency. Lender may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. Lender shall not be required to proceed
against any Collateral but may proceed against Borrower directly. To the extent
permitted by law, Borrower hereby specifically waives all rights of redemption
stay or appraisal which it has or may have under any law now existing or
hereafter enacted.
8.5 APPOINTMENT OF ATTORNEY-IN-FACT. Borrower hereby constitutes and
appoints Lender as Borrower's attorney-in-fact with full authority in the
place and stead of Borrower and in the name of Borrower, Lender or
otherwise, from time to time in Lender's discretion to take any action and to
execute any instrument that Lender may deem necessary or advisable to
accomplish the purposes of this Agreement, including: (a) to ask, demand,
collect, sue for, recover, compound, receive and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Collateral; (b) to adjust, settle or compromise the amount or payment of any
Account, or release wholly or partly any customer or obligor thereunder or
allow any credit or discount thereon: (c) to receive, endorse, and collect
any drafts or other instruments, documents and chattel paper, in connection
with clause (a) above; (d) to file any claims or take any action or institute
any proceedings that Lender may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Lender with respect to any of the Collateral, and (e) to sign and endorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, assignments, verifications and notices in connection with Accounts
and other documents relating to the Collateral. The appointment of Lender as
Borrower's attorney and Lender's rights and powers are coupled with
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an interest and are irrevocable until payment in full and complete performance
of all of the Obligations.
8.6 LIMITATION ON DUTY OF LENDER WITH RESPECT TO COLLATERAL. Beyond the
safe custody thereof, Lender shall have no duty, with respect to any
Collateral in its possession or control (or in the possession or control of
any agent or bailee of Lender) or with respect to any income thereon or the
preservation of rights against prior parties or any other rights pertaining
thereto. Lender shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which Lender
accords its own property. Lender shall not be liable or responsible for any
loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by Lender in
good faith.
8.7 APPLICATION OF PROCEEDS. Upon the occurrence and during the continuance
of an Event of Default, the proceeds of any sale of, or other realization
upon, all or any part of the Collateral shall be applied: FIRST, to all fees,
costs and expenses incurred by Lender with respect to this Agreement, the
other Loan Documents or the Collateral; SECOND, to all fees due and owing to
Lender; THIRD, to accrued and unpaid interest on the Obligations; FOURTH, to
the principal amounts of the Obligations outstanding in such order as Lender
may determine in its sole discretion: and FIFTH, to any other indebtedness or
obligations of Borrower owing to Lender.
8.8 WAIVERS. Non-Exclusive Remedies. No failure on the part of Lender to
exercise, and no delay in exercising and no course of dealing with respect to,
any right under this Agreement or any other Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise by Lender of any right
under this Agreement or any other Loan Document preclude any other or further
exercise thereof or the exercise of any other right. The rights in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other remedies provided by law.
SECTION 9 MISCELLANEOUS
9.1 ASSIGNMENTS AND PARTICIPATIONS. Lender may assign its rights and delegate
its obligations under this Agreement and further may assign, or sell
participations in, all or any part of the Loans, the Commitments or any other
interest herein or in the Term Note to an Affiliate or to another Person;
PROVIDED, HOWEVER, that if any such assignment would result in Lender's failure
to maintain at least fifty percent (50%) of the Commitments, such assignment
shall be subject to Borrower's prior written consent, which shall not be
unreasonably withheld or delayed if Lender will, after giving effect to such
assignment, continue to have the largest Commitment of all lenders. Failure of
Borrower to object to an assignment within five Business Days shall be deemed to
be a consent. In the case of an assigrument authorized under this subsection
9.1 the assignee shall have, to the extent of such assignment, the same rights,
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benefits and obligations as it would if it were a Lender hereunder. Lender
shall be relieved of its obligations hereunder with respect to the
Commitments or such assigned portion thereof. Borrower hereby acknowledges
and agrees that any assignment will give rise to a direct obligation of
Borrower to the assignee and that the assignee shall be considered to be a
"Lender". In order to facilitate the sale, assignment or transfer of all or
part of the Loans or the Commitments, all or any portion of the Loans may, in
the sole discretion of Lender and without any consent of Borrower, be
subordinated as to right of payment, and any Liens or any Collateral may be
subordinated, upon terms satisfactory to Lender and such assignee. Lender
may furnish any information concerning Old TNF, Borrower and its Subsidiaries
in its possession from time to time to assignees and participants (including
prospective assignees and participants) to any institutional Tender and may
furnish such information to other lenders upon taking reasonable steps to
assure the confidentiality thereof
9.2 SETOFF. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, Lender and each holder of the Term Note
and each participant is hereby authorized by Borrower at any time or from
time to time, without notice to Borrower or to any other Person, any such
notice beino hereby expressly waived, to set off and to appropriate and to
apply any and all balances held by it at any of its offices for the account
of Borrower or any of its Subsidiaries (regardless of whether such balances
are then due to Borrower or any of its Subsidiaries) and any other property
at any time held or owing by that Lender or that holder to or for the credit
or for the account of Borrower against and on account of any of the
Obligations then outstanding; provided, that no participant shall exercise
such right without the prior written consent of Lender.
Borrower hereby agrees, to the fullest extent permitted by law, that any
Lender or assignee or participant may exercise its right of setoff with
respect to amounts in excess of its pro rata share of the Obligations (or, in
the case of a participant, in excess of its pro rata participation interest
in the Obligations) and that such Lender or assignee or participant, as the
case may be, shall be deemed to have purchased for cash in the amount of such
excess, participations in each other Lender's or assignee's share of the
Obligations.
9.3 EXPENSES AND ATTORNEYS' FEES. Whether or not the transactions contemplated
hereby shall be consummated, Borrower agrees to promptly pay all fees, costs
and expenses incurred by Lender in connection with any matters contemplated by
or arising out of this Agreement or any other Loan Document including the
following, and all such fees, costs and expenses shall be part of the
Obligations, payable on demand and secured by the Collateral: (a) fees, costs
and expenses (including attorneys' fees, allocated costs of internal counsel and
fees of environmental consultants, accountants and other professionals retained
by Lender) incurred in connection with the examination, review, due diligence
investigation, documentation and closing of the financing, arrangements
evidenced by the Loan Documents; (b) fee, costs and expenses (including
attorneys fees', allocated costs of internal counsel and fees of environmental
consultants, accountants and other professionals retained by Lender) incurred in
connection with the review, negotiation, preparation, documentation, execution
and
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administration of the Loan Documents, the Loans, and any amendments, waivers,
consents, forbearances and other modifications relating thereto or any
subordination or intercreditor agreements; (c) fees, costs and expenses
incurred in creating, perfecting and maintaining perfection of Liens in favor
of Lender; (d) fees, costs and expenses incurred in connection with
forwarding to Borrower the proceeds of Loans including Lender's standard wire
transfer fee; (e) fees, costs, expenses and bank charges, including bank
charges for returned checks, incurred by Lender in establishing, maintaining
and handling lock box accounts, Blocked Accounts or other accounts for
collection of the Collateral; (f) fees, costs, expenses (including attorneys'
fees and allocated costs of internal counsel) and costs of settlement
incurred in collecting upon or enforcing rights against the Collateral or
incurred in any action to enforce this Agreement or other Loan Document or to
collect any payments due from Borrower or any other Loan Party under this
Agreement or any other Loan Document or incurred in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement, whether in the nature of a "workout" or in connection with any
insolvency or bankruptcy proceedings or otherwise.
9.4 INDEMMITY. In addition to the payment of expenses pursuant to subsection
9.3, whether or not the transactions contemplated hereby shall be consummated,
Borrower agrees to indemnify, pay and hold Lender and any holder of the Term
Note or other assignee under section 9.1. and the officers, directors,
employees, agents, affiliates and attorneys of Lender and such holders or
assignees (collectively called the "Indemnitees") harmless from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including the fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated a party thereto) that may be imposed on, incurred by, or asserted
against that Indemnitee, in any manner relating to or arising out of this
Agreement or any other Loan Document, the consummation of the transactions
contemplated by this Agreement, the statements contained in the commitment
letters, if any, delivered by Lender, Lender's agreement to make the Loans
hereunder, the use or intended use of the proceeds of any of the Loans or the
exercise of any right or remedy hereunder or under any other Loan Document (the
"Indemnified Liabilities"); PROVIDED that Borrower shall have no obligation to
an Indemnitee hereunder with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of that Indemmitee as determined by a
court of competent jurisdiction.
9.5 AMENDMENTS AND WAIVERS. This Agreement together with the other Loan
Documents constitutes the entire agreement between Lender and Borrower, and no
amendment, modification, termination or waiver of any provision of this
Agreement or of any other Loan Document, or consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
Lender and Borrower. Each amendment, modification, termination or waiver shall
be effective only in the specific instance and for the specific purpose for
which it was given.
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9.6 NOTICES. Unless otherwise specifically provided herein, all notices shall
be in writing addressed to the respective party as set forth below and may be
personally served, telecopied or sent by overnight courier service or United
States mail and shall be deemed to have been given: (a) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. (New York time) or, if not, on
the next succeeding Business Day; (c) if delivered by overnight courier, two
days after delivery to such courier properly addressed; or (d) if by U.S. Mail,
four Business Days after depositing in the United States mail, with postage
prepaid and properly addressed.
If to Borrower: THE NORTH FACE, INC.
999 Harrison Street
Berkeley, California 94710
Attention: President
Telecopy No.: (510) 525-3346
With a copy to: Crosby, Heafey, Roach & May
1999 Harrison Street
Oakland, California 94612-3573
Attention: Philip L. Bush
Telecopy No.: (510) 273-8832
If to Lender: HELLER FINANCIAL, INC.
101 Park Avenue
New York, New York 10178
Attention: Portfolio Manager
Telecopy No.: (212) 880-2060
With a copy to: HELLER FINANCIAL, INC.
101 Park Avenue
New York, New York 10178
Attn: Legal Department
Telecopy No.: (212) 880-7158
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this subsection
9.6.
9.7 SURVIVAL OF WARRANTIES AND CERTAIN AEREEMENTS. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrower set forth in subsections 9.3 and 9.4 shall survive
the payment of the Loans and the termination of this Agreement.
9.8 INDULGENCE NOT WAIVER. No failure or delay on the part of Lender or any
holder of the Term Note in the exercise of any power, right or privilege
hereunder or under the Term Note
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shall impair such power, right or privilege or be construed to be a waiver of
any default or acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
9.9 MARSHALING; PAYMENTS SET ASIDE. Lender shall not be under any obligation
to marshal any assets in favor of any Loan Party or any Shareholder or any other
party or against or in payment of any or all of the Obligations. To the extent
that any Loan Party or any Shareholder makes a payment or payments to Lender or
Lender enforces its security interests or exercise its rights of setoff, and
such payment or payments or the proceeds of such enforcement or setoff or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such recovery, the Obligations or part
thereof originally intended to be satisfied, and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
9.10 ENTIRE AGREEMENT. This Agreement, the Term Note, and the other Loan
Documents referred to herein embody the final, entire agreement among the
parties hereto and supersede any and all prior commitments, agreements,
representations, and understandings, whether written or oral, relating to the
subject matter hereof and may not be contradicted or varied by evidence of prior
contemporaneous, or subsequent oral agreements or discussions of the parties
hereto or their agents or attorneys. There are no oral agreements among the
parties hereto.
9.11 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.
9.12 SEVERABILITY. The invalidity, illegality or unenforceability in any
jurisdiction of any provision in or obligation under this Agreement or the other
Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
or the other Loan Documents or of such provision or obligation in any other
jurisdiction.
9.13 HEADINGS. Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose or be given any substantive effect.
9.14 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
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9.15 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
except that Borrower may not assign its rights or obligations hereunder without
the written consent of Lender.
9.16 NO FIDUCIARY RELATIONSHIP; LIMITATION OF LIABILITIES.
(A) No provision in this Agreement or in any other Loan Document and no
course of dealing between the parties shall be deemed to create any fiduciary
duty by Lender to Borrower.
(B) Neither Lender, nor any affiliate, officer, director, employee,
attorney, or agent of Lender shall have any liability with respect to, and
Borrower hereby waives, releases, and agrees not to sue any of them upon, any
claim for any special, indirect, incidental, or consequential damages
suffered or incurred by Borrower in connection with, arising out of, or in
any way related to, this Agreement or any other Loan Document, or any of the
transactions contemplated by this Agreement or any other Loan Document.
Borrower hereby waives, releases, and agrees not to sue Lender or any of
Lender's affiliates, officers, directors, employees, attorneys, or agents for
punitive damages in respect of any claim in connection with, arising out of,
or in any way related to, this Agreement or any other Loan Document, or any
of the transactions contemplated by this Agreement or any of the transactions
contemplated hereby.
9.17 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED WITHIN THE BOROUGH OF MANHATTAN, STATE OF NEW
YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE TERM NOTE OR ANY
OTHER LOAN DOCUMENT SHALL BE LITIGATED IN SUCH COURTS. BORROWER ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE TERM NOTE, ANY OTHER
LOAN DOCUMENT OR THE OBLIGATIONS.
9.18 WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT, THE TERM NOTE OR ANY OTHER LOAN DOCUMENT. BORROWER AND
LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING
INTO THIS AGREEMENT, THE TERM NOTE AND THE OTHER LOAN DOCUMENTS AND THAT EACH
WILL CONTINUE TO
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RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER AND LENDER
FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
9.19 CONSTRUCTION. Borrower and Lender each acknowledge that it has had the
benefit of legal counsel of its own choice and has been afforded an opportunity
to review this Agreement and the other Loan Documents with its own legal counsel
and that this Agreement and the other Loan Documents shall be construed without
regard to which party may be deemed to have drafted the same or any provision
thereof.
9.20 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments, waivers,
consents, or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto, and acceptance of the Borrower's counterpart by
Lender at its office in New York.
9.21 NO DUTY. All attorneys, accountants, appraisers, and other professional
Persons and consultants respectively retained by Lender, Borrower and Borrower's
Affiliates shall have the right to act exclusively in the interest of the party
retaining then and shall have no duty of disclosure, duty of loyalty, duty of
care, or other duty or obligation of any type or nature whatsoever to any other
party; PROVIDED that this Section 9.21 shall not be deemed to reduce the legal
or contractual duty of any Person providing reports, opinions, financial
statements, audit reports or other documents to any Person.
[remainder of page intentionally blank]
63
<PAGE>
Witness the due execution of this Loan and Security Agreement by the
respective duly authorized officers of the undersigned as of the date first
written above.
HELLER FINANCIAL, INC. TNF HOLDINGS COMPANY INC.
By: /s/ Jason D. Drattell By: /s/ Marsden S. Cason
--------------------------- ---------------------------
Name: Jason D. Drattell Name: Marsden S. Cason
Title: Vice President Title: President
64
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(this "First Amendment") is entered into as of this 4th day of May, 1995 between
THE NORTH FACE, INC., a Delaware corporation ("Borrower"), and HELLER FINANCIAL,
INC., a Delaware corporation, as a lender and as agent (in such capacity,
"Agent") for the financial institutions from time to time parties to that
certain Amended and Restated Loan and Security Agreement dated as of March 1,
1995 (the "Loan Agreement").
WHEREAS, the parties hereto desire to amend the provisions of the Loan
Agreement providing for the number of Lenders required to give certain consents
and approvals;
NOW, THEREFORE, in consideration of the above recitals, the
agreements, covenants and provisions contained in the Loan Documents, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto agree as follows:
1. AMENDMENT OF SUBSECTION 1.1. The definition of "Requisite Lenders" is
amended to read in its entirety as follows:
"Requisite Lenders" means (a) Lenders having (i) fifty-one
percent (51%) or more of the Total Loan Commitments, or (ii) if the Term
Loan Commitments have been terminated, fifty-one percent (51%) or more of
the sum of the Revolving Loan Commitments and the aggregate outstanding
principal amount of the Term Loans, if any, or (iii) if all Commitments
have been terminated, fifty-one percent (51%) or more of the aggregate
outstanding principal amount of the Revolving Loan and the Term Loan, and
(b) at any time that there are three or more Lenders, at least two Lenders.
2. EFFECT OF THIS FIRST AMENDMENT. Whenever the term "Requisite Lenders"
is used in the Loan Agreement or any other Loan Document, it shall have the
meaning set forth above, and all references to the Loan Agreement shall mean the
Loan Agreement as amended hereby. Except as expressly amended hereby, the Loan
Agreement and each of the other Loan Documents shall remain in full force and
effect, and are hereby ratified and confirmed.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed by a duly authorized officer as of the date first above
written.
HELLER FINANCIAL, INC., as THE NORTH FACE, INC.
Agent and as a Lender
By /s/ By /s/William A. McFarlane
-------------------------- --------------------------
Name Name
------------------------ ------------------------
Title Vice President Title
----------------------- -----------------------
<PAGE>
SECOND AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(this "Second Amendment") is entered into on this ___ day of August, 1995
between THE NORTH FACE, INC., a Delaware corporation, as Borrower, HELLER
FINANCIAL, INC., a Delaware corporation, IBJ SCHRODER BANK & TRUST COMPANY, a
New York bank, and BANK OF AMERICA ILLINOIS, a Illinois corporation, as Lenders
under that certain Amended and Restated Loan and Security Agreement dated as of
March 1, 1995, as amended (the "Loan Agreement"). All capitalized terms not
otherwise defined herein shall have the meaning ascribed thereto in the Loan
Agreement.
WHEREAS, the Borrower has requested that the Lenders make a Special Term
Loan to Borrower in the aggregate principal amount of $1,000,000; and
WHEREAS, the Borrower has requested Lenders permission to make a Restricted
Junior Payment; and
WHEREAS, Lenders are willing to accede to Borrower's request;
NOW, THEREFORE, in consideration of the above recitals, the agreements,
covenants and provisions contained in the Loan Documents, and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. Subsection 1.1 of the Agreement is amended as follows:
A. The following definitions shall be inserted in their correct
alphabetical order:
(i) "Special Term Loan" means all advances made by Lenders
pursuant to subsection 2.1(I).
(ii) "Special Term Loan Commitment" means: (a) as to any Lender,
the commitment of such Lender to make the Special Term Loan as set forth on the
signature pages of this Second Amendment opposite each Lender's signature or in
the most recent Lender Addition Agreement, if any, if executed by each Lender;
and (b) as to all Lenders, the aggregate commitment of all Lenders to make the
Special Term Loan.
(iii) "Special Term Note" means each Promissory Note issued by
Borrower pursuant to subsection 2.1(F); and
B. The below listed definitions shall be amended to read as
follows:
(i) "Note" and "Notes" means one or more of the Term Notes,
Revolving Notes or Special Term Notes or a combination thereof;
<PAGE>
(ii) "Loan" or "Loans" means an advance or advances under the
Term Loan Commitment, the Special Term Loan Commitment or the Revolving Loan
Commitment (including a Seasonal Overadvance), including all loans under the
existing Loan Agreement outstanding on the Closing Date;
(iii) "Prime Rate Margin" means (i) with respect to Revolving
Loans, including any Seasonal Overadvances, one percent (1%); (ii) with respect
to Term Loans, one and one-quarter percent (1 1/4%); and (iii) with respect to
Special Term Loan, two percent (2%); provided, however, the Prime Rate Margin
for Revolving Loans and Term Loans may subject to reductions from time to time
in accordance with subsection 2.2(A).
2. Subsection 2.1 of the Loan Agreement shall be amended by adding
thereto a subsection "I" which shall read as follows:
"I. SPECIAL TERM LOAN. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrower
herein set forth, each Lender, severally, agrees to lend to Borrower on August
18, 1995 its Pro Rata Share of the Special Term Loan which is in the aggregate
amount of $1,000,000. The Special Term Loan shall be funded in one drawing.
Amounts borrowed under this subsection 2.1(I) and repaid may not be
reborrowed. Borrower shall repay this Special Term Loan in full on or prior to
December 29, 1995.
3. Subsection 2.1(B)(1)(a) shall be amended to read as follows:
"(a) the Revolving Loan Commitment minus (i) the Risk Participation
Reserve and (ii) the outstanding balance due on the Special Term Loan"
4. Subsection 2.1(F) of the Loan Agreement is amended by deleting the
period at the end of the first sentence and adding the following:
"and (3) a Special Term Note to evidence the Special Term Loan,
such Special Term Note to be in the principal amount of the Special Term Loan
Commitment of such Lender and with other appropriate insertions."
5. Subsection 2.2(A) of the Loan Agreement shall be amended by
inserting the following as the penultimate paragraph thereof:
"Notwithstanding anything to the contrary contained above, the
Special Term Loan shall be a Prime Rate Loan only (i.e. no Libor Rate option)
and shall not be subject to the interest rate reduction provision set forth
above."
6. The penultimate sentence of subsection 2.3(D) shall be amended by
deleting the period at the end thereof and adding the following:
"or (z) if the Special Term Loan is prepaid in whole or in part."
<PAGE>
7. The first sentence of subsection 2.4(C) shall be amended to read as
follows:
"Borrower may, at any time and upon not less than three (3) Business
Days prior notice to Agent and payment of any fees due under subsection 2.3(D),
prepay the Term Loan in whole or in part and/or the Special Term Loan in whole
or in part, and upon like notice may terminate the Revolving Loan Commitment,
provided, however, the Revolving Loan Commitment may not be terminated by
Borrower until the Term Loan, the Special Term Loan and any Seasonal Overadvance
and all Revolving Loans are paid in full."
8. Subsection 7.5 shall be amended by replacing the period at the end
thereof with a semicolon and adding the following immediately thereafter:
"and (h) Borrower may make a payment of up to $1,000,000 under a
Confidential Settlement Agreement and Mutual Release dated August , 1995,
entered into among Chemical Bank, as Agent for Itself, The First National
Bank of Boston, and The Hongkong and Shanghai Banking Corporation Limited,
The First National Bank of Boston, The Hongkong and Shanghai Banking
Corporation Limited, Marsden S. Cason, William McFarlane, The North Face,
Inc. and J.H. Whitney & Co."
In consideration of the foregoing amendments, Borrower shall pay to Agent,
on behalf of Lenders, an Amendment Fee in the amount of $20,000.
Except as explicitly amended hereby, the Loan Agreement shall remain in
full force and effect and is hereby ratified and confirmed.
This Second Amendment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
Second Amendment shall become effective upon the execution of a counterpart
hereof by each of the parties hereto and acceptance of Borrower's counterpart
by Agent at its office in New York and the receipt by Agent of the Amendment
Fee.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be executed by duly authorized officers as of the date first above written.
THE NORTH FACE, INC. IBJ SCHRODER BANK
& TRUST COMPANY
By: /s/ Marsden S. Cason By: /s/ Peter W. Thompson
------------------------- -------------------------
Name: Marsden S. Cason Name: Peter W. Thompson
----------------------- -----------------------
Title: Title: V.P.
---------------------- ----------------------
Special Term Loan Commitment $200,000
--------
HELLER FINANCIAL, INC. BANK OF AMERICA ILLINOIS
By: /s/ Albert J. Forzano By: /s/ Scott Peters
------------------------- -------------------------
Name: Albert J. Forzano Name: Scott Peters
----------------------- -----------------------
Title: Vice President Title: V.P.
---------------------- ----------------------
Special Term Loan Commitment $600,000 Special Term Loan Commitment $200,000
-------- --------
CONSENTED TO:
WHITNEY SUBORDINATED
DEBT FUND, L.P.
By: /s/ Ray E Newton, III
-------------------------
Name: Ray E. Newton, III
-----------------------
Title:
----------------------
-4-
<PAGE>
THIRD AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment") is dated as of March 27, 1996 and entered into by
and among THE NORTH FACE, INC. (formerly known as TNF Holdings Company, Inc.)
("Borrower"), the financial institutions set forth on the signature pages to
this Amendment (the "Lenders") and HELLER FINANCIAL, INC., as Agent for the
Lenders ("Agent").
WHEREAS, Borrower, Lenders and Agent have entered into that certain
Amended and Restated Loan and Security Agreement dated as of March 1, 1995, as
amended by that certain First Amendment to Amended and Restated Loan and
Security Agreement and that certain Second Amendment to Amended and Restated
Loan and Security Agreement (collectively, the "Existing Loan Agreement");
WHEREAS, Borrower, Lenders and Agent desire to amend the Existing Loan
Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants in the Loan Documents and herein, Borrower, Lenders and
Agent agree as follows:
1. DEFINITIONS. All capitalized terms used herein without
definition shall have the meanings given such terms in the Existing Loan
Agreement.
2. AMENDMENTS TO THE EXISTING LOAN AGREEMENT.
2.1 Subsection 1.1 of the Existing Loan Agreement is amended as
follows:
(a) The definitions of "Inventory Sublimit," "LIBOR Rate
Margin," "Prime Rate Margin," "Revolving Loan Commitment" and "Term Loan
Commitment" are deleted and replaced with the following:
"Inventory Sublimit" means $20,000,000 in 1995, $30,000,000 in 1996,
$30,000,000 in 1997 and $35,000,000 thereafter.
"LIBOR Rate Margin" means, with respect to Revolving Loans (other
than any Tradename Advance), two and three-quarters percent (2.75%), and with
respect to Term Loans and Tradename Advances, three percent (3%) subject to
reduction from time to time in accordance with subsection 2.2(A).
"Prime Rate Margin" means, with respect to Revolving Loans (other than
any Tradename Advance), one percent (1.0%) and with respect to Term Loans and
any
<PAGE>
Tradename Advance, one and one quarter percent (1.25%), subject to reduction
from time to time in accordance with subsection 2.2(A).
"Revolving Loan Commitment" means (a) as to any Lender, the commitment
of such Lender to make Revolving Loans (including Tradename Advances) and to
purchase risk participations in Lender Letters of Credit and Underlying L/C's
pursuant to subsection 2. 1(G) as set forth on the signature page of the Third
Amendment opposite such Lender's signature or in the most recent Lender Addition
Agreement, if any, executed by such Lender and (b) as to all Lenders, the
aggregate commitment of all Lenders to make Revolving Loans and to purchase risk
participations in Lender Letters of Credit and Underlying L/C's pursuant to
subsection 2.1(G).
"Term Loan Commitment" means (a) as to any Lender, the commitment of
such Lender to make the Term Loan as set forth on the signature page of the
Third Amendment opposite such Lender's signature or in the most recent Lender
Addition Agreement, if any, executed by such Lender and (b) as to all Lenders,
the aggregate commitment of all Lenders to make the Term Loan.
(b) The definitions of "Seasonal Overadvance" and "Overadvance
Period" are deleted in their entirety.
(c) The following definitions are added in the appropriate
alphabetical order:
"Appraised Value of Borrower's Tradenames" means the value of
Borrower's tradenames as determined by that certain appraisal by Curtis
Financial Group, Inc., dated as of December 31, 1994, or as determined by any
subsequent appraisal performed by a firm acceptable to Agent and Lenders and in
scope and substance acceptable to Agent and Lenders.
"Dilution Reserve" means a reserve established by Agent against
Eligible Accounts equal to one and eight tenths percent (1.8%) of the aggregate
amount of Eligible Accounts, as such amount may be increased or decreased by
Agent based on examinations of Borrower's Accounts.
"Third Amendment" means the Third Amendment to Amended and Restated
Loan and Security Agreement dated as of March 27, 1996 among Borrower, Lenders
and Agent.
"Tradename Advance" means all advances made by Lenders pursuant to
subsection 2.1(C).
2.2 Subsection 2.1(A) of the Existing Loan Agreement is deleted in
its entirety and replaced with the following:
(a) TERM LOAN. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and Warranties of Borrower
herein set
<PAGE>
forth, each Lender agrees, severally and not jointly, to make advances to
Borrower from time to time until the first anniversary of the effective date of
the Third Amendment equal to its Pro Rata Share of the Term Loan. The Term Loan
Commitment is Seven Million Dollars ($7,000,000), and on or prior to the first
anniversary of the effective date of the Third Amendment shall be reduced by the
amount of each Scheduled Installment and any mandatory prepayment under
subsection 2.4(B). The proceeds of the Term Loan shall be used solely for
Capital Expenditures (including leasehold improvements). Each advance under the
Term Loan shall be in a minimum principal amount of at least One Hundred
Thousand Dollars ($100,000). Amounts borrowed under this subsection 2.1(A) and
repaid may not be reborrowed. Borrower shall make principal repayments in the
amounts of the applicable Scheduled Installments (or such lesser principal
amount of the Term Loan as shall then be outstanding) on the dates and in the
amounts set forth below. The entire outstanding principal balance of the Term
Loan shall be due and payable on the Termination Date.
"Scheduled Installment" means, for each date set forth below, the
amount in Dollars set forth opposite such date; PROVIDED THAT if on or prior
April 1, 1997 less than $7,000,000 of the Term Loan has been advanced, the
subsequent installments shall be reduced ratably to amortize the outstanding
Term Loan on the same ratable basis as set forth below:
Date Scheduled Installment
---- ---------------------
4/1/96 $312,500
7/1/96 $312,500
10/1/96 $312,500
1/1/97 $312,500
4/1/97 $458,333
7/1/97 $458,333
10/1/97 $458,333
1/1/98 $458,333
4/1/98 $458,333
7/1/98 $458,333
10/1/98 $458,333
1/1/99 $458,333
4/1/99 $520,833
7/1/99 $520,833
10/1/99 $520,833
1/1/00 $520,833
2.3 The first paragraph of subsection 2.1(B) of the Existing Loan
Agreement is amended to delete the second sentence and replace it with the
following:
"The Revolving Loan Commitment is Fifty-eight Million Dollars
($58,000,000)."
2.4 Subsection 2.l(B)(2) of the Existing Loan Agreement is deleted
in its entirety and replaced with the following:
<PAGE>
(a) "Borrowing Base" means, as of any date of determination, an
amount equal to the sum of (a) eighty-five percent (85%) of Eligible Accounts;
PLUS (b) the lesser of (i) fifty percent (50%) of Eligible Inventory (or 75% of
Eligible Inventory from April 1 to August 31 of each year) and (ii) the
Inventory Sublimit; PLUS (b) fifty percent (50%) of the sum of the face amount
of (i) Risk Participation Agreements entered into with respect to documentary
letters of credit to purchase Inventory or (ii) Lender Letters of Credit used to
purchase Inventory (in each case net of provisions for duty and freight
charges); PLUS (d) eighty-five percent (85%) of Eligible Canadian Accounts:
PROVIDED that the amounts available under this clause (d) shall not exceed the
unpaid amount of the Intercompany Inventory Account LESS reserves for
withholding taxes, if any, payable by TNF Canada with respect thereto and shall
only be available until TNF Canada enters into a Permitted Canadian Financing;
LESS (e) the Dilution Reserve; LESS (f) in each category, such other reserves as
Agent in its sole, reasonable discretion elects to establish from time to time.
For purposes of calculating the Borrowing Base, all Eligible Canadian Accounts
and Eligible Inventory shall be denominated in Dollars, based on the most
recently available conversion rate from Canadian dollars.
2.5 Subsection 2.l(C) of the Existing Loan Agreement is deleted and
replaced with the following:
(C) TRADENAME ADVANCES. From April 1 to August 31 in 1996,
1997 and 1998 only, each Lender agrees, severally and not jointly, to make
Revolving Loans to Borrower in excess of the Borrowing Base on the terms set
forth in this subsection (each such advance, a "Tradename Advance"). Each
Tradename Advance by a Lender shall be in an amount equal to its Pro Rata Share
of the aggregate Tradename Advances to be made on any Funding Date. In no event
may the aggregate outstanding Tradename Advances exceed the lesser of (i) ten
percent (10%) of the Appraised Value of Borrower's Tradenames and (ii)
$3,000,000 in 1996, $2,000,000 in 1997 and $1,000,000 in 1998, nor may be the
aggregate outstanding amount of Revolving Loans PLUS the outstanding amount of
Tradename Advances PLUS the Risk Participation Reserve exceed the Revolving Loan
Commitment. All Tradenames Advances shall be repaid no later than August 31 in
the applicable year.
2.6 Subsection 2.1(G)(1) is deleted and replaced by the following:
(1) MAXIMUM AMOUNT. The aggregate amount of Risk Participation
Liability with respect to all Lender Letters of Credit and Risk Participation
Agreements outstanding at any time shall not exceed Ten Million Dollars
($10,000,000), subject to, and reduced by, any reductions in the Revolving Loan
Commitment under subsection 2.4.
2.7 The second sentence of subsection 2.1(E)(1) of the Existing
Loan Agreement is deleted and replaced with the following:
LIBOR Rate Loans made on any Funding Date shall be in an
aggregate minimum amount of Five Hundred Thousand Dollars ($500,000) and
integral multiples of ($100,000) in excess of such amount.
<PAGE>
2.8 Subsection 2.3(D) of the Existing Loan Agreement is deleted in
its entirety.
2.9 The last sentence of subsection 2.4(B)(1) is deleted and replaced
with the following:
Such prepayments shall be applied first to Revolving Loans other than
Tradename Advances, and then to Tradename Advances.
2.10 The third sentence of subsection 2.6 is deleted and replaced
with the following:
Except for payments on the Term Loan and mandatory prepayments,
principal payments of the Loans shall be applied first to Revolving Loans other
than Tradename Advances and then to Tradename Advances.
2.11 All references in the Existing Loan Agreement to "Seasonal
Overadvances" shall be amended to read "Tradename Advances".
2.12 Exhibits F and H to the Existing Loan Agreement are deleted
in the entirety and replaced by Exhibits F and H hereto.
2.13 Schedules 4.7 and 4.20 of the Existing Loan Agreement are
deleted and replaced by Schedules 4.7 and 4.20 attached hereto.
2.12 The addresses for Borrower, Agent, Heller and Lenders are
amended to read as follows:
If to Borrower: THE NORTH FACE, INC.
2013 Farallon Drive
San Leandro, California 94577
Attention: Vice President-Finance
Telecopy No.: (510) 618-3530
With a copy to: Crosby, Heafey, Roach & May
1999 Harrison Street
Oakland, California 94612-3573
Attention: Philip L. Bush
Telecopy No.: (510) 273-8832
If to Agent: HELLER FINANCIAL, INC.
or Heller 500 West Monroe Street
Chicago, Illinois 60661
Attention: Heller Business Credit
Portfolio Manager
Telecopy No.: (312) 441-6969
<PAGE>
With a copy to: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
Attention: Heller Business Credit
Legal Department
Telecopy No.: (312) 441-7652
If to any Lender: its address indicated on the
signature page to the Third Amendment,
in a Lender Addition Agreement or in a
notice to Agent and Borrower
3. CONSENT AND WAIVER. The Lenders hereby consent to Borrower's
delivery of its audited financial statements for Fiscal Year 1995 on or prior to
April 15, 1996, notwithstanding the requirements of subsections 5.1(C) of the
Existing Loan Agreement, and waive any Default or Event of Default which is or
would be caused by Borrower's failure to deliver those financial statements
prior to April 15, 1996.
4. CONDITIONS TO THE EFFECTIVENESS OF THIS AMENDMENT. Each of the
following shall be conditions precedent to the effectiveness of this Amendment:
4.1 Borrower shall have executed and delivered to Agent this
Amendment and the Notes payable to the order of each Lender, and each Lender
shall have executed and delivered (which may be by facsimile) to Agent a
counterpart of this Agreement.
4.2 After giving effect to this Amendment (a) no Default or Event of
Default shall exist and (b) all of the representations and warranties contained
in the Loan Documents shall be true, correct and complete in all material
respects as if made on the date on which this Amendment becomes effective
(except for any representation and warranty limited by its terms to a specific
date), and Borrower shall have delivered to Lender a certificate to such effect.
4.3 Borrower shall have obtained such consents and amendments to the
Subordinated Debt Agreement and from the holders of its Preferred Stock as
necessary or appropriate to permit the transactions contemplated by this
Amendment, and all Obligations under the Existing Loan Agreement, as amended
hereby, to be "Senior Indebtedness" under the Subordinated Debt Agreement, all
in form and substance acceptable to Agent and Lenders.
4.4 Borrower shall deliver to Agent a certificate of the Secretary or
Assistant Secretary of Borrower, including an incumbency certificate, certifying
to the charter documents and resolutions approving the transactions contemplated
by this Amendment.
4.5 After giving effect to all Loans to be made on the effective date
of this Amendment, the Maximum Revolving Loan Amount shall exceed the principal
balance of the
<PAGE>
Revolving Loans plus the Letter of Credit Reserve by an amount acceptable to
Agent and Lenders.
4.6 No event shall have occurred since January 31, 1996 which has
resulted in any Material Adverse Effect.
4.7 Borrower shall have paid to Agent, for the benefit of the
Lenders, a closing fee in the amount of $56,250, to be shared ratably on the
basis of the increase in the Commitments of each Lender, and the fees set forth
in the letter agreement between Agent and Borrower of even date herewith.
4.8 The Agent shall have received an opinion of Borrower's counsel,
addressed to Agent and Lenders, in form and substance satisfactory to Agent,
Lenders and their counsel.
5. EFFECT OF AMENDMENT. From and after the date on which this
Amendment becomes effective, all references in the Loan Documents to the Loan
Agreement shall mean the Existing Loan Agreement as amended hereby. Except as
expressly amended or modified hereby, the Existing Loan Agreement and the other
Loan Documents, and the security interests granted thereunder, shall remain in
full force and effect and are hereby ratified and confirmed.
6. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
7. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which counterparts together shall constitute but one and
the same instrument. This Agreement shall become effective upon the execution
of a counterpart hereof by each of the parties hereto, delivery of such
counterparts to Agent in accordance with subsection 4.1 above, and acceptance of
the Borrower's counterpart by Agent and satisfaction or waiver of the conditions
set forth in Section 3.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed by a duly authorized officer as of the date first above
written.
THE NORTH FACE, INC.
By: /s/ Marsden S. Cason
--------------------------
Name: Marsden S. Cason
------------------------
Its: CEO
-------------------------
HELLER FINANCIAL, INC.,
as a Lender and as Agent
Revolving Loan
Commitment: $26,769,231 By: /s/ Nancy Stafford
Term Loan --------------------------
Commitment: $3,230,769 Name:
------------------------
Its:
-------------------------
BANK OF AMERICA ILLINOIS
Revolving Loan
Commitment: $17,846,154 By: /s/ Scott Peters
Term Loan --------------------------
Commitment: $2,153,846 Name:
------------------------
Its:
-------------------------
Address for Notices:
Scott Peters
BANK OF AMERICA ILLINOIS
231 South LaSalle Street, 6th Floor
Chicago, Illinois 60697
IBJ SCHRODER BANK & TRUST COMPANY
Revolving Loan
Commitment: $13,384,615 By: /s/ James Steffy
Term Loan --------------------------
Commitment: $1,615,385 Name:
------------------------
Its: Vice President
-------------------------
Address for Notices:
Jim Steffy
IBJ SCHRODER BANK & TRUST COMPANY
1 State Street
New York, New York 10004
<PAGE>
EXHIBIT F
AMENDED AND RESTATED
SECURED TERM NOTE
$ March 27, 1996
-----------
FOR VALUE RECEIVED, THE NORTH FACE, INC., a Delaware corporation
("Borrower"), promises to pay to the order of___________________________________
__________("Payee"), the principal amount equal to the lesser of (x)____________
__________________($__________), or (y) the amount advanced by Payee as its Term
Loans under the Loan Agreement (as hereinafter defined), payable in Scheduled
Installments pursuant to the Loan Agreement (as hereinafter defined)
Borrower also promises to pay interest on the unpaid principal amount
of this Amended and Restated Secured Term Note (this "Term Note") at the rates
and at the times which shall be determined in accordance with the provisions of
the Amended and Restated Loan and Security Agreement (as amended, supplemented
or otherwise modified from time to time, the "Loan Agreement"), dated as of
March 1, 1995 among Borrower, certain financial institutions ("Lenders") and
Heller Financial, Inc., as a Lender and as agent for Lenders (in such capacity
"Agent"). Capitalized terms used herein without definition shall have the
meanings set forth in the Loan Agreement.
This Term Note is subject to mandatory prepayment as provided in the
Loan Agreement and prepayment at the option of Borrower as provided in the Loan
Agreement.
This Term Note is a "Term Note" as such term is defined and used in
the Loan Agreement, is issued pursuant to the Loan Agreement and is entitled to
the benefits of the Loan Agreement, reference to which is hereby made for a more
complete statement of the terms and conditions under which the Term Loan
evidenced hereby is made and is to be repaid, and the Collateral by which this
Term Note is secured.
All payments of principal and interest due in respect of this Term
Note shall be made without defense, set off or counterclaim, in lawful money of
the United States of America, and in same day funds and delivered to Agent by
wire transfer to
<PAGE>
Agent's account, ABA No. 071-0000-3 Account No. 52-98695 at First National Bank
of Chicago, One First National Plaza, Chicago, IL 60670, Reference: "Heller
Business Credit for the benefit of The North Face", or at such other place as
shall be designated in writing for such purpose in accordance with the terms of
the Loan Agreement.
THE LOAN AGREEMENT AND THIS TERM NOTE SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Term Note may become, or may be declared to be, due and
payable in the manner, upon the conditions and with the effect provided in the
Loan Agreement.
The terms of this Term Note are subject to amendment only in the
manner provided in the Loan Agreement.
No reference herein to the Loan Agreement and no provision of this
Term Note or the Loan Agreement or the other Loan Documents shall alter or
impair the obligation of Borrower, which is absolute and unconditional, to pay
the principal of and interest on this Term Note at the place, at the respective
times, and in the currency herein prescribed.
Borrower promises to pay all fees, costs and expenses incurred in the
collection and enforcement of this Term Note. Borrower and endorsers of this
Term Note hereby consent to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waive diligence, presentment,
protest, demand and notice of every kind (except such notices as may be
expressly required under the Loan Agreement or the other Loan Documents) and, to
the full extent permitted by law, the right to plead any statute of limitations
as a defense to any demand hereunder.
Whenever possible, each provision of this Term Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Term Note shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Term Note.
This Term Note amends and restates the Secured Term Note dated May 4,
1995 issued by Borrower to Payee.
2
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Term Note to be executed
and delivered by its duly authorized officer, as of the day and year first
written above.
THE NORTH FACE, INC.
a Delaware corporation
By:
------------------------------------
Name:
Title:
3
<PAGE>
EXHIBIT H
AMENDED AND RESTATED
SECURED REVOLVING NOTE
$_________ March 27, 1996
FOR VALUE RECEIVED, THE NORTH FACE, INC., a Delaware corporation
("Borrower"), promises to pay to the order of________________________("Payee"),
the principal amount equal to the lesser of (x)_________________________________
($_______), or (y) the amount advanced by Payee as its Revolving Loan under the
Loan Agreement (as hereinafter defined), payable pursuant to the Loan Agreement
(as hereinafter defined).
Borrower also promises to pay interest on the unpaid principal amount
of this Amended and Restated Secured Revolving Note (this "Revolving Note") at
the rates and at the times which shall be determined in accordance with the
provisions of the Amended and Restated Loan and Security Agreement (as amended,
supplemented or otherwise modified from time to time, the "Loan Agreement"),
dated as of March 1, 1995 among Borrower, certain financial institutions
("Lenders') and Heller Financial, Inc., as a Lender and as agent for Lenders (in
such capacity "Agent"). Capitalized terms used herein without definition shall
have the meanings set forth in the Loan Agreement.
This Revolving Note is subject to mandatory prepayment as provided in
the Loan Agreement and prepayment at the option of Borrower as provided in the
Loan Agreement.
This Revolving Note is a "Revolving Note" as such term is defined and
used in the Loan Agreement, is issued pursuant to the Loan Agreement and is
entitled to the benefits of the Loan Agreement, reference to which is hereby
made for a more complete statement of the terms and conditions under which the
Revolving Loan evidenced hereby is made and is to be repaid, and the Collateral
by which this Revolving Note is secured.
All payments of principal and interest due in respect of this
Revolving Note shall be made without defense, set off or counterclaim, in lawful
money of the United States of America, and in same day funds and delivered to
Agent by wire
<PAGE>
transfer to Agent's account, ABA No. 071-0000-3 Account No. 52-98695 at First
National Bank of Chicago, One First National Plaza, Chicago, IL 60670,
Reference: "Heller Business Credit for the benefit of The North Face", or at
such other place as shall be designated in writing for such purpose in
accordance with the terms of the Loan Agreement.
THE LOAN AGREEMENT AND THIS TERM NOTE SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Revolving Note may become, or may be declared to be,
due and payable in the manner, upon the conditions and with the effect provided
in the Loan Agreement.
The terms of this Revolving Note are subject to amendment only in the
manner provided in the Loan Agreement.
No reference herein to the Loan Agreement and no provision of this
Revolving Note or the Loan Agreement or the other Loan Documents shall alter or
impair the obligation of Borrower, which is absolute and unconditional, to pay
the principal of and interest on this Revolving Note at the place, at the
respective times, and in the currency herein prescribed.
Borrower promises to pay all fees, costs and expenses incurred in the
collection and enforcement of this Revolving Note. Borrower and endorsers of
this Revolving Note hereby consent to renewals and extensions of time at or
after the maturity hereof, without notice, and hereby waive diligence,
presentment, protest, demand and notice of every kind (except such notices as
may be expressly required under the Loan Agreement or the other Loan Documents)
and, to the full extent permitted by law, the right to plead any statute of
limitations as a defense to any demand hereunder.
Whenever possible, each provision of this Revolving Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Revolving Note shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Revolving Note.
This Revolving Note amends and restates in its entirety the Secured
Revolving Note dated May 4, 1995 issued by Borrower to Payee.
2
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Revolving Note to
be executed and delivered by its duly authorized officer, as of the day and year
first written above.
THE NORTH FACE, INC,
a Delaware corporation
By:
-------------------------
Name:
Title:
3
<PAGE>
Schedule 4.7
Location of Principal Place of Business,
Books and Records and Collateral
PRINCIPAL PLACES OF BUSINESS:
US Headquarters: The North Face, Inc.
2013 Farallon Drive
San Leandro, California 94577
Tel: (510) 618-3500
Fax: (510) 618-3530
Canada Headquarters: The North Face Canada
294 Walker Drive, Units 10-13
Brampton, Ontario L6J 422
Tel: (905) 790-1300
Fax: (905) 790-3399
Europe Headquarters: The North Face (Europe) Ltd.
P.O. Box 16
Industrial Estate
Port Glasgow
Scotland PA 14 5XL
United Kingdom
Tel: 011-44-1-475-741344
Fax: 011-44-1-475-744572
The North Face Europe Subsidiary: Wholly owned by The North Face (Europe) Ltd.
Note: This company was originally created to operate TNF Europe's military tent
business. Black & Edgington exists name only and currently does not conduct any
business.
Black & Edgington (Export) Ltd.
P.O. Box 16
Industrial Estate
Port Glasgow
Scotland PA 14 5XL
United Kingdom
<PAGE>
COLLATERAL PROPERTIES:
Richmond Warehouse Palo Alto #003
211 West Cutting Blvd. 217 Alma Street
Richmond, CA 94804 Palo Alto, CA 94301
Post #001 TNF-CANADA
180 Post Street (LA Face Nord)
San Francisco, CA 94108 294 Walker Drive, Units 10-13
Brampton, Ontario L6T 472
Seattle #004 CANADA
1023 First Avenue
Seattle, WA 98104 TNF - USA
2013 Farallon Drive
Triangle Square #005 San Leandro, CA 94577
1870-A Harbor Boulevard
Costa Mesa, CA 92627
Denver #006
2490 S. Colorado Boulevard
Denver, CO 80222
Boulder #007
629-K S. Broadway
Boulder, CO 80303
Oakbrook #008
416 Oakbrook Center
Oakbrook, IL 60521
Woodfield #009
Woodfield Shopping Center
Space J-304
Schaumberg, IL 60173
Downtown Chicago #010
875 North Michigan Avenue
Chicago, IL 60611
Berkeley F.O. #060
1238 Fifth Street
Berkeley, CA 94710
San Francisco, F.0. #063
1325 Howard Street
San Francisco, CA 94103
2
<PAGE>
Schedule 4.20
Bank Accounts
The North Face, Inc.
Summary of Bank Accounts
Fed ID # 94-3204082
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Bank Type Number
---- ---- ------
- --------------------------------------------------------------------------------
THE NORTH FACE, INC.
- --------------------------------------------------------------------------------
Bank of America Lockbox 14720 00543
- --------------------------------------------------------------------------------
Disbursement 14720 00500
- --------------------------------------------------------------------------------
Payroll 14720 00505
- --------------------------------------------------------------------------------
Medical Claims 14720 00548
- --------------------------------------------------------------------------------
Bankcard Clearing 14720 00562
- --------------------------------------------------------------------------------
Retail Depository 14720 00524
- --------------------------------------------------------------------------------
Accounts Payable 7313400268
- --------------------------------------------------------------------------------
Seafirst Retail Depository 67655902
- --------------------------------------------------------------------------------
Bank One - Denver Retail Depository 1200395115
- --------------------------------------------------------------------------------
Bank One - Boulder Retail Depository 1100045101
- --------------------------------------------------------------------------------
First Cook Community Retail Depository 193011344
- --------------------------------------------------------------------------------
NBD Bank of Illinois Retail Depository 375001245048
- --------------------------------------------------------------------------------
First Chicago Retail Depository 1115000615515
- --------------------------------------------------------------------------------
Wells Fargo Bank Bankcard Clearing 4103-131454
- --------------------------------------------------------------------------------
THE NORTH FACE (CANADA), INC.
- --------------------------------------------------------------------------------
Toronto Dominion Operating 12840700007
- --------------------------------------------------------------------------------
Lockbox 12840700082
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
<PAGE>
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Fourth Amendment to Loan and Security Agreement ("Amendment") is dated
May 8, 1996, and entered into by and among THE NORTH FACE, INC. (formerly
known as TNF Holdings Company, Inc.)("Borrower"), the financial institutions
set forth on the signature pages to this Amendment (the "Lenders") and HELLER
FINANCIAL, INC., as Agent for the Lenders ("Agent").
WHEREAS, Borrower, Lenders and Agent have entered into a Loan and Security
Agreement (the "Agreement") dated March 1, 1995, as amended; and
WHEREAS, Borrower has requested a reduction in the Minimum EBITDA
requirements for the rolling four (4) quarter period ended June 30, 1996; and
WHEREAS, Borrower has requested a change in the time period for delivery
of Monthly Financials to thirty (30) days after the end of each month; and
WHEREAS, Lenders have agreed to said reduction in the Minimum EBITDA
requirement and the change in reporting requirements, subject to the terms
and conditions set forth herein;
NOW THEREFORE, in consideration of the mutual conditions and agreements
set forth in the Agreement and this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound, hereby agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01. DEFINITIONS. Capitalized terms used in this Amendment to the
extent not otherwise defined herein, shall have the same meanings as in the
Agreement, as amended hereby.
ARTICLE II. AMENDMENTS
Section 2.01. AMENDMENT TO SUBSECTION 5.1(A) "MONTHLY FINANCIALS".
Subsection 5.1(A) shall be, and the same is hereby amended by deleting the
words and number "twenty-five (25) days" appearing in lines 1 and 2 of said
subsection and substituting therefor the words and number "thirty (30) days".
4
<PAGE>
Section 2.02. AMENDMENT TO SUBSECTION 6.2 "MINIMUM EBITDA". Subsection 6.2
shall be, and the same is hereby deleted in its entirety and the following
substituted therefor:
MINIMUM EBITDA. Minimum EBITDA at the end of each fiscal quarter set
forth below for the rolling four (4) quarter period ((or such lesser
period as may equal the number of fiscal quarters elapsed since June 30,
1994 (not including the quarter ended June 30, 1994)) ending on the last
day of each fiscal quarter set forth below shall not be less than the
amount set forth below opposite such date:
Fiscal Quarter Amount
-------------- ------
9/30/94 $ 4,500,000
12/31/94 $ 6,750,000
3/31/95 $ 8,500,000
6/30/95 $ 7,100,000
9/30/95 $ 8,250,000
12/31/95 $ 9,500,000
3/31/96 $10,000,000
6/30/96 $ 8,000,000
9/30/96 $10,400,000
12/31/96 $10,700,000
3/31/97 and thereafter $11,000,000
and in each Fiscal Year, minimum EBITDA for the fiscal quarter ending
September 30 shall not be less than $6,000,000.
ARTICLE III. MISCELLANEOUS
Section 3.01. CONDITIONS. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent (unless
specifically waived in writing by Agent):
(a) there shall have occurred no material adverse change in the business,
operations, financial conditions, profits or prospects, or in the Collateral
or the Borrower;
(b) Borrower shall have executed and delivered such other documents and
instruments as Agent may require; and
(c) all corporate proceedings taken in connection with the transactions
contemplated by this Amendment and all documents, instruments and other
5
<PAGE>
legal matters incident thereto shall be satisfactory to Agent and its
legal counsel.
Section 3.02 RATIFICATION. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Agreement and, except as expressly modified and superseded by
this Amendment, the terms and provisions of the Agreement, are ratified and
confirmed and shall continue in full force and effect.
Section 3.03 CORPORATE ACTION. The execution, delivery and performance of
this Amendment have been authorized by all requisite corporate action on the
part of Borrower and will not violate the Articles of Incorporation or Bylaws
of Borrower.
Section 3.04 SEVERABILITY. Any provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 3.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of Agent and Borrower and their respective
successors and assigns.
Section 3.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment on the date
first above written.
THE NORTH FACE, INC.
By: /s/ Roxanna Prahser
--------------------------------
Title: Chief Financial Officer
-----------------------------
HELLER FINANCIAL, INC.
as a Lender and as Agent
By: /s/ Douglas E. Zweiner
--------------------------------
Title: Vice President
-----------------------------
6
<PAGE>
BANK OF AMERICA ILLINOIS,
as a Lender
By: /s/ Scott Peters
--------------------------------
Title: Vice President
-----------------------------
IBJ SCHRODER BANK & TRUST COMPANY,
as a Lender
By: /s/ James M. Steffy
--------------------------------
Title: Vice President
-----------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
DATED AS OF JUNE 20, 1996
BETWEEN
THE NORTH FACE, INC.
AS BORROWER,
CERTAIN FINANCIAL INSTITUTIONS
AND
HELLER FINANCIAL, INC.,
AS AGENT AND AS A LENDER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 DEFINITIONS....................................................... 1
1.1 Certain Defined Terms............................................ 1
1.2 Accounting Terms................................................. 18
1.3 Other Definitional Provisions.................................... 19
SECTION 2 LOANS AND COLLATERAL............................................ 20
2.1 Loans............................................................ 20
(A) Term Loan.................................................. 20
(B) Revolving Loan............................................. 21
(C) Tradename Advances Facility................................ 22
(D) Eligible Collateral........................................ 22
(E) Borrowing Mechanics........................................ 24
(F) Notes...................................................... 26
(G) Lender Letters of Credit and Risk Participation
Agreements................................................. 26
(1) Maximum Amount....................................... 26
(2) Reimbursement........................................ 26
(3) Conditions of Issuance............................... 27
(4) Request for Letters of Credit........................ 27
(H) Other Letter of Credit and Guaranty Provisions............. 27
(1) Obligations Absolute................................. 27
(2) Nature of Agent's and Lenders' Duties................ 28
2.2 Interest......................................................... 29
2.3 Fees............................................................. 33
(A) Agent's Fee................................................ 33
(B) Unused Line Fee............................................ 33
(C) Letter of Credit and Guaranty Fees......................... 33
(D) Prepayment Fees............................................ 33
2.4 Payments and Prepayments......................................... 34
(A) Manner and Time of Payment................................. 34
(B) Mandatory Prepayments...................................... 34
(1) Overadvance.......................................... 34
(2) Tradename Advances................................... 34
(3) Proceeds of Asset Dispositions and Securities Sales.. 35
(C) Voluntary Prepayments and Repayments....................... 35
(D) Payments on Business Days.................................. 35
2.5 Term of this Agreement........................................... 36
2.6 Statements; Application of Payments.............................. 36
2.7 Grant of Security Interest....................................... 36
i
<PAGE>
PAGE
2.8 Capital Adequacy and Other Adjustments........................... 37
2.9 Taxes............................................................ 37
(A) No Deductions.............................................. 37
(B) Changes in Tax Laws........................................ 38
SECTION 3 CONDITIONS TO EFFECTIVENESS; CONDITIONS TO LOANS................ 41
3.1 Conditions to Effectiveness of this Agreement and to Loans on
the Closing Date................................................. 41
(A) Closing Deliveries......................................... 42
(B) Security Interests......................................... 42
(C) Repayment For Term Loan.................................... 42
(E) Fees and Costs............................................. 42
(F) Corporate Authorization and Opinions....................... 42
(G) Subordinated Debt Documents................................ 42
3.2 Conditions to all Loans and Lender Letters of Credit............. 43
(A) Loan Documents............................................. 43
(B) Consents................................................... 43
(C) Representations and Warranties............................. 43
(D) No Default................................................. 43
(E) Performance of Agreements.................................. 43
(F) No Prohibition............................................. 43
(G) Margin Regulations......................................... 43
(H) No Litigation.............................................. 43
(I) No Material Adverse Change................................. 44
SECTION 4 BORROWER'S REPRESENTATIONS AND WARRANTIES....................... 44
4.1 Organization, Powers, Capitalization............................. 44
(A) Organization and Powers.................................... 44
(B) Capitalization............................................. 44
4.2 Authorization of Borrowing and Acquisition, No Conflict.......... 44
4.3 Financial Condition.............................................. 45
4.4 Indebtedness and Liabilities..................................... 45
4.5 Account Warranties............................................... 45
4.6 Names............................................................ 46
4.7 Locations; FEIN.................................................. 46
4.8 Title to Properties; Liens....................................... 46
4.9 Litigation; Adverse Facts........................................ 46
4.10 Payment of Taxes................................................. 46
4.11 Performance of Agreements........................................ 47
4.12 Employee Benefit Plans........................................... 47
4.13 Intellectual Property............................................ 47
ii
<PAGE>
PAGE
4.14 Broker's Fees.................................................... 47
4.15 Environmental Compliance......................................... 47
4.16 Solvency......................................................... 47
4.17 Disclosure....................................................... 48
4.18 Insurance........................................................ 48
4.19 Compliance with Laws............................................. 48
4.20 Bank Accounts.................................................... 48
4.21 Subsidiaries..................................................... 48
4.22 Use of Proceeds and Margin Security.............................. 49
4.23 Employee Matters................................................. 49
4.24 Governmental Regulation.......................................... 49
4.25 Purchase Agreement; Transaction Documents; Existing
Credit Agreement................................................. 49
4.26 TNF Canada....................................................... 49
SECTION 5 AFFIRMATIVE COVENANTS............................................ 50
5.1 Financial Statements and Other Reports........................... 50
(A) Monthly Financials......................................... 50
(B) Quarterly Financials....................................... 50
(C) Year-End Financials........................................ 51
(D) Accountants' Certification and Reports..................... 51
(E) Compliance Certificate..................................... 51
(F) Borrowing Base Certificates, Registers and Journals........ 51
(G) Reconciliation Reports, Inventory Reports and Listings and
Agings..................................................... 52
(H) Management Report.......................................... 52
(I) Appraisals................................................. 52
(J) Government Notices......................................... 53
(K) Events of Default, etc..................................... 53
(L) Trade Names................................................ 53
(M) Locations.................................................. 53
(N) Bank Accounts.............................................. 53
(O) Litigation................................................. 53
(P) Budgets.................................................... 54
(Q) Subordinated Debt and Equity Notices....................... 54
(R) Other Information.......................................... 54
5.2 Access to Accountants............................................ 54
5.3 Inspection....................................................... 54
5.4 Collateral Records............................................... 54
5.5 Account Covenants; Verification.................................. 54
5.6 Collection of Accounts and Payments.............................. 55
5.7 Endorsement...................................................... 55
5.8 Corporate Existence.............................................. 56
iii
<PAGE>
PAGE
5.9 Payment of Taxes................................................. 56
5.10 Maintenance of Properties; Insurance............................. 56
5.11 Compliance with Laws............................................. 56
5.12 Further Assurances............................................... 56
5.13 Collateral Locations............................................. 57
5.14 Bailees.......................................................... 57
5.15 Mortgages; Title Insurance; Surveys.............................. 57
(A) Mortgaged Property......................................... 57
(B) Title Insurance............................................ 58
(C) Surveys.................................................... 58
5.16 Canadian Accounts................................................ 58
5.17 [Intentionally omitted].......................................... 58
5.18 [intentionally omitted].......................................... 58
5.19 Dividends........................................................ 58
5.20 Post-Closing Deliveries.......................................... 58
SECTION 6 FINANCIAL COVENANTS.............................................. 59
6.1 Tangible Net Worth............................................... 59
6.2 Minimum EBITDA................................................... 59
6.3 Capital Expenditure Limits....................................... 60
6.4 Fixed Charge Coverage............................................ 60
6.5 Total Interest Coverage.......................................... 60
6.6 Leverage Ratio................................................... 61
6.7 Adjustment of Financial Covenants................................ 61
SECTION 7 NEGATIVE COVENANTS............................................... 61
7.1 Indebtedness and Liabilities..................................... 61
7.2 Guaranties....................................................... 62
7.3 Transfers, Liens and Related Matters............................. 62
(A) Transfers.................................................. 62
(B) Liens...................................................... 63
(C) No Negative Pledges........................................ 63
(D) No Restrictions on Subsidiary Distributions to Borrower.... 63
7.4 Investments and Loans............................................ 63
7.5 Restricted Junior Payments....................................... 64
7.6 Restriction on Fundamental Changes............................... 64
7.7 Changes Relating to Subordinated Debt and Series A
Preferred Stock.................................................. 64
7.8 Transactions with Affiliates..................................... 65
7.9 Environmental Liabilities........................................ 65
7.10 Conduct of Business.............................................. 65
7.11 Compliance with ERISA............................................ 65
iv
<PAGE>
PAGE
7.12 Tax Consolidations............................................... 66
7.13 Subsidiaries..................................................... 66
7.14 Fiscal Year...................................................... 66
7.15 Press Release; Public Offering Materials......................... 66
7.16 Bank Accounts.................................................... 66
SECTION 8 DEFAULT, RIGHTS AND REMEDIES..................................... 66
8.1 Event of Default................................................. 66
(A) Payment.................................................... 66
(B) Default in Other Agreements................................ 66
(C) Breach of Certain Provisions............................... 67
(D) Breach of Warranty......................................... 67
(E) Other Defaults Under Loan Documents........................ 67
(F) Change in Control.......................................... 67
(G) Involuntary Bankruptcy; Appointment of Receiver, etc....... 67
(H) Voluntary Bankruptcy; Appointment of Receiver, etc......... 67
(I) Liens...................................................... 68
(J) Judgment and Attachments................................... 68
(K) Dissolution................................................ 68
(L) Injunction................................................. 68
(M) Invalidity of Loan Documents............................... 68
(N) Failure of Security........................................ 68
(O) Damage, Strike, Casualty................................... 68
(P) Licenses and Permits....................................... 69
8.2 Suspension of Commitments........................................ 69
8.3 Acceleration..................................................... 69
8.4 Remedies......................................................... 69
8.5 Appointment of Attorney-in-Fact.................................. 70
8.6 Limitation on Duty of Agent and Lenders with Respect to
Collateral....................................................... 70
8.7 Application of Proceeds.......................................... 70
8.8 Waivers, Non-Exclusive Remedies.................................. 71
SECTION 9 ASSIGNMENTS; AGENCY PROVISIONS................................... 71
9.1 Assignments and Participations................................... 71
SECTION 10 MISCELLANEOUS.................................................... 81
10.1 Expenses and Attorneys' Fees..................................... 81
10.2 Indemnity........................................................ 81
10.3 Amendments and Waivers........................................... 82
10.4 Notices.......................................................... 83
10.5 Survival of Warranties and Certain Agreements.................... 84
v
<PAGE>
PAGE
10.6 Indulgence Not Waiver............................................ 84
10.7 Marshaling; Payments Set Aside................................... 84
10.8 Entire Agreement................................................. 84
10.9 Independence of Covenants........................................ 84
10.10 Severability..................................................... 84
10.12 Headings......................................................... 85
10.13 APPLICABLE LAW................................................... 85
10.14 Successors and Assigns........................................... 85
10.15 No Fiduciary Relationship; Limitation of Liabilities............. 85
10.16 CONSENT TO JURISDICTION.......................................... 86
10.17 WAIVER OF JURY TRIAL............................................. 86
10.18 Construction..................................................... 86
10.19 Counterparts; Effectiveness...................................... 86
10.20 No Duty.......................................................... 87
vi
<PAGE>
EXHIBITS
Exhibit A Borrowing Base Certificate
Exhibit B Closing Certificate
Exhibit C Compliance Certificate
Exhibit D Inventory Report
Exhibit E Reconciliation Report
Exhibit F Term Note
Exhibit G Lender Addition Agreement
Exhibit H Revolving Note
vii
<PAGE>
SCHEDULES
Schedule 1.1(B) Liens
Schedule 1.2 Accounting Adjustments
Schedule 3.1(A) Closing Deliveries
Schedule 4.1(B) Capitalization
Schedule 4.6 Names
Schedule 4.7 Locations; FEIN
Schedule 4.9 Litigation; Adverse Facts
Schedule 4.10 Taxes
Schedule 4.11 Performance of Agreements
Schedule 4.13 Intellectual Property
Schedule 4.20 Bank Accounts
Schedule 4.23 Employee Matters
Schedule 7.1(C) Indebtedness and Liabilities
viii
<PAGE>
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Second AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated as
of June 20, 1996 and entered into by and between THE NORTH FACE, INC., a
Delaware corporation ("Borrower"), with its principal place of business at 2013
Farallon Drive, San Leandro, California 94577, the financial institutions listed
on the signature pages hereof, and HELLER FINANCIAL, INC., a Delaware
corporation (in its individual capacity, "Heller") with offices at 500 West
Monroe Street, Chicago, Illinois 60661, for itself as a Lender and as agent for
any other Lender (in such capacity, "Agent"). All capitalized terms used herein
are defined in Section 1 of this Agreement.
WHEREAS, Borrower and Heller entered into that certain Loan and Security
Agreement dated as of June 7, 1994 (as amended, supplemented or otherwise
modified, the "Original Loan Agreement");
WHEREAS, Borrower, Lenders and Agent entered into that certain Amended and
Restated Loan and Security Agreement dated as of March 1, 1995 (as amended by
the First, Second, Third and Fourth Amendments dated May 4, 1995, August 1995,
March 27, 1996 and May ___, 1996, respectively, the "Existing Loan Agreement");
WHEREAS, Borrower has filed a registration statement on May 20, 1996 with
the Securities and Exchange Commission in contemplation of an initial public
offering of Common Stock (the "IPO");
WHEREAS, Borrower, Agent and Lenders desire to amend and restate the
Existing Loan Agreement as provided herein to provide financing for Capital
Expenditures, Letters of Credit and working capital;
WHEREAS, upon the effectiveness of this Agreement as provided herein, this
Agreement shall amend and restate the Existing Loan Agreement in its entirety,
and the security interests and pledges granted to Heller, as the lender under
the Original Loan Agreement and the other "Loan Documents" (as defined in the
Original Loan Agreement), and granted and/or confirmed to Agent under the
Existing Loan Agreement and the other "Loan Documents" (as defined in the
Existing Loan Agreement) and the perfection thereof, shall remain in full force;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower and Lender agree as follows:
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SECTION 1 DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement shall
have the following meanings:
"Account(s)" means, as to the relevant Person, all "accounts" (as defined
in the UCC) now owned or hereafter created or acquired by such Person, including
all accounts receivable, contract rights and general intangibles relating
thereto, notes, drafts and other forms of obligations owed to or owned by such
Person arising or resulting from the sale of goods or the rendering of services,
all proceeds thereof, all guaranties and security therefor, and all goods and
rights represented thereby or arising therefrom including the right of stoppage
in transit, replevin and reclamation.
"Acquisition" means the acquisition by Borrower of substantially all of
the assets and certain liabilities of Old TNF pursuant to the Purchase
Agreement.
"Acquisition Documents" means the Purchase Agreement, the documents listed
on Schedule 1.1(A) to the Original Loan Agreement, and all other agreements and
instruments executed and delivered to transfer to Borrower all of the Purchased
Assets (as defined in the Purchase Agreement).
"Affiliate" means any Person (other than Agent or any Lender): (a)
directly or indirectly controlling, controlled by, or under common control with,
Borrower; (b) directly or indirectly owning or holding five percent (5%) or more
of any equity interest in Borrower; or (c) five percent (5%) or more of whose
voting stock or other equity interest is directly or indirectly owned or held by
Borrower; PROVIDED, HOWEVER, that "Affiliate" shall not include a Whitney
Investor or any general or limited partner of a Whitney Investor or any Person
controlled by a Whitney Investor, other than Borrower and its Subsidiaries. For
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling", "controlled by" and "under common control with") means the
possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities or by contract or otherwise.
"Agent" means Heller in its capacity as agent for Lenders under the
Existing Agreement and this Agreement and the other Loan Documents and any
successor in such capacity appointed pursuant to subsection 9.2(G).
"Agent's Account" has the meaning assigned to that term in subsection
2.4(A).
"Agreement" means this Second Amended and Restated Loan and Security
Agreement, as it may be amended, supplemented or otherwise modified from time to
time.
"Appraised Value of Borrower's Tradenames" means the value of Borrower's
tradenames as determined by that certain appraisal by Curtis Financial Group,
Inc., dated as of December 31,
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1994, or as determined by any subsequent appraisal performed by a firm
acceptable to Agent and Lenders and in scope and substance acceptable to Agent
and Lenders.
"Asset Disposition" means the disposition, whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise, of any of the
following: (a) any of the capital stock of any of Borrower's Subsidiaries, or
(b) any or all of the assets of Borrower or any of its Subsidiaries other than
sales of Inventory in the ordinary course of business.
"Assigned Agreements" means, collectively, the Acquisition Documents, the
Agreement dated as of February 18, 1994 among Old TNF, TNF Scotland, Sophia
Limited and Jean-Luc Derclaye, and the Trademark License Agreement dated as of
August 1, 1992 between Old TNF and TNF Scotland.
"Blocked Account" has the meaning assigned to that term in subsection 5.6.
"Borrower" means the Delaware corporation known as TNF Holdings Company,
Inc. prior to consummation of the Acquisition and The North Face, Inc.
thereafter.
"Borrower Stock" means Common Stock and such Preferred Stock, if any, as
may be outstanding from time to time.
"Borrowing Base" has the meaning assigned to that term in subsection
2.1(B).
"Borrowing Base Certificate" means a certificate and assignment schedule
duly executed by an officer of Borrower appropriately completed and in
substantially the form of Exhibit A.
"Budget" means the annual budget for Borrower and its Subsidiaries
prepared by the management of Borrower for the Board of Directors, including
consolidated and consolidating: (a) balance sheets; (b) statements of income;
(c) cash flow statements; and (d) statements of stockholder's equity, all
prepared on a division by division and Subsidiary by Subsidiary basis and
otherwise consistent with Borrower's historical financial statements, together
with appropriate supporting details and a statement of underlying assumptions.
"Business Day" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the States of Illinois, Pennsylvania, New
York, or California or is a day on which banking institutions located in any
such states are closed.
"Canadian Documents" means, collectively, the Distribution and License
Agreement dated as of January 1, 1995 between TNF Canada and Borrower, the
Security Agreement between TNF Canada and Borrower granting liens to Borrower to
secure all liabilities of TNF Canada to Borrower, all documents necessary to
perfect the Liens thereunder in favor of Borrower and the assignment of the
liens and Borrower's rights against TNF Canada to Agent for the benefit of
Lenders.
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"Capital Expenditures" means all expenditures for (including deposits), or
contracts for expenditures with respect to, any fixed assets or improvements, or
for replacements, substitutions or additions thereto, which have a useful life
of more than one year, including the direct or indirect acquisition of such
assets by way of increased product or service charges, offset items or
otherwise.
"Capital Lease" means any lease of any property (whether real, personal or
mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"Cash Equivalents" means: (a) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six (6) months from the date of acquisition thereof;
(b) commercial paper maturing no more than six (6) months from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; and (c)
certificates of deposit or bankers' acceptances maturing within six (6) months
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $250,000,000 and not subject to
setoff rights in favor of such bank.
"Change in Control" means any Person or "group" (as defined under Section
13d-3 and Regulation 13D of the Securities and Exchange Act) other than the
Investor Group becomes the beneficial owner, directly or indirectly, of thirty
percent or more of the issued and outstanding voting stock of Borrower.
"Closing Certificate" means a certificate duly executed by the chief
executive officer or chief financial officer of Borrower appropriately completed
and in substantially the form of Exhibit B.
"Closing Date" means the date on which all conditions set forth in Section
3.1 hereof are satisfied or waived by all Lenders, but not later than July 18,
1996.
"Collateral" means, collectively, (a) all capital stock pledged to Agent
for the benefit of Lenders pursuant to the Pledge Agreement; (b) all property of
Borrower, now owned or hereafter acquired, in which a Lien is granted to Agent
for the benefit of Lenders pursuant to the Original Loan Agreement, the Existing
Loan Agreement, this Agreement and any other Loan Document; (c) all property of
Borrower or any of its Subsidiaries, now owned or hereafter acquired, in which a
Lien is granted to Agent for the benefit of Lenders pursuant to any Loan
Document, including the property of TNF Canada in which Borrower has been
granted a security interest and assigned such security interest to Agent for the
benefit of Lenders; (d) any property or interest provided in addition to or in
substitution for any of the foregoing; and (e) all proceeds thereof.
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"Commitment" or "Commitments" means the commitment or commitments of
Lenders to make Loans as set forth in subsections 2.l(A) and/or 2.1(B) and of
Agent to issue Lender Letters of Credit and purchase risk participations in
Underlying L/C's as set forth in subsection 2.1(G).
"Common Stock" means the Common Stock, par value $.0025 per share, of
Borrower, or any other capital stock of Borrower into which such stock is
reclassified or reconstituted.
"Compliance Certificate" means a certificate duly executed by the chief
executive officer or chief financial officer of Borrower appropriately completed
and in substantially the form of Exhibit C.
"Default" means a condition or event that, after notice or lapse of time
or both, would constitute an Event of Default if that condition or event were
not cured or removed within any applicable grace or cure period.
"Default Rate" has the meaning assigned to that term in subsection 2.2.
"Dilution Reserve" means a reserve established by Agent against Eligible
Accounts equal to one and eight tenths percent (1.8%) of the aggregate amount of
Eligible Accounts, as such amount may be increased or decreased by Agent based
on examinations of Borrower's Accounts.
"Dollars" and "$" means the lawful money of the United States of America.
"Domestic Subsidiary" means any Subsidiary of Borrower or any of its
Subsidiaries organized in the United States or Canada or having any business
operations in the United States or Canada, including TNF Canada; PROVIDED that
if TNF Canada enters into a Permitted Canadian Financing, TNF Canada and its
Subsidiaries shall no longer be Domestic Subsidiaries.
"EBITDA" means, for any period, without duplication, the total of the
following for Borrower and its Domestic Subsidiaries on a consolidated basis,
each calculated for such period: (1) net income determined in accordance with
GAAP PLUS, to the extent included in the calculation of net income, (2) the sum
of (a) taxes paid or accrued; (b) Interest Expenses, net of interest income,
paid or accrued; (c) depreciation and amortization; and (d) other non-cash
charges (excluding accruals for cash expenses made in the ordinary course of
business), LESS (or PLUS, in the case of non-cash losses), to the extent
included in the calculation of net income, (3) the sum of (e) the income of any
Person (other than wholly-owned Domestic Subsidiaries of Borrower) in which
Borrower or any of its wholly-owned Domestic Subsidiaries has an ownership
interest unless such income is received by Borrower or such wholly-owned
Domestic Subsidiary in a cash distribution; (f) gains or losses from sales or
other dispositions of assets (other than Inventory in the normal course of
business); and (g) extraordinary or non-recurring gains or non-cash losses, but
not net of extraordinary or non-recurring "cash" losses.
"Eligible Accounts" has the meaning assigned to that term in subsection
2.1(D).
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"Eligible Canadian Accounts" means all Accounts owned by TNF Canada that
would be "Eligible Accounts" if owned by Borrower.
"Eligible Inventory" has the meaning assigned to that term in subsection
2.1(D).
"Employee Benefit Plan" means any employee benefit plan within the meaning
of Section 3(3) of ERISA which (a) is maintained for employees of any Loan Party
or any ERISA Affiliate or (b) has at any time within the preceding six (6) years
been maintained for the employees of any Loan Party or any Seller or any current
or former ERISA Affiliate.
"Environmental Laws" means any present or future federal, foreign, state
or local law, rule, regulation or order relating to pollution, waste disposal,
industrial hygiene or the protection of human health or safety, plant life or
animal life, natural resources or the environment.
"Equipment" means, as to the relevant Person, all "equipment" (as defined
in the UCC) now owned or hereafter acquired by such Person including, without
limitation, all machinery, motor vehicles, trucks, trailers, vessels, aircraft
and rolling stock and all parts thereof and all additions and accessions thereto
and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party or any Seller, means any
Person who is a member of a group which is under common control with such
Person, who together with such Person is treated as a single employer within the
meaning of Section 414(b) and (c) of the IRC.
"Event of Default" means each of the events set forth in subsection 8.1.
"Existing Loan Agreement" has the meaning set forth in the recitals to
this Agreement.
"Federal Funds Effective Rate" means, for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Federal Reserve Bank of New York or,
if such rate is not published for any Business Day, the average of the
quotations for the day of the requested Loan received by Agent from three
Federal funds brokers of recognized standing selected by Agent.
"Fiscal Year" means each twelve month period ending on the last day of
December in each year.
"Fixed Charge Coverage" means, for any period, Operating Cash Flow DIVIDED
BY Fixed Charges.
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"Fixed Charges" means, for any period, without duplication, for Borrower
and its Domestic Subsidiaries on a consolidated basis, and each calculated for
such period, (a) Interest Expenses; PLUS (b) scheduled payments of principal
with respect to all Indebtedness; PLUS (c) any provision for (to the extent it
is greater than zero) income or franchise taxes included in the determination of
net income, excluding any provision for deferred taxes included in net income;
PLUS (d) payment of deferred taxes accrued in any prior period.
"Funding Date" means the date of each funding of a Loan or issuance of a
Lender Letter of Credit or an Underlying L/C.
"GAAP" means generally accepted accounting principles in effect in the
United States of America and set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board that are applicable to the circumstances as of the date of
determination.
"Goldwin" means Kabushiki Kaisha Goldwin, a Japanese corporation.
"Goldwin Stock Purchase Agreement" means that certain Stock Purchase
Agreement dated as of December 28, 1993 between Borrower and Goldwin, as
amended.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable laws or regulations as "hazardous substances", "hazardous materials",
"hazardous wastes", "toxic substances" or any other formulation intended to
define, list or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity or
"EP toxicity"; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million.
"Indebtedness", as applied to any Person, means, without duplication: (a)
all indebtedness for borrowed money; (b) obligations under leases which in
accordance with GAAP constitute Capital Leases; (c) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money, including reimbursement obligations in respect
of letters of credit; (d) any obligation owed for all or any part of the
deferred purchase price of property or services if the purchase price is due
more than six months from the date the obligation is incurred or is evidenced by
a note or similar written instrument (but excluding any operating leases); and
(e) all indebtedness secured by any Lien on any property or asset owned or held
by that Person regardless of whether the indebtedness secured thereby shall have
been assumed by that Person or is nonrecourse to the credit of that Person (but,
only as to
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indebtedness which is non-recourse to the credit of such Person, not
in excess of the value of the asset so secured).
"Intangible Assets" means the amount of intangible assets (determined in
conformity with GAAP) of Borrower and its Subsidiaries, including, without
limitation, goodwill, trademarks, tradenames, licenses, organizational costs,
deferred amounts, covenants not to compete, unearned income and restricted
funds.
"Intellectual Property" means, with respect to the applicable Person, all
of such Person's present and future designs, patents, patent rights and
applications therefor, trademarks and registrations or applications therefor,
trade names, trade styles, logos, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights, trade
secrets, methods, processes, know-how, drawings, specifications, descriptions,
and all memoranda, notes and records with respect to any research and
development, whether now owned or hereafter acquired by such Person, all
goodwill associated with any of the foregoing, and proceeds of all of the
foregoing, including, without limitation, proceeds of insurance policies
thereon.
"Intercompany Inventory Account" means the aggregate amounts (denominated
in Dollars) due to Borrower from TNF Canada for the purchase of Inventory in
accordance with the Canadian Documents.
"Interest Expenses" means, without duplication, for any period, the
following for Borrower and its Domestic Subsidiaries, each calculated for such
period: interest expenses deducted in the determination of net income
(excluding (i) the amortization of fees and costs with respect to the
transactions contemplated hereunder on the Original Closing Date which have been
capitalized as transaction costs; and (ii) interest paid in kind).
"Interest Period" means any interest period applicable to a Loan as
determined pursuant to subsection 2.2(B).
"Interest Rate Determination Date" means each date for calculating the
LIBOR Rate for purposes of determining the interest rate applicable to any LIBOR
Rate Loan pursuant to subsection 2.2 (A) . The Interest Rate Determination Date
shall be the second Business Day prior to the first day of the related Interest
Period for a LIBOR Rate Loan.
"Inventory" means, with respect to the applicable Person, all "inventory"
(as defined in the UCC) now owned or hereafter acquired by such Person, wherever
located including finished goods, raw materials, work in process and other
materials and supplies used or consumed in its business and goods which are
returned to or repossessed by such Person.
"Inventory Report" means a report duly executed by an officer of Borrower
and each of its Subsidiaries appropriately completed and in substantially the
form of Exhibit D.
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"Inventory Sublimit" means $30,000,000 in 1996, $40,000,000 in 1997 and
$45,000,000 thereafter.
"Investor Group" means, collectively, the Whitney Investors, Marsden S.
Cason and William A. McFarlane.
"IPO" has the meaning set forth in the Recitals to this Agreement.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"Lender" or "Lenders" means each financial institution which is a party to
this Agreement, together with its successors and permitted assigns pursuant to
subsection 9.1.
"Lender Addition Agreement" means an agreement among Agent, a Lender and
such Lender's assignee substantially in the form attached hereto as Exhibit G,
delivered to Agent in connection with an assignment of a Lender's interest
hereunder in accordance with subsection 9.1.
"Lender Letter of Credit" has the meaning assigned to that term in
subsection 2.1(G), and shall include each Lender Letter of Credit issued under
the Existing Loan Agreement and outstanding on the Closing Date.
"Leverage Ratio" means as of any date of determination, the ratio of (a)
the sum of all long term Indebtedness of Borrower and its Domestic Subsidiaries
(including the current portion thereof but excluding any Revolving Loan)
outstanding PLUS the average daily balance of the Revolving Loan during the
applicable period to (b) EBITDA for such period.
"LIBOR Rate" means, for each Interest Period, a rate of interest equal to:
(a) the rate of interest determined by Agent at which
deposits in Dollars for the relevant Interest Period are offered
based on information presented on the Reuters Screen LIBOR Page as
of 11:00 A.M. (London time) on the day which is two (2) Business
Days prior to the first day of such Interest Period; PROVIDED that
if at least two such offered rates appear on the Reuters Screen
LIBOR Page in respect of such Interest Period, the arithmetic mean
of all such rates (as determined by Agent) will be the rate used;
PROVIDED further that if Reuters ceases to provide LIBOR quotations,
such rate shall be the average rate of interest determined by Agent
at which deposits in Dollars are offered for the relevant Interest
Period by Bankers Trust Company, Chase Manhattan Bank, N.A. and
Chemical Bank (or their respective successors) to prime banks in the
London interbank market as of 11:00 A.M. (London time) on the
applicable Interest Rate Determination Date, divided by
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(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of
reserve requirements in effect on the day which is two (2) Business
Days prior to the beginning of such Interest Period (including,
without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the
Federal Reserve System or other governmental authority having
jurisdiction with respect thereto, as now and from time to time in
effect) for Eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of such Board) which are
required to be maintained by a member bank of the Federal Reserve
System;
(such rate to be adjusted to the nearest one sixteenth of one percent (1/16 of
1%) or, if there is no nearest one sixteenth of one percent (1/16 of l%), to the
next higher one sixteenth of one percent (1/16 of 1%).
"LIBOR Rate Loans" means Loans bearing interest at rates determined by
reference to the LIBOR Rate as provided in subsection 2.2(A)(2).
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Term Loan
Commitment or the Revolving Loan Commitment (including a Tradename Advance),
including all loans under the Existing Loan Agreement outstanding on the Closing
Date.
"Loan Documents" means this Agreement, the Original Loan Agreement, the
Existing Loan Agreement, the Notes, the Pledge Agreement, the Trademark and
Patent Agreements, the Canadian Documents, any Mortgages, and all other
instruments, documents and agreements executed by or on behalf of any Loan Party
and delivered concurrently herewith or at any time hereafter to or for Agent or
any Lender in connection with the Loans and other transactions contemplated by
this Agreement, all as amended, restated, supplemented or modified from time to
time.
"Loan Party" means, collectively, Borrower, Borrower's Subsidiaries, and
any other Person (other than Agent or any Lender or a Shareholder) which is or
becomes a party to any Loan Document.
"Loan Year" has the meaning assigned to that term in subsection 2.3(D).
"Management Stock Plans" means existing or future stock purchase, savings,
option, bonus, stock appreciation, incentive or similar plans approved by
Borrower's Board of Directors for the issuance of stock or options for the
benefit of Borrower's employees, officers, directors or consultants.
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"Management Restricted Shares" means shares of Common Stock issued as
"restricted stock" pursuant to Borrower's 1994 Stock Incentive Plan.
"Management Stock Purchase Agreement" means the Stock Purchase and Non-
Competition Agreement dated as of the Original Closing Date among Borrower,
Marsden S. Cason and William A. McFarlane, as amended.
"Material Adverse Effect" means (a) a material adverse effect upon the
business, operations, properties, assets or condition (financial or otherwise)
of Borrower on an individual basis or on Borrower and its Subsidiaries, taken as
a whole or (b) the impairment in any material respect of the ability of any Loan
Party to perform its obligations under any Loan Document to which it is a party
or of Agent or any Lender to enforce or collect any of the Obligations.
"Maximum Revolving Loan Amount" has the meaning assigned to that term in
subsection 2.1(B).
"Mortgage" means any mortgage, deed of trust, leasehold mortgage,
leasehold deed of trust, collateral assignments of leases or other documents
under the laws of any applicable jurisdiction granting Liens on interests in
real property and delivered by any Loan Party to Agent, on behalf of Lenders,
with respect to Mortgaged Property, all in form and substance acceptable to
Agent.
"Mortgaged Property" has the meaning assigned to that term in subsection
5.15(a).
"Note" or "Notes" means one or more of the Term Notes or Revolving Notes,
or a combination thereof.
"Obligations" means all obligations, liabilities and indebtedness of every
nature of each Loan Party from time to time owed to Agent or any Lender under
the Loan Documents, including the principal amount of all debts, claims and
indebtedness, accrued and unpaid interest and all fees, costs and expenses,
whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
now and/or from time to time hereafter owing, due or payable.
"Odyssey Bank" means any of Chemical Bank, The First National Bank of
Boston, or The Hong Kong & Shanghai Banking Corporation Limited or each and all
of their Subsidiaries, successors and assigns.
"Old TNF" means the California corporation that was known as The North
Face prior to the Original Closing Date.
"Operating Cash Flow" means, for any period, (a) EBITDA; LESS (b) Capital
Expenditures.
"Original Closing Date" means June 7, 1994.
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"Original Loan Agreement" has the meaning set forth in the Recitals to
this Agreement.
"Permitted Canadian Financing" means Indebtedness of TNF Canada to a
Person other than Borrower if (a) no guaranty or other credit support or Liens
are provided by Borrower; (b) the Intercompany Inventory Account and all other
Indebtedness and liabilities of TNF Canada to Borrower are repaid in full from
the initial proceeds; and thereafter (c) further sales of Inventory are made by
Borrower to TNF Canada only for cash in advance, COD, letter of credit or credit
(but at no time may the Intercompany Inventory Account exceed Fifty Thousand
Dollars ($50,000)); (d) no Lender Letters of Credit or Underlying L/C may be
issued for the benefit of TNF Canada; and (e) no Inventory of Borrower shall be
located in Canada.
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Laws or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent or which are being
contested in good faith if Borrower has notified Agent of the assertion of such
Liens and, if required by Agent, an adequate reserve against the Borrowing Base
shall have been made therefor; (c) Liens (other than any Lien imposed by ERISA)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, statutory obligations, surety and appeal bonds, bids, leases,
utilities, government contracts, trade contracts, licenses of computer software
or hardware, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money); (d) easements,
rights-of-way, restrictions, and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
any Loan Party or any of its Subsidiaries; (e) Liens for purchase money
obligations or Capital Leases, PROVIDED that (i) the purchase of the asset
subject to any such Lien is permitted under subsection 6.3, (ii) the
Indebtedness secured by any such Lien is permitted under subsection 7.1, and
(iii) such Lien encumbers only the asset so purchased; (f) Liens in favor of
Agent on behalf of Lenders; (g) judgment Liens which do not create an Event of
Default; (h) Liens set forth on Schedule 1.1(B); (i) Liens securing Indebtedness
of TNF Scotland permitted to be incurred under subsection 7.1(d); (j) Liens
securing Indebtedness of TNF Canada to Borrower which have been assigned to
Agent for the benefit of Lenders; and (k) Liens on assets of TNF Canada securing
Permitted Canadian Financing.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Pledge Agreement" means the Amended and Restated Stock Pledge Agreement
executed and delivered by Borrower concurrently with the delivery of the
Existing Loan Agreement.
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"Preferred Stock" means any capital stock of Borrower other than the
Common Stock.
"Preferred Stock Purchase Agreement" means the Preferred Stock Purchase
Agreement dated as of the Original Closing Date among Borrower, Whitney 1990
Equity Fund, L.P. and J.H. Whitney & Co., as amended by Amendment No. 1 dated as
of March 1, 1995, Amendment No. 2 dated as of March 27, 1996, and Amendment No.
3 dated as of even date herewith and as further amended, supplemented or
otherwise modified as permitted under subsection 7.7.
"Prime Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in Federal
Reserve Statistical Release H.15(519) entitled "Selected Interest Rates" or any
successor publication of the Federal Reserve System reporting the Bank Prime
Loan rate or its equivalent, or (b) the Federal Funds Effective Rate. The
statistical release generally sets forth a Bank Prime Loan rate for each
Business Day. In the event the Board of Governors of the Federal Reserve System
ceases to publish a Bank Prime Loan rate or its equivalent, the term "Prime
Rate" shall mean a variable rate of interest per annum equal to the highest of
the "prime rate", "reference rate", "base rate", or other similar rate announced
from time to time by any of Bankers Trust Company, The Chase Manhattan Bank,
National Association or Chemical Bank (with the understanding that any such rate
may merely be a reference rate and may not necessarily represent the lowest or
best rate actually charged to any customer by the any such bank).
"Prime Rate Loans" means Loans bearing interest at rates determined by
reference to the Prime Rate as provided in subsection 2.2(A)(2).
"Pro Forma" means the unaudited consolidated and consolidating balance
sheet of Borrower and its Subsidiaries as of the Original Closing Date annexed
as Schedule 1.1(C) to the Original Loan Agreement.
"Pro Rata Share" means (a) with respect to matters relating to a
particular Commitment of a Lender (including the making or repayment of Loans
pursuant to that Commitment), the percentage obtained by dividing (i) such
Commitment of that Lender by (ii) all such Commitments of all Lenders and
(b) with respect to all other matters, the percentage obtained by dividing
(i) the Total Loan Commitment of a Lender by (ii) the Total Loan Commitments of
all Lenders, in either case as such percentage may be adjusted by assignments
permitted pursuant to subsection 9.1.
"Purchase Agreement" means that certain Purchase and Sale Agreement [Short
Form] dated as of May 25, 1994 among Sellers and Borrower, as purchaser,
including all exhibits and schedules thereto.
"Reconciliation Report" means a report duly executed by the chief
executive officer or chief financial officer of Borrower appropriately completed
and in substantially the form of Exhibit E.
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"Requisite Lenders" means Lenders having (i) fifty-one percent (51%) or
more of the Total Loan Commitments or, (ii) if the Term Loan Commitments have
been terminated, fifty-one percent (51%) or more of the sum of the Revolving
Loan Commitments and the aggregate outstanding principal amount of the Term
Loans, if any, or (iii) if all Commitments have been terminated fifty-one
percent (51%) or more of the aggregate outstanding principal amount of the
Revolving Loan and the Term Loan.
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Borrower or any of its Subsidiaries now or hereafter outstanding; (b) any
payment or prepayment of principal of, premium, if any, or interest on, or any
redemption, conversion, exchange, retirement, defeasance, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any Subordinated Debt or any shares of any class of stock of Borrower or any of
its Subsidiaries now or hereafter outstanding; (c) any payment made to retire,
or to obtain the surrender of, any outstanding warrants, options or other rights
to acquire shares of any class of stock of Borrower or any of its Subsidiaries
now or hereafter outstanding; (d) any payment by Borrower or any of its
Subsidiaries of any management fees, director's fees, guarantee fees or similar
fees to any Affiliate, whether pursuant to a management agreement or otherwise,
and (e) fees, salaries or other compensation to any Shareholder or to the chief
executive officer and second most senior executive officer of Borrower.
"Revolving Loan" means all advances made by Lenders pursuant to
subsections 2.1(B) and (C) (including those revolving loans under the Existing
Loan Agreement which remain outstanding as Revolving Loans on the Closing Date)
and any amounts added to the principal balance of the Revolving Loan pursuant to
this Agreement.
"Revolving Loan Commitment" means (a) as to any Lender, the commitment of
such Lender to make Revolving Loans (including Tradename Advances) and to
purchase risk participations in Lender Letters of Credit and Underlying L/C's
pursuant to subsection 2.1(G) as set forth on the signature page of this
Agreement opposite such Lender's signature or in the most recent Lender Addition
Agreement, if any, executed by such Lender and (b) as to all Lenders, the
aggregate commitment of all Lenders to make Revolving Loans (including Tradename
Advances) and to purchase risk participations in Lender Letters of Credit and
Underlying L/C's pursuant to subsection 2.1(G).
"Revolving Note" or "Revolving Notes" means each promissory note made by
Borrower in substantially the form of Exhibit H and issued pursuant to
subsection 2.1(F).
"Risk Participation Agreement" has the meaning assigned to that term in
subsection 2.1(G).
"Risk Participation Liability" means, as to each Lender Letter of Credit
and each Risk Participation Agreement, all reimbursement obligations of Borrower
or any of its Subsidiaries to the issuer of the Lender Letter of Credit or the
Underlying L/C including: (a) the amount
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available to be drawn or which may become available to be drawn; (b) all amounts
which have been paid or made available by the issuing bank to the extent not
reimbursed; and (c) all unpaid interest, fees and expenses with respect thereto.
"Risk Participation Reserve" means, at any time, an amount equal to (a)
the aggregate amount of Risk Participation Liability with respect to all Lender
Letters of Credit, Underlying L/C's and all Risk Participation Agreements
outstanding at such time PLUS (b) to the extent not included in clause (a), the
aggregate amount theretofore paid by Agent or any Lender under Lender Letters of
Credit or Risk Participation Agreements for which Agent or such Lender has not
been reimbursed or which has not been debited to the Loan Account pursuant to
subsection 2.1(G)(2).
"Scheduled Installment" has the meaning assigned to that term in
subsection 2.1(A).
"Sellers" means, collectively, Odyssey Holding Inc. and Old TNF as sellers
under the Purchase Agreement.
"Shareholder" means each Person which owns shares of the capital stock of
Borrower, whether beneficially or of record.
"Subordinated Debt" means all Indebtedness owing by Borrower to Whitney
Subordinated Debt Fund, L.P., a Delaware limited partnership, or its successors
and assigns pursuant to the Subordinated Debt Agreement.
"Subordinated Debt Agreement" means the Subordinated Note and Common Stock
Purchase Agreement dated as of the Original Closing Date between Borrower and
Whitney Subordinated Debt Fund, L.P., and the Subordinated Promissory Note due
June 7, 2001 in the aggregate principal amount of $24,333,333 issued by Borrower
thereunder, each as amended by Amendment No. 1 dated as of March 1, 1995,
Amendment No. 2 dated as of March 27, 1996, Amendment No. 3 dated as of even
date herewith and each as amended, supplemented or otherwise modified as
permitted under subsection 7.7 or increased as permitted by subsection 7.1.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which 50% or more of the total voting
power of shares of stock (or equivalent ownership or controlling interest)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Tangible Net Worth" means an amount equal to (a) Borrower's and its
Domestic Subsidiaries' net worth; PLUS (b) the principal amount of Subordinated
Debt to the extent permitted pursuant to subsection 7.1; LESS (c) Borrower's and
its Domestic Subsidiaries' Intangible Assets; LESS (d) Borrower's and its
Domestic Subsidiaries' prepaid expenses; LESS (e)
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all obligations owed to Borrower or any of its Domestic Subsidiaries by an
Affiliate of Borrower or any of its Subsidiaries; and LESS (f) all loans by
Borrower or any of its Domestic Subsidiaries to officers, stockholders or
employees of Borrower or any of its Subsidiaries.
"Term" has the meaning assigned to that term in subsection 2.5.
"Term Loan" means all advances made by Lenders pursuant to subsection
2.1(A).
"Term Loan Commitment" means (a) as to any Lender, the commitment of such
Lender to make the Term Loan as set forth on the signature page of this
Agreement opposite such Lender's signature or in the most recent Lender Addition
Agreement, if any, executed by such Lender and (b) as to all Lenders, the
aggregate commitment of all Lenders to make the Term Loan.
"Term Note" or "Term Notes" means each promissory note made by Borrower in
substantially the form of Exhibit F and issued pursuant to subsection 2.1(F).
"Termination Date" means the date this Agreement is terminated as set
forth in subsection 2.5.
"TNF Canada" means The North Face (Canada), Inc., a corporation organized
under the laws of Canada, and a wholly-owned Subsidiary of Borrower.
"TNF Europe" means The North Face (Europe) Limited, a private limited
company incorporated in Scotland under the Companies Acts, formerly known as The
North Face (Scotland) Limited, and a wholly-owned Subsidiary of Borrower.
"Total Interest Coverage" means, for any period, Operating Cash Flow
DIVIDED BY Interest Expenses.
"Total Loan Commitment" means the aggregate Commitments of any Lender with
respect to the Revolving Loan Commitment and the Term Loan Commitment.
"Trademark and Patent Agreements" means, collectively, the agreement
entitled Amended and Restated Confirmation and Grant of Security Interest in
Trademarks and Trademark Applications and the agreement entitled Amended and
Restated Confirmation and Grant of Security Interest in Patents, executed and
delivered by Borrower concurrently with the Existing Loan Agreement.
"Tradename Advance" means all advances made by Lenders pursuant to
subsection 2.1(C).
"Transaction Documents" means collectively, the Loan Documents, the
Subordinated Debt Agreement, the Preferred Stock Purchase Agreement, the Goldwin
Stock Purchase
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Agreement, the Borrower Stock and the Acquisition Documents and all other
material documents and agreements executed and delivered by Borrower on the
Original Closing Date in connection with the Acquisition, including the
financing thereof.
"UCC" means the Uniform Commercial Code as in effect on the date hereof in
the State of Illinois, as amended from time to time, and any successor statute,
or as in effect in any jurisdiction in which Collateral is located (PROVIDED,
that with respect to the shares pledged under the Pledge Agreement, UCC means
the Uniform Commercial Code as in effect in the State of New York).
"Underlying L/C" means a letter of credit issued by a bank under a Risk
Participation Agreement.
"Whitney Investor" means each of J.H. Whitney & Co., Whitney 1990 Equity
Fund, L.P. and Whitney Subordinated Debt Fund, L.P., and any Affiliate of any of
them to which Borrower's Common Stock is transferred.
1.2 ACCOUNTING TERMS. For purposes of this Agreement, all accounting terms
not otherwise defined herein shall have the meanings assigned to such terms in
conformity with GAAP. Financial statements and other information furnished to
Agent or any Lender pursuant to subsection 5.1 shall be prepared in accordance
with GAAP as in effect at the time of such preparation. In the event any
"Accounting Changes" (as defined below) shall occur and such changes affect
financial covenants, standards or terms in this Agreement, then Borrower and
Lenders agree to enter into negotiations in order to amend such provisions of
this Agreement so as to equitably reflect such Accounting Changes with the
desired result that the criteria for evaluating the financial condition of
Borrower and its Subsidiaries shall be the same after such Accounting Changes as
if such Accounting Changes had not been made, and until such time as such an
amendment shall have been executed and delivered by Borrower and Requisite
Lenders, (A) all financial covenants, standards and terms in this Agreement
shall be calculated and/or construed as if such Accounting Changes had not been
made, and (B) Borrower shall prepare footnotes to each Compliance Certificate
and the financial statements required to be delivered hereunder that show the
differences between the financial statements delivered (which reflect such
Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). "Accounting Changes" means: (a)
changes in accounting principles required by GAAP and implemented by Borrower
and/or any of its Subsidiaries; (b) changes in accounting principles recommended
by the certified public accountants for Borrower and/or any of its Subsidiaries
(which certified public accountants have been approved by Requisite Lenders);
and (c) changes in carrying value of Borrower's (or any of its Subsidiaries')
assets, liabilities or equity accounts resulting from (i) the application of
purchase accounting principles (A.P.B. 16 and/or 17 and EITF 88-16 and FASB 109)
to the Acquisition or (ii) as the result of any other adjustments that, in each
case, were applicable to, but not included in, the Pro Forma, except those
adjustments described in Schedule 1.2. All such adjustments resulting from
expenditures made subsequent to the Original Closing Date (including, but not
limited to, capitalization of costs and expenses or payment of pre-Closing Date
liabilities) shall be treated
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as expenses in the period the expenditures are made and deducted as part of the
calculation of EBITDA in such period.
1.3 OTHER DEFINITIONAL PROVISIONS. References to "Sections", "subsections",
"Exhibits" and "Schedules" shall be to Sections, subsections, Exhibits and
Schedules, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference. In this Agreement, words importing any gender include the other
genders; the words "including," "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to agreements and other
contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
SECTION 2 LOANS AND COLLATERAL
2.1 LOANS
(A) TERM LOAN. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Borrower herein set
forth, each Lender agrees, severally and not jointly, to make advances to
Borrower from time to time during the first Loan Year after the Closing Date
equal to its Pro Rata Share of the Term Loan. The Term Loan Commitment is Five
Million Dollars ($5,000,000). The proceeds of the Term Loan shall be used
solely for Capital Expenditures (including leasehold improvements). Each
advance under the Term Loan shall be in a minimum principal amount of at least
One Hundred Thousand Dollars ($100,000). Amounts borrowed under this subsection
2.1(A) and repaid may not be reborrowed. Borrower shall make principal
repayments in the amounts of the applicable Scheduled Installments (or such
lesser principal amount of the Term Loan as shall then be outstanding) on the
dates and in the amounts set forth below. The entire outstanding principal
balance of the Term Loan shall be due and payable on the Termination Date.
"Scheduled Installment" means, for each date set forth below, the amount
in Dollars set forth opposite such date; PROVIDED THAT if less than the full
amount of the Term Loan Commitment is advanced prior to the first anniversary of
the Closing Date, the following amounts shall be reduced ratably to amortize the
outstanding Term Loan on the same ratable basis):
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DATE SCHEDULED INSTALLMENT
---- ---------------------
7/1/97 $250,000
10/1/97 $250,000
1/1/98 $250,000
4/1/98 $250,000
7/1/98 $250,000
10/1/98 $250,000
1/1/99 $250,000
4/1/99 $250,000
7/1/99 $250,000
10/1/99 $250,000
1/1/00 $250,000
2/1/00 balance
(B) REVOLVING LOAN. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrower
herein set forth, each Lender agrees to lend to Borrower from time to time its
Pro Rata Share of the Revolving Loan. The Revolving Loan Commitment is Sixty
Million Dollars ($60,000,000). Amounts borrowed under this subsection 2.1(B)
may be repaid and reborrowed at any time prior to the earlier of (i) the
termination of the Revolving Loan Commitment pursuant to subsection 8.3 or (ii)
the Termination Date. No Lender shall have any obligation to make advances
under this subsection 2.1(B) to the extent any requested advance would cause the
balance of the Revolving Loans then outstanding to exceed the Maximum Revolving
Loan Amount; PROVIDED that Lenders may, in their sole discretion, with the
approval of all Lenders elect from time to time to make Loans in excess of the
Maximum Revolving Loan Amount or the Revolving Loan Commitment. If loans in
excess of the Maximum Revolving Loan Amount are made pursuant to the approval of
Lenders as set forth in the proviso to the preceding sentence, then for purposes
of subsection 2.4(B)(1), the Maximum Revolving Loan Amount shall be deemed
increased by such amount but only for so long as Lenders allow such Loans to be
outstanding.
(1) "Maximum Revolving Loan Amount" means, as of any date of
determination, the lesser of (a) the Revolving Loan Commitment minus the Risk
Participation Reserve and (b) the Borrowing Base minus the Risk Participation
Reserve plus the amount, if any, available to be borrowed pursuant to subsection
2.1(C) below.
(2) "Borrowing Base" means, as of any date of determination, an
amount equal to the sum of (a) eighty-five percent (85%) of Eligible Accounts;
PLUS (b) the lesser of (i) fifty percent (50%) of Eligible Inventory (or 75% of
Eligible Inventory from April 1 to August 31 of each year) and (ii) the
Inventory Sublimit; PLUS (c) fifty percent (50%) of the sum of the face amount
of (x) Risk Participation Agreements entered into with respect to documentary
letters of credit to purchase Inventory or (y) Lender Letters of Credit used to
purchase Inventory (in the case of both clauses (x) and (y), net of provisions
for duty and freight charges equal to ten percent (10%) of the value of
Inventory); PLUS (d) eighty-five percent (85%) of Eligible Canadian Accounts;
PROVIDED that
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the amounts available under this clause (d) shall not exceed the unpaid amount
of the Intercompany Inventory Account LESS reserves for withholding taxes, if
any, payable by TNF Canada with respect thereto and shall only be available
until TNF Canada enters into a Permitted Canadian Financing; LESS (e) the
Dilution Reserve; LESS (f) in each category, such other reserves as Agent in its
sole, reasonable discretion elects to establish from time to time. For purposes
of calculating the Borrowing Base, all Eligible Canadian Accounts and Eligible
Inventory shall be denominated in Dollars, based on the most recently available
conversion rate from Canadian dollars.
(C) TRADENAME ADVANCES. From April 1 to August 31 in each year, each
Lender agrees, severally and not jointly, to make Revolving Loans to Borrower in
excess of the Borrowing Base on the terms set forth in this subsection (each
such advance, a "Tradename Advance"). Each Tradename Advance by a Lender shall
be in an amount equal to its Pro Rata Share of the aggregate Tradename Advances
to be made on any Funding Date. In no event may the aggregate outstanding
Tradename Advances exceed the lesser of (i) ten percent (10%) of the Appraised
Value of Borrower's Tradenames and (ii) $3,000,000, nor may the aggregate
outstanding amount of Revolving Loans PLUS the outstanding amount of Tradename
Advances PLUS the Risk Participation Reserve exceed the Revolving Loan
Commitment. All Tradename Advances shall be Revolving Loans hereunder. All
Tradename Advances shall be repaid no later than August 31 in the applicable
year.
(D) ELIGIBLE COLLATERAL
"Eligible Accounts" means, as at any date of determination, the aggregate
of all Accounts of Borrower that Agent, in its reasonable credit judgment, deems
to be eligible for borrowing purposes. Without limiting the generality of the
foregoing, unless otherwise agreed by Agent, the following Accounts are NOT
Eligible Accounts:
(1) Any Account which, at the date of issuance of the respective
invoice therefor, was (i) payable more than sixty (60) days after the date of
issuance of such invoice or (ii) solely with respect to Accounts under a payment
dating program which is consistent with normal industry practices and approved
by Agent ("Dating Program"), payable later than the last day of the Dating
Program;
(2) Any Dating Program Account which remains unpaid for more than
thirty (30) days after the due date under the Dating Program or any other
Account which remains unpaid for more than sixty (60) days after the due date
specified in the original invoice or for more than ninety (90) days after
invoice date if no due date was specified;
(3) Any Account due from a customer whose principal place of
business is located outside the United States of America or Canada unless such
Account is backed by a letter of credit, in form and substance and issued by a
bank reasonably acceptable to Agent, in its sole discretion, PROVIDED that such
letter of credit is by its terms transferrable and has been delivered to Agent,
on behalf of Lenders, as additional collateral;
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(4) Any Account due from a customer which Agent has notified
Borrower does not have an acceptable credit standing (as determined in the sole
discretion of Agent);
(5) Any Account with respect to which the customer is the United
States of America or any department, agency or instrumentality thereof unless
Borrower has, with respect to such Account, fully complied with the Federal
Assignment of Claims Act (31 U.S.C. Section 3727);
(6) Any Account with respect to which the customer is an Affiliate
of Borrower or a director, officer, agent, stockholder or employee of Borrower
or any of its Affiliates (other than an Account from Goldwin);
(7) Any Account due from a customer if more than twenty-five
percent (25%) of the aggregate amount of Accounts of such customer have at the
time remained unpaid for more than sixty (60) days after the due date and/or,
with respect to Dating Program Accounts, more than thirty (30) days after the
end of the Dating Program;
(8) Any Account with respect to which there is any unresolved
dispute with the respective customer (but only to the extent of such dispute);
(9) Any Account evidenced by an "instrument" (as defined in the
UCC) not in the possession of Agent, on behalf of Lenders;
(10) Any Account with respect to which Agent, on behalf of Lenders
does not have a valid, first priority and fully perfected security interest;
(11) Any Account subject to any Lien except those in favor of
Agent, on behalf of Lenders;
(12) Any Account with respect to which the customer is the subject
of any bankruptcy or other insolvency proceeding;
(13) Any Account due from a customer to the extent that such
Account, if taken together with all Accounts due from the same customer, would
exceed in the aggregate an amount equal to twenty percent (20%) of the aggregate
of all Accounts at said date; or, solely with respect to Accounts due from REI,
an amount equal to thirty percent (30%) of the aggregate of all Accounts at that
date;
(14) Any Account with respect to which the customer's obligation to
pay is conditional or subject to a repurchase obligation or right to return or
with respect to which the goods or services giving rise to such Account have not
been delivered (or performed, as applicable) and accepted by such account
debtor, including progress billings, bill and hold sales, guarantied sales, sale
or return transactions, sales on approval or consignment sales (PROVIDED, that
express warranties to retail customers in the ordinary course of business
consistent with past practice shall not, of themselves, make an Account
ineligible);
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(15) Any Account with respect to which the customer is located in
New Jersey, Minnesota, or any other state denying creditors access to its courts
in the absence of a Notice of Business Activities Report or other similar
filing, unless Borrower has either qualified as a foreign corporation authorized
to transact business in such state or has filed a Notice of Business Activities
Report or similar filing with the applicable state agency for the then current
year; and
(16) Any Account with respect to which the customer is a creditor
of Borrower (including a customer to which Borrower owes a credit balance);
PROVIDED, HOWEVER, that any such Account shall only be ineligible as to that
portion of such Account which is less than or equal to the amount owed by
Borrower to such customer.
"Eligible Inventory" means, as at any date of determination, the value
(determined in Dollars at the lower of cost or market on a first-in, first-out
basis) of all Inventory owned by and in the possession of Borrower and located
in the United States of America or, until TNF Canada enters into a Permitted
Canadian Financing, in Canada and in any case that Agent, in its reasonable
credit judgment, deems to be eligible for borrowing purposes. Without limiting
the generality of the foregoing, unless otherwise agreed by Agent, the following
is NOT Eligible Inventory: (a) work-in-process; (b) finished goods which do not
meet the specifications of the purchase order for such goods; (c) Inventory
which Agent determines, in the exercise of reasonable discretion and in
accordance with Agent's or Borrower's customary business practices, to be
unacceptable for borrowing purposes due to age, quality, type, category and/or
quantity; (d) Inventory with respect to which Agent, on behalf of Lenders, does
not have a valid, first priority and fully perfected security interest; (e)
Inventory with respect to which there exists any Lien in favor of any Person
other than Agent, on behalf of Lenders; and (f) Inventory produced in violation
of the Fair Labor Standards Act and subject to the so-called "hot goods"
provisions contained in Title 29 U.S.C. 215 (a)(i).
(E) BORROWING MECHANICS. (1) Prime Rate Loans made on any Funding Date
shall be in an aggregate minimum amount of Twenty-five Thousand Dollars
($25,000) and integral multiples of Twenty-five Thousand Dollars ($25,000) in
excess of such amount. LIBOR Rate Loans made on any Funding Date shall be in an
aggregate minimum amount of Five Hundred Thousand Dollars ($500,000) and
integral multiples of One Hundred Thousand Dollars ($100,000) in excess of such
amount.
(2) When Borrower desires to borrow under subsection 2.1 (A), (B) or
(C) Borrower shall deliver to Agent a notice of borrowing no later than noon
(Chicago time) (i) on the proposed Funding Date in the case of a requested Prime
Rate Loan and (ii) at least two (2) Business Days in advance of the proposed
Funding Date in the case of a requested LIBOR Rate Loan ("Notice of Borrowing").
The Notice of Borrowing shall specify: (1) the proposed Funding Date (which
shall be a Business Day); (2) the amount and type of Loans requested; (3) in the
case of a Revolving Loan, that the aggregate amount of the Revolving Loans
(including the Revolving Loan or Tradename Advance then noticed) will not exceed
the Maximum Revolving Loan Amount; (4) whether such Loans shall consist of Prime
Rate Loans or LIBOR Rate Loans; (5) if such Loans, or any portion thereof are to
be LIBOR Rate Loans, the amounts thereof and the initial Interest Periods
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therefor; and (6) that no Default or Event of Default has occurred and is
continuing or would result from the proposed advance. Borrower may not borrow
any LIBOR Rate Loan if any Default or Event of Default has occurred and is
continuing.
In lieu of delivering a Notice of Borrowing, Borrower may give Agent
telephonic notice by the required time of the notice hereunder; PROVIDED that
such notice shall be promptly confirmed in writing by delivery of a written
Notice of Borrowing to Agent on that same day.
Neither Agent nor any Lender shall incur any liability to Borrower
for acting upon any telephonic notice that Agent believes in good faith to have
been given by a duly authorized officer or other person authorized to borrow on
behalf of Borrower or for otherwise acting in good faith under this subsection
2.1(E). Neither Agent nor any Lender will make any advance pursuant to any
telephonic notice unless Agent has also received the most recent Borrowing Base
Certificate and all other documents required under subsection 5.1(F) by noon
(Chicago time). The making of an advance pursuant to telephonic notice shall
constitute a Loan under this Agreement. Each such advance made to Borrower
under the Revolving Loan and each Tradename Advances, if any, shall be deposited
by wire transfer in immediately available funds in such account as Borrower may
from time to time designate to Agent in writing.
(3) Borrower shall give Agent at least three (3) Business Days
prior written notice of its desire to borrow any advance under the Term Loan,
which notice shall be accompanied by a certificate of Borrower describing, in
reasonable detail, the Capital Expenditures to be made with the proceeds
thereof. Each notice of borrowing hereunder shall specify the Funding Date
(which shall be a Business Day), whether such Term Loan shall consist of a Prime
Rate Loan or a LIBOR Rate Loan and the Interest Period, if any, applicable
thereto. Each such advance to Borrower under the Term Loan shall be deposited
in immediately available funds in such account as Borrower may from time to time
designate to Agent in writing.
(4) Agent shall notify Lenders of Loans requested hereunder in
accordance with subsection 9.6.
(F) NOTES. Borrower shall execute and deliver to each Lender (1) a Term
Note to evidence its Term Loan, such Term Note to be in the principal amount of
the Term Loan Commitment of such Lender and with other appropriate insertions
and (2) a Revolving Note to evidence its Revolving Loan, such Revolving Note to
be in the principal amount of the Revolving Loan Commitment of such Lender and
with other appropriate insertions. In the event of an assignment under
subsection 9.1, Borrower shall, upon surrendering of the assigning Lender's
Notes, issue new Notes to reflect the new commitments or Loans of the assigning
Lender and its assignee.
(G) LENDER LETTERS OF CREDIT AND RISK PARTICIPATION AGREEMENTS. Subject
to the terms and conditions of this Agreement and in reliance upon the
representations and warranties of Borrower herein set forth, the Revolving Loan
Commitments may, in addition to advances under the Revolving Loan and Tradename
Advances, be utilized, upon the request of Borrower, for (i) the issuance of
letters of credit by Agent (each such letter of credit, a "Lender Letter of
Credit") or (ii)
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the issuance by Agent of risk participation agreements (each such agreement, a
"Risk Participation Agreement") to confirm payment to banks which issue sight or
standby letters of credit for the account of Borrower. Each Risk Participation
Agreement shall provide for automatic daily reporting of the outstanding
Underlying L/C's and any amounts drawn thereunder. All Lender Letters of Credit
and Lender Guaranties (as defined in the Existing Loan Agreement) outstanding
under the Existing Credit Agreement on the Closing Date shall be deemed Lender
Letters of Credit hereunder.
(1) MAXIMUM AMOUNT. The aggregate amount of Risk Participation
Liability with respect to all Lender Letters of Credit and Risk Participation
Agreements outstanding at any time shall not exceed Fifteen Million Dollars
($15,000,000), subject to, and reduced by, any reductions in the Revolving Loan
Commitment under subsection 2.4.
(2) REIMBURSEMENT. Borrower shall be irrevocably and
unconditionally obligated forthwith without presentment, demand, protest or
other formalities of any kind, to reimburse Agent, for the benefit of Agent and
Lenders, for any amounts paid by Agent or any Lender with respect to any Lender
Letter of Credit or any Risk Participation Agreement issued for the account of
Borrower, including all fees, costs and expenses paid by Agent or any Lender to
any bank that issues letters of credit. Borrower hereby authorizes and directs
Agent, at Agent's option, to debit Borrower's account (by increasing the
principal balance of the Revolving Loan) in the amount of any payment made by
Agent or any Lender with respect to any Lender Letter of Credit or any Risk
Participation Agreement. All amounts paid by Agent or any Lender with respect
to any Lender Letter of Credit or Risk Participation Agreement that are not
immediately repaid by Borrower with the proceeds of a Revolving Loan or
otherwise shall bear interest at the Default Rate applicable to Revolving Loans.
Each Lender agrees to fund its Pro Rata Share of any Revolving Loan made
pursuant to this subsection 2.1(G)(2). In the event that Borrower shall fail to
reimburse Agent on the date of any payment by Agent under a Lender Letter of
Credit or Risk Participation Agreement in an amount equal to the amount of such
payment, Agent shall promptly notify each Lender of the unreimbursed amount of
such payment, together with accrued interest thereon, and each Lender agrees to
purchase, and shall be deemed to have purchased, a participation in such Lender
Letter of Credit or Risk Participation Agreement in an amount equal to its Pro
Rata Share of the unpaid amount of such Risk Participation Liability and each
Lender agrees to pay to Agent such Lender's Pro Rata Share of such Risk
Participation Liability. The obligation of each Lender to deliver to Agent an
amount equal to its respective participation pursuant to the foregoing sentence
shall be absolute and unconditional and such remittance shall be made
notwithstanding the occurrence or continuation of an Event of Default or Default
or failure to satisfy any condition set forth in Section 3. In the event any
Lender fails to make available to Agent the amount of such Lender's
participation in such Lender Letter of Credit or Risk Participation Agreement as
provided in this subsection 2.1(G)(2), Agent shall be entitled to recover such
amount on demand from such Lender, together with interest at the Prime Rate.
(3) CONDITIONS OF ISSUANCE. In addition to all other terms and
conditions set forth in this Agreement, the issuance by Agent of any Lender
Letter of Credit or Risk Participation Agreement shall be subject to the
conditions precedent that the Lender Letter of Credit or Underlying L/C be in
such form, be for such amount, contain such terms and support such
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transactions as are reasonably acceptable to Agent. Each Lender Letter of
Credit, Underlying L/C and Risk Participation Agreement shall be in form and
substance acceptable to Agent. The expiration date of each Lender Letter of
Credit or Underlying L/C shall be on a date which is at least thirty (30) days
before the Termination Date. Each Risk Participation Agreement shall provide
that all demands or claims for payment with respect to each Underlying L/C must
be presented by a date certain, which date will be at least thirty (30) days
before the Termination Date.
(4) REQUEST FOR LETTERS OF CREDIT. Borrower shall give Agent at
least two (2) Business Days prior notice specifying the date a Lender Letter of
Credit or Underlying L/C is to be issued, identifying the beneficiary and
describing the nature of the transactions proposed to be supported thereby. The
notice shall be accompanied by the form of the requested Lender Letter of Credit
or Underlying L/C.
(H) OTHER LETTER OF CREDIT AND GUARANTY PROVISIONS.
(1) OBLIGATIONS ABSOLUTE. The obligation of Borrower to reimburse
Agent or any Lender for payments made under any Lender Letter of Credit or Risk
Participation Agreement shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances
including the following circumstances:
(a) any lack of validity or enforceability of any Lender
Letter of Credit or Risk Participation Agreement or Underlying L/C or any other
agreement;
(b) the existence of any claim, setoff, defense or other
right which Borrower, any of its Subsidiaries or Affiliates, Agent or any
Lender, on the one hand, may at any time have against any beneficiary or
transferee of any Lender Letter of Credit or any Underlying L/C (or any Persons
for whom any such transferee may be acting), Agent, any Lender or any other
Person, on the other hand, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between Borrower or any of its Subsidiaries or Affiliates
and the beneficiary for which the Lender Letter of Credit or Underlying L/C was
procured);
(c) any draft, demand, certificate or any other document
presented under any Lender Letter of Credit or Underlying L/C proving to be
forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(d) payment by Agent or any Lender under any Lender Letter
of Credit or Risk Participation Agreement against presentation of a demand,
draft or certificate or other document which does not comply with the terms of
such Lender Letter of Credit or Underlying L/C; PROVIDED that, in the case of
any payment by Agent or a Lender under any Lender Letter of Credit or Underlying
L/C, Agent or such Lender has not acted with gross negligence or willful
misconduct (as determined by a court of competent jurisdiction) in determining
that the demand for payment under such Lender Letter of Credit, Underlying L/C
or Risk Participation Agreement complies on
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its face with any applicable requirements for a demand for payment under such
Lender Letter of Credit, Underlying L/C or Risk Participation Agreement;
(e) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
(f) the fact that a Default or an Event of Default shall
have occurred and be continuing.
(2) NATURE OF AGENT'S AND LENDERS' DUTIES. As between Agent and
or any Lender and Borrower, Borrower assumes all risks of the acts and omissions
of, or misuse of any Lender Letter of Credit, Underlying L/C or Risk
Participation Agreement by beneficiaries of any Lender Letter of Credit or
Underlying L/C. In furtherance and not in limitation of the foregoing, neither
Agent nor any Lender shall be responsible: (a) for the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for and issuance of any Lender
Letter of Credit, Underlying L/C or Risk Participation Agreement, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (b) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Lender Letter of Credit or Underlying L/C or the rights or benefits thereunder
or proceeds thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason; (c) for failure of the beneficiary of any Lender
Letter of Credit or Underlying L/C to comply fully with conditions required in
order to demand payment under such Lender Letter of Credit or Underlying L/C;
PROVIDED that, in the case of any payment by Agent or any Lender under any
Lender Letter of Credit or Risk Participation Agreement, or by any issuer of an
Underlying L/C, Agent, or such Lender or such issuer has not acted with gross
negligence or willful misconduct (as determined by a court of competent
jurisdiction) in determining that the demand for payment under such Lender
Letter of Credit or Risk Participation Agreement or Underlying L/C complies on
its face with any applicable requirements for a demand for payment thereunder;
(d) for errors, omissions, interruptions or delays in transmission or delivery
of any messages, by mail, cable, telegraph, telex or otherwise, whether or not
they be in cipher; (e) for errors in interpretation of technical terms; (f) for
any loss or delay in the transmission or otherwise of any document required in
order to make a payment under any Lender Letter of Credit, Underlying L/C or
Risk Participation Agreement or of the proceeds thereof; (g) for the credit of
the proceeds of any drawing under any Lender Letter of Credit, Underlying L/C or
demand under, a Risk Participation Agreement; and (h) for any consequences
arising from causes beyond the control of Agent or any Lender. None of the
above shall affect, impair, or prevent the vesting of any of Agent's or any
Lender's rights or powers hereunder.
(3) In furtherance and extension of and not in limitation of, the
specific provisions hereinabove set forth, any action taken or omitted by Agent
or any Lender under or in connection with any Lender Letter of Credit or Risk
Participation Agreement, if taken or omitted in good faith, shall not put Agent
or any Lender under any resulting liability to Borrower.
2.2 INTEREST.
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(A) RATE OF INTEREST. The Loans and all other Obligations shall bear
interest from the date such Loans are made or such other Obligations become due
to the date paid at a rate per annum determined by reference to the Prime Rate
or the LIBOR Rate. The applicable basis for determining the rate of interest
shall be selected by Borrower initially at the time a notice of borrowing is
given pursuant to subsection 2.1(E). The basis for determining the interest
rate with respect to any Loan may be changed from time to time pursuant to
subsection 2.2(E). If on any day a Loan is outstanding with respect to which
notice has not been delivered to Agent in accordance with the terms of this
Agreement specifying the basis for determining the rate of interest, then for
that day that Loan shall bear interest determined by reference to the Prime
Rate.
The Loans shall bear interest through maturity as follows:
(1) if a Prime Rate Loan, then at a per annum rate equal to the
Prime Rate MINUS one quarter of one percent (0.25%); and
(2) if a LIBOR Rate Loan, then at a per annum rate equal to the
LIBOR Rate plus one and one-half percent (1.5%).
Notwithstanding the foregoing, (A) so long as no Default or Event of
Default has occurred, if EBITDA for the Fiscal Year ending December 31, 1996
exceeds Twelve Million Eight Hundred Thousand Dollars ($12,800,000), Prime Rate
Loans shall bear interest at a per annum rate equal to the Prime Rate MINUS one
half of one percent (0.5%) and LIBOR Rate Loans shall bear interest at a per
annum rate equal to the LIBOR Rate PLUS one and one-quarter (1.25%) and (B) if,
as of the end of any Fiscal Year, the ratio of the daily average outstanding
Obligations of Borrower and its Domestic Subsidiaries to EBITDA for such Fiscal
Year exceeds 2.5 to 1, all Loans shall bear interest at a rate equal to one
quarter of one percent (0.25%) per annum PLUS the then-applicable rate, until
the ratio of the daily average outstanding Obligations of Borrower and its
Domestic Subsidiaries, to EBITDA for any subsequent Fiscal Year is less than 2.5
to 1, at which time the interest rate shall be reduced by one quarter of one
percent (0.25%) per annum, for subsequent Fiscal Years. If thereafter the ratio
of the average daily outstanding Obligations of Borrower and its Subsidiaries to
EBITDA for any subsequent Fiscal Year exceeds 2.5 to 1, the interest rate shall
increase as provided in the foregoing clause (B).
Any adjustment under clauses (A) or (B) shall be effective on the fifth
Business Day following receipt by Agent and Lenders of the audited financial
statements delivered pursuant to subsection 5.1 (C) hereof; PROVIDED that any
change in the interest rate shall not become effective for any outstanding LIBOR
Rate Loans until the end of the applicable Interest Period.
After the occurrence of an Event of Default and for so long as such Event
of Default continues, (i) the Loans and all other Obligations shall, at the
option of Agent or Requisite Lenders, bear interest at a rate per annum equal to
two percent (2.0%) plus the applicable interest rate (the "Default Rate") and
(ii) each LIBOR Rate Loan shall automatically convert to a Prime Rate Loan at
the end of any applicable Interest Period.
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(B) INTEREST PERIODS. In connection with each LIBOR Rate Loan,
Borrower shall elect an interest period (each an "Interest Period") to be
applicable to such Loan, which Interest Period shall be either a one, two, three
or six month period; PROVIDED that
(1) the initial Interest Period for any Loan shall commence on the
Funding Date of such Loan;
(2) in the case of immediately successive Interest Periods, each
successive Interest Period shall commence on the day on which the next preceding
Interest Period expires;
(3) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next succeeding
Business Day; PROVIDED that if any Interest Period would otherwise expire on a
day that is not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire on the next
preceding Business Day;
(4) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to part
(5) below, end on the last Business Day of a calendar month;
(5) no Interest Period shall extend beyond the Termination Date;
(6) no Interest Period may extend beyond a date on which Borrower
is required to make a scheduled payment of principal of the Loans unless the sum
of (a) the aggregate principal amount of Loans that are Prime Rate Loans or that
have Interest Periods expiring on or before such date and (b) the available,
unused Revolving Loan Commitment or Borrowing Base equals or exceeds the
principal amount required to be paid on the Loans on such date; and
(7) there shall be no more than five (5) Interest Periods relating
to LIBOR Rate Loans outstanding at any time.
(C) COMPUTATION AND PAYMENT OF INTEREST. Interest on the Loans and all
other Obligations shall be computed on the daily principal balance on the basis
of a 360-day year for the actual number of days elapsed in the period during
which it accrues. In computing interest on any Loan, the date of funding of the
Loan or the first day of an Interest Period applicable to such Loan or, with
respect to a Prime Rate Loan being converted from a LIBOR Rate Loan, the date of
conversion of such LIBOR Rate Loan to such Prime Rate Loan, shall be included
and the date of payment of such Loan or the expiration date of an Interest
Period applicable to such Loan, or with respect to a Prime Rate Loan being
converted to a LIBOR Rate Loan, the date of conversion of such Prime Rate Loan
to such LIBOR Rate Loan, shall be excluded; PROVIDED that if a Loan is repaid on
the same day on which it is made, one day's interest shall be paid on that Loan.
Interest on Prime Rate Loans and all other Obligations other than LIBOR Rate
Loans shall be payable to Agent, for the benefit of Lenders, monthly in arrears
on the first day of each month, on the date of any prepayment of Loans
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and at maturity, whether by acceleration or otherwise. Interest on LIBOR Rate
Loans shall be payable to Agent, for the benefit of Lenders, on the last day of
the applicable Interest Period for such Loan, and at maturity, whether by
acceleration or otherwise. In addition, for each LIBOR Rate Loan having an
Interest Period longer than three (3) months, interest accrued on such Loan
shall also be payable on the last day of each three (3) month interval during
such Interest Period.
(D) INTEREST LAWS. Notwithstanding any provision to the contrary
contained in this Agreement or any other Loan Document, Borrower shall not be
required to pay, and neither Agent nor any Lender shall be permitted to collect,
any amount of interest in excess of the maximum amount of interest permitted by
law ("Excess Interest"). If any Excess Interest is provided for or determined
by a court of competent jurisdiction to have been provided for in this Agreement
or in any other Loan Document, then in such event: (1) the provisions of this
subsection shall govern and control; (2) neither Borrower nor any Loan Party
shall be obligated to pay any Excess Interest; (3) any Excess Interest that
Agent or any Lender may have received hereunder shall be, at such Lender's
option, (a) applied as a credit against the outstanding principal balance of the
Obligations or accrued and unpaid interest (not to exceed the maximum amount
permitted by law), (b) refunded to the payor thereof, or (c) any combination of
the foregoing; (4) the interest rate(s) provided for herein shall be
automatically reduced to the maximum lawful rate allowed from time to time under
applicable law (the "Maximum Rate"), and this Agreement and the other Loan
Documents shall be deemed to have been and shall be, reformed and modified to
reflect such reduction; and (5) neither Borrower nor any Loan Party shall have
any action against Agent or any Lender for any damages arising out of the
payment or collection of any Excess Interest. Notwithstanding the foregoing, if
for any period of time interest on any Obligations is calculated at the Maximum
Rate rather than the applicable rate under this Agreement, and thereafter such
applicable rate becomes less than the Maximum Rate, the rate of interest payable
on such Obligations shall remain at the Maximum Rate until each Lender shall
have received the amount of interest which such Lender would have received
during such period on such Obligations had the rate of interest not been limited
to the Maximum Rate during such period.
(E) CONVERSION OR CONTINUATION. Subject to the provisions of subsection
2.10, Borrower shall have the option to (1) convert at any time all or any part
of outstanding Prime Rate Loans equal to Five Hundred Thousand Dollars
($500,000) and integral multiples of Five Hundred Thousand Dollars ($500,000) in
excess of that amount to LIBOR Rate Loans, or (2) upon the expiration of any
Interest Period applicable to a LIBOR Rate Loan, to continue all or any portion
of such Loan equal to Five Hundred Thousand Dollars ($500,000) and integral
multiples of Five Hundred Thousand Dollars ($500,000) in excess of that amount
as a LIBOR Rate Loan and the succeeding Interest Period(s) of such continued
Loan shall commence on the last day of the Interest Period of the Loan to be
continued; or (3) at the end of any Interest Period, convert all or any part of
a LIBOR Rate Loan to a Prime Rate Loan; PROVIDED that any LIBOR Rate Loan which
continues as such meets the minimum requirement of clause (2); and PROVIDED,
FURTHER, that no outstanding Loan may be continued as, or be converted into, a
LIBOR Rate Loan when any Event of Default or Default has occurred and is
continuing.
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Borrower shall deliver a Notice of Conversion/Continuation to Agent no
later than noon (Chicago time) at least two (2) Business Days in advance of the
proposed conversion/ continuation date ("Notice of Conversion/Continuation"). A
Notice of Conversion/Continuation shall certify: (1) the proposed
conversion/continuation date (which shall be a Business Day); (2) the amount of
the Loan to be converted/continued; (3) the nature of the proposed
conversion/continuation; (4) in the case of a conversion to, or a continuation
of, a LIBOR Rate Loan, the requested Interest Period; and (5) that no Default or
Event of Default has occurred and is continuing or would result from the
proposed conversion/continuation.
In lieu of delivering the above-described Notice of
Conversion/Continuation, Borrower may give Agent telephonic notice by the
required time of any proposed conversion/continuation under this subsection 2.2
(E); PROVIDED that such notice shall be promptly confirmed in writing by
delivery of a Notice of Conversion/Continuation to Agent on or before the
proposed conversion/continuation date.
Neither Agent nor any Lender shall incur any liability to Borrower in
acting upon any telephonic notice referred to above that Agent believes in good
faith to have been given by a duly authorized officer or other person authorized
to act on behalf of Borrower or for otherwise acting in good faith under this
subsection 2.2(E) and upon conversion/continuation by Lenders in accordance with
this Agreement pursuant to any telephonic notice, Borrower shall have effected
such conversion or continuation, as the case may be, hereunder.
2.3 FEES
(A) AGENT'S FEE. Borrower shall pay to Agent such fees as are agreed
upon by Borrower and Agent in a letter agreement of even date herewith.
(B) UNUSED LINE FEE. Borrower shall pay to Agent, for the benefit of
Lenders, a fee in an amount equal to the Revolving Loan Commitment LESS the sum
of (i) the average daily balance of the Revolving Loan (including any Tradename
Advances) plus (ii) the average daily face amount of the Risk Participation
Reserve during the preceding month multiplied by one-half percent (.5%) per
annum, such fee to be payable monthly in arrears on the first day of the first
month following the Closing Date and the first day of each month thereafter.
The first payment hereunder shall include the Unused Line Fee payable under the
Existing Loan Agreement for any partial month prior to the Closing Date.
(C) LETTER OF CREDIT AND GUARANTY FEES. Borrower shall pay to Agent for
the benefit of Lenders fees for each Lender Letter of Credit and each Risk
Participation Agreement for the period from and including the date of issuance
of same to and excluding the date of expiration or termination, equal to the
average daily face amount of Risk Participation Liability multiplied by two
percent (2.0%) per annum, such fees to be calculated on the basis of a 360-day
year for the actual number of days elapsed and to be payable monthly in arrears
on the first day of the first month following the Closing Date and the first day
of each month thereafter. Borrower shall also reimburse Agent for any and all
fees and expenses, if any, paid by Agent to the issuer of the Underlying L/C.
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(D) CLOSING FEE. On the Closing Date, Borrower shall pay to Agent for
the ratable benefit of Lenders a closing fee of One Hundred Thousand Dollars
($100,000).
2.4 PAYMENTS AND PREPAYMENTS
(A) MANNER AND TIME OF PAYMENT. In its sole discretion, Agent may
charge interest and other amounts payable hereunder to the Revolving Loan, all
as set forth on Agent's books and records. Unless otherwise directed by Agent,
all payments to Lenders hereunder shall be made by delivery thereof to Agent to
the account specified below or, with respect to the Revolving Loan and any
Tradename Advances only, by delivery to Agent of all proceeds of Accounts or
other Collateral deposited in the Blocked Accounts in accordance with subsection
5.6 hereof, but subject to the terms of such subsection and the agreements
governing the Blocked Accounts. If Agent elects to bill Borrower for any amount
due hereunder, such amount shall be immediately due and payable with interest
thereon as provided herein. All payments made directly by Borrower of the
Obligations shall be made in Dollars without deduction, defense, setoff or
counterclaim and in same day funds and delivered to Agent by wire transfer to
Agent's account ("Agent's Account"), ABA No. 071-0000-3, Account No. 52-98695 at
First National Bank of Chicago, One First National Plaza, Chicago, IL 60670,
Reference: Heller Business Credit for the benefit of The North Face or at such
other place as Agent may direct from time to time by notice to Borrower.
Proceeds remitted from the Blocked Accounts or otherwise wire transferred to
Agent's Account shall be credited to the Obligations on the Business Day on
which Agent receives immediately available funds in Agent's Account if received
prior to 3 p.m. (New York time); PROVIDED, HOWEVER, for the purposes of
calculating interest on the Obligations, such funds shall be deemed received one
(1) Business Day following such date of receipt, but after an IPO has been
consummated, funds shall be deemed received for such purposes on the day of
Agent's receipt of immediately available funds if received prior to 3:00 p.m.
(New York time).
(B) MANDATORY PREPAYMENTS
(1) OVERADVANCE. At any time that the principal balance of the
Revolving Loan exceeds the Maximum Revolving Loan Amount, Borrower shall
immediately repay the Revolving Loan to the extent necessary to reduce the
principal balance to an amount that is equal to or less than the Maximum
Revolving Loan Amount.
(2) PROCEEDS OF ASSET DISPOSITIONS AND SECURITIES SALES.
Immediately upon receipt by Borrower or any of its Subsidiaries of proceeds of
any Asset Disposition (in one or a series of related transactions), which
proceeds exceed Fifty Thousand Dollars ($50,000), net of taxes and other
customary closing costs payable in connection therewith and the amount applied
to repay Indebtedness secured by any Permitted Encumbrance (it being understood
that if the net proceeds exceed Fifty Thousand Dollars ($50,000), the entire
amount and not just the portion above Fifty Thousand Dollars ($50,000) shall be
subject to this paragraph), or the proceeds from the issuance of securities of
Borrower or any of its Subsidiaries (net of reasonable underwriting fees and
customary closing costs payable in connection therewith and LESS any prepayments
of the Subordinated Debt from the proceeds of an IPO permitted under subsection
7.5 hereof), Borrower
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shall prepay the Obligations in an amount equal to such proceeds.
Notwithstanding the foregoing, if Borrower reasonably expects the proceeds of
any Asset Disposition to be reinvested within 180 days to repair or replace any
assets with like assets, Borrower shall deliver the proceeds to Agent to be
applied to the Revolving Loan, and Borrower may, so long as no Default or Event
of Default shall have occurred and be continuing, borrow Revolving Loans for
such repair or replacement. If Borrower fails to reinvest such proceeds within
180 days, Borrower hereby authorizes Lenders to make a Revolving Loan to repay
the Term Loan as required hereby and/or if the Term Loan has been repaid, the
Revolving Loan Commitment shall be permanently reduced as provided herein. All
such prepayments shall first be applied in payment of Scheduled Installments in
the inverse order of maturity (and the Term Loan Commitment will be permanently
reduced in the amount of such prepayment) and, at any time after the Term Loan
shall have been repaid in full, such payments shall be applied as a permanent
reduction of the Revolving Loan Commitment; PROVIDED, HOWEVER, that prepayments
from proceeds of the IPO or any issuance of Common Stock thereafter shall not
permanently reduce the Revolving Loan Commitment.
(C) VOLUNTARY PREPAYMENTS AND REPAYMENTS. Borrower may, at any time and
upon not less than three (3) Business Days prior notice to Agent and payment of
any fees due under subsection 2.3(D), prepay the Term Loan in whole or in part,
and upon like notice may terminate the Revolving Loan Commitment, PROVIDED,
HOWEVER, the Revolving Loan Commitment may not be terminated by Borrower until
the Term Loan and any Tradename Advances and all Revolving Loans are paid in
full. Upon termination of the Revolving Loan Commitment, Borrower shall cause
Agent and each Lender to be released to the satisfaction of Agent from all
liability under any Lender Letters of Credit or Lender Guaranties or, at Agent's
option, Borrower will deposit cash collateral with Agent in an amount equal to
the Risk Participation Liability with respect to each Lender Letter of Credit
and each Risk Participation Agreement that will remain outstanding after
prepayment or repayment or provide one or more letters of credit to Agent, from
a bank and on terms acceptable to Agent.
(D) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees due
hereunder.
2.5 TERM OF THIS AGREEMENT. Subject to satisfaction of the conditions set
forth in subsection 3.1 hereof, this Agreement shall become effective on the
Closing Date and remain in effect until February 1, 2000 (the "Termination
Date"). The Commitments shall (unless earlier terminated) terminate on the
Termination Date. In addition, this Agreement may be terminated as set forth in
Section 8.3 hereof. Upon termination in accordance with Section 8.3 or on the
Termination Date, all Obligations shall be immediately due and payable without
notice or demand. Notwithstanding any termination, until all Obligations have
been fully paid and satisfied, Agent, on behalf of Lenders, shall be entitled to
retain security interests in and liens upon all Collateral, and even after
payment of all Obligations hereunder, the obligation of Borrower and its
Subsidiaries to indemnify Agent and Lenders in accordance with the terms hereof
or of any other Loan Document shall continue.
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2.6 STATEMENTS; APPLICATION OF PAYMENTS. Agent shall render a monthly
statement of account to Borrower within twenty (20) days after the end of each
month. Such statement of account shall constitute an account stated unless
Borrower makes written objection thereto in reasonable detail (including
appropriate calculations) within thirty (30) days from the date such statement
is mailed to Borrower. Borrower promises to pay all of its Obligations as such
amounts become due or are declared due pursuant to the terms of this Agreement.
After the occurrence and during the continuance of an Event of Default, Borrower
irrevocably waives the right to direct the application of any and all payments
at any time or times thereafter received by Agent or any Lender from or on
behalf of Borrower, and Borrower hereby irrevocably agrees that Agent shall have
the continuing exclusive right to apply and to reapply any and all payments
received at any time or times after the occurrence and during the continuance of
an Event of Default against the Obligations in such manner as Agent may deem
advisable notwithstanding any previous entry by Agent upon any books and
records.
2.7 GRANT OF SECURITY INTEREST. To secure the payment and performance when
due of the Obligations, including all renewals, extensions, restructurings and
refinancings of any or all of the Obligations, Borrower hereby confirms the
grant to Agent, on behalf of Lenders, of the continuing first priority security
interest, lien and mortgage in the "Collateral" (as defined in the Existing Loan
Agreement) and grants to Agent, on behalf of Lenders, a continuing first
priority security interest, lien and mortgage in and to all right, title and
interest of Borrower in the following property of Borrower, whether now owned or
existing or hereafter acquired or arising and regardless of where located (all
being collectively included within the "Collateral"): (A) Accounts; (B)
Inventory; (C) general intangibles (as defined in the UCC), including Borrower's
rights and claims under the Assigned Agreements and the Canadian Documents; (D)
documents (as defined in the UCC) or other receipts covering, evidencing or
representing goods; (E) instruments (as defined in the UCC); (F) chattel paper
(as defined in the UCC); (G) Equipment; (H) Mortgaged Property; (I) Intellectual
Property, including without limitation that set forth on Schedule 4.13 hereof;
(J) all deposit accounts of Borrower maintained with any bank or financial
institution; (K) all cash and other monies and property of Borrower in the
possession or under the control of Agent or any Lender or any participant; (L)
all books, records, ledger cards, files, correspondence, computer programs,
tapes, disks and related data processing software that at any time evidence or
contain information relating to any of the property described above or are
otherwise necessary or helpful in the collection thereof or realization thereon;
(M) rights under this Agreement or any other Loan Document and the proceeds of
any Loans hereunder; and (N) proceeds of all or any of the property described
above, including, without limitation, the proceeds of any insurance policies
covering any of the above described property. Borrower hereby confirms that the
security interests granted to Heller under the Existing Loan Agreement shall
continue in full force and effect as if granted to Agent for the benefit of
Lenders.
2.8 CAPITAL ADEQUACY AND OTHER ADJUSTMENTS. In the event that Agent or any
Lender shall have determined that the adoption after the date hereof of any law,
treaty, governmental (or quasi-governmental) rule, regulation, guideline or
order regarding capital adequacy, reserve requirements or similar requirements
or compliance by Agent or such Lender or any corporation controlling Agent or
such Lender with any request or directive regarding capital adequacy, reserve
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requirements or similar requirements (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) from any central
bank or governmental agency or body having jurisdiction does or shall have the
effect of increasing the amount of capital, reserves or other funds required to
be maintained by Agent or such Lender or any corporation controlling Agent or
such Lender with respect to the Obligations and thereby reducing the rate of
return on Agent's or such Lender's or such corporation's capital as a
consequence of its obligations hereunder, then Borrower shall from time to time
within fifteen (15) days after notice and demand from Agent or such Lender
(together with the certificate referred to in the next sentence) pay to Agent or
such Lender additional amounts sufficient to compensate Agent or such Lender for
such reduction, so long as Agent or such Lender is then requiring such payments
from other borrowers, the demand does not seek payment for a period more than 90
days in arrears and the demand is made prior to payment in full of the
Obligations and termination of all Commitments. A certificate as to the amount
of such cost and showing the basis of the computation of such cost submitted by
Agent or such Lender to Borrower shall, absent manifest error, be final,
conclusive and binding for all purposes. If a Lender makes a demand for
compensation pursuant to this subsection 2.8, Borrower may obtain, at Borrower's
expense but without payment of any fee under subsection 2.3(D), a replacement
lender who agrees to acquire Lender's interest in the Loans and the Commitments
on the terms set forth in this Agreement and such Lender shall assign to such
replacement lender its interest in the Loans and the Commitments, PROVIDED that
Borrower has paid all amounts then due to such Lender (including any amounts due
under this subsection 2.8).
2.9 TAXES.
(A) NO DEDUCTIONS. Any and all payments or reimbursements made
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto; excluding, however, the
following: taxes imposed on the net income of a Lender or Agent by the
jurisdiction under the laws of which such Lender or Agent is organized or doing
business or any political subdivision thereof and taxes imposed on its net
income by the jurisdiction of a Lender's or Agent's applicable lending office or
any political subdivision thereof. If Borrower shall be required by law to
deduct any such amounts from or in respect of any sum payable hereunder to Agent
or any Lender, then the sum payable hereunder shall be increased as may be
necessary so that, after making all required deductions, Agent or such Lender
receives an amount equal to the sum it would have received had no such
deductions been made. Each Lender which is organized under the laws of a
jurisdiction other than the United States or any state thereof shall deliver to
Agent and Borrower concurrently with its execution of this Agreement or any
Lender Addition Agreement duly executed copies of such Internal Revenue Service
forms as required to demonstrate that it is entitled to receive all payments
hereunder free from United States withholding taxes as of such date.
(B) CHANGES IN TAX LAWS. In the event that, subsequent to the Closing
Date, (1) any changes in any existing law, regulation, treaty or directive or in
the interpretation or application thereof, (2) any new law, regulation, treaty
or directive enacted or any interpretation or application thereof, or (3)
compliance by Agent or any Lender with any request or directive (whether or not
having the force of law) from any governmental authority, agency or
instrumentality:
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(1) does or shall subject Agent or any Lender to any tax of any
kind whatsoever with respect to this Agreement, the other Loan Documents or any
Loans made or Lender Guaranties or Lender Letters of Credit issued hereunder, or
change the basis of taxation of payments to Agent or any Lender of principal,
fees, interest or any other amount payable hereunder (except for net income
taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally
by federal, state or local taxing authorities with respect to interest or
commitment or other fees payable hereunder or changes in the rate of tax on the
overall net income of Agent or any Lender); or
(2) does or shall impose on Agent or any Lender any other
condition or increased cost in connection with the transactions contemplated
hereby or participations herein; and the result of any of the foregoing is to
increase the cost to Agent or any Lender of issuing or participating in any
Lender Letter of Credit or Risk Participation Agreement or making or continuing
any Loan hereunder, as the case may be, or to reduce any amount receivable
hereunder, then, in any such case, Borrower shall promptly pay to Agent or such
Lender, upon its demand, any additional amounts necessary to compensate Agent or
such Lender, on an after-tax basis, for such additional cost or reduced amount
receivable, as determined by Agent or such Lender with respect to this Agreement
or the other Loan Documents. If Agent or any Lender becomes entitled to claim
any additional amounts pursuant to this subsection, it shall promptly notify
Borrower of the event by reason of which Agent or such Lender has become so
entitled. A certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by Agent or any Lender to Borrower shall, absent
manifest error, be final, conclusive and binding for all purposes.
2.10 SPECIAL PROVISIONS GOVERNING LIBOR RATE LOANS.
Notwithstanding any other provision of this Agreement, the following
provisions shall govern with respect to LIBOR Rate Loans as to the matters
covered:
(A) DETERMINATION OF INTEREST RATE. As soon as practicable after noon
(New York time) on each Interest Rate Determination Date, Agent shall determine
(which determination shall, absent manifest error, be final, conclusive and
binding upon all parties) the interest rate that shall apply to the LIBOR Rate
Loans for which an interest rate is then being determined for the applicable
Interest Period and shall promptly give notice thereof (in writing or by
telephone confirmed in writing) to Borrower and Lenders.
(B) SUBSTITUTED RATE OF BORROWING. If on any Interest Rate
Determination Date Agent shall have determined (which determination shall be
final and conclusive and binding upon all parties) that:
(1) by reason of any changes arising after the date of this
Agreement affecting the LIBOR market or affecting the position of Agent or any
Lender in such market, adequate and fair means do not exist for ascertaining the
applicable interest rate by reference to the LIBOR Rate with respect to the
LIBOR Rate Loans as to which an interest rate determination is then being made;
or
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(2) by reason of (a) any change after the date hereof in any
applicable law or governmental rule, regulation or order (or any interpretation
thereof and including the introduction of any new law or governmental rule,
regulation or order) or (b) any change in circumstances affecting Agent or any
Lender or the LIBOR market or the position of Agent or any Lender in such market
(such as for example, but not limited to, official reserve requirements required
by Regulation D to the extent not given effect in the LIBOR Rate), the LIBOR
Rate shall not represent the effective pricing to Lenders for Dollar deposits of
comparable amounts for the relevant period;
then, and in any such event, Agent shall promptly (and in any event as soon as
possible after being notified of a borrowing, conversion or continuation) give
notice (by telephone confirmed in writing) to Borrower and Lenders of such
determination. Thereafter, Borrower shall pay to Agent for the benefit of
Lenders, upon written demand therefor, such additional amounts (in the form of
an increased rate of, or a different method of calculating, interest or
otherwise as Agent in its sole discretion shall determine) as shall be required
to cause Lenders to receive interest with respect to LIBOR Rate Loans for the
Interest Period following that Interest Rate Determination Date at a rate per
annum equal to the applicable LIBOR Rate Margin in excess of the effective
pricing to Lenders for Dollar deposits to make or maintain LIBOR Rate Loans. A
certificate as to additional amounts owed showing in reasonable detail the basis
for the calculation thereof, submitted in good faith to Borrower by Agent shall,
absent manifest error, be final and conclusive and binding upon all of the
parties hereto.
(C) REQUIRED TERMINATION AND PREPAYMENT. If on any date any Lender
shall have reasonably determined (which determination shall be final and
conclusive and binding upon all parties) that the making or continuation of its
LIBOR Rate Loans has become unlawful or impossible by compliance by any Lender
in good faith with any law, governmental rule, regulation or order (whether or
not having the force of law and whether or not failure to comply therewith would
be unlawful), then, and in any such event, that Lender shall promptly give
notice (by telephone confirmed in writing) to Agent and Borrower of that
determination. Subject to prior withdrawal of a notice of borrowing or a Notice
of Conversion/Continuation or prepayment of the LIBOR Rate Loans as contemplated
by the following subsection 2.10(D), the obligation of Lenders to make or
maintain any LIBOR Rate Loans during any such period shall be terminated at the
earlier of the termination of the Interest Period then in effect or when
required by law and Borrower shall no later than the termination of the Interest
Period in effect at the time any such determination pursuant to this subsection
2.10 (C) is made or, earlier, when required by law, repay or prepay the LIBOR
Rate Loans, together with all interest accrued thereon.
(D) OPTIONS OF BORROWER. In lieu of paying Lenders such additional
moneys as are required by subsection 2.10(B) or the prepayment required by
subsection 2.10(C), Borrower may exercise any one of the following options:
(1) If the determination by Agent or any Lender relates only to
LIBOR Rate Loans then being requested by Borrower pursuant to a notice of
borrowing or a Notice of Conversion/Continuation, Borrower may by giving notice
(by telephone confirmed in writing) to Agent no later than the date immediately
prior to the date on which such LIBOR Rate Loans are to
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be made, withdraw that notice and the LIBOR Rate Loans then being requested
shall be made by Lenders as Prime Rate Loans; or
(2) Upon written notice to Agent, Borrower may terminate the
obligations of Lenders to make or maintain Loans as, and to convert Loans into,
LIBOR Rate Loans and in such event, Borrower shall, prior to the time any
payment pursuant to subsection 2.10(C) is required to be made or, if the
provisions of subsection 2.10(B) are applicable, at the end of the then current
Interest Period, convert all of the LIBOR Rate Loans into Prime Rate Loans in
the manner contemplated by subsection 2.2(E) but without satisfying the advance
notice requirements therein; or
(3) Borrower may give notice (by telephone confirmed in writing) to
Agent and require Lenders to make the LIBOR Rate Loan then being requested as a
Prime Rate Loan or to continue to maintain any outstanding Prime Rate Loan then
the subject of a Notice of Conversion/Continuation as a Prime Rate Loan or to
convert any LIBOR Rate Loans then outstanding that are so affected into Prime
Rate Loans at the end of the then current Interest Period (or at such earlier
time as prepayment is otherwise required to be made pursuant to subsection
2.10(C)) in the manner contemplated by subsection 2.2 (E) but without satisfying
the advance notice requirements therein, that notice to pertain only to those
Loans and to have no effect on the obligations of Lenders to make or maintain
LIBOR Rate Loans or to convert Prime Rate Loans into LIBOR Rate Loans.
(E) COMPENSATION. Borrower shall compensate each Lender, upon written
request by such Lender (which request shall set forth in reasonable detail the
basis for requesting such amounts and which shall, absent manifest error, be
conclusive and binding upon all parties hereto), for all reasonable losses,
expenses and liabilities (including, without limitation, any loss (including
interest paid) sustained by such Lender in connection with the re-employment of
such funds), such Lender may sustain: (1) if for any reason (other than a
default by such Lender) a borrowing of any LIBOR Rate Loan does not occur on a
date specified therefor in a notice of borrowing, a Notice of
Conversion/Continuation or a telephonic request for borrowing or
conversion/continuation or a successive Interest Period does not commence after
notice therefor is given pursuant to subsection 2.2(E); (2) if any prepayment of
any of its LIBOR Rate Loans occurs on a date that is not the last day of an
Interest Period applicable to that Loan; (3) if any prepayment of any of its
LIBOR Rate Loans is not made on any date specified in a notice of prepayment
given by Borrower; or (4) as a consequence of any other default by Borrower to
repay its LIBOR Rate Loans when required by the terms of this Agreement;
PROVIDED that during the period while any such amounts have not been paid, Agent
shall reserve an equal amount from amounts otherwise available to be borrowed
under the Revolving Loan.
(F) BOOKING OF LIBOR RATE LOANS. Any Lender may make, carry or transfer
LIBOR Rate Loans at, to, or for the account of, any of its branch offices or the
office of an Affiliate of such Lender.
(G) ASSUMPTIONS CONCERNING FUNDING OF LIBOR RATE LOANS. Calculation of
all amounts payable to Lenders under this subsection 2.10 shall be made as
though each Lender had actually
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funded its relevant LIBOR Rate Loan through the purchase of a LIBOR deposit
bearing interest at the LIBOR Rate in an amount equal to the amount of that
LIBOR Rate Loan and having a maturity comparable to the relevant Interest Period
and through the transfer of such LIBOR deposit from an offshore office to a
domestic office in the United States of America; PROVIDED, HOWEVER, that any
Lender may fund each of its LIBOR Rate Loans in any manner it sees fit and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection 2.10.
SECTION 3 CONDITIONS TO EFFECTIVENESS; CONDITIONS TO LOANS
3.1 CONDITIONS TO EFFECTIVENESS OF THIS AGREEMENT AND TO LOANS ON THE CLOSING
DATE. The effectiveness of this Agreement and obligations of Agent and each
Lender to make Loans or to issue Lender Letters of Credit or participate in any
Risk Participation Agreement on the Closing Date are subject to the prior or
concurrent satisfaction of all of the conditions set forth below.
(A) CLOSING DELIVERIES. Agent shall have received, in form and
substance acceptable to Agent all documents, instruments and information
identified on Schedule 3.1(A), and all other agreements, notes, certificates,
legal opinions, orders, authorizations, financing statements, mortgages and
other documents which Agent or any Lender may in good faith request and each and
all of the foregoing must be in form and substance acceptable to Agent.
(B) SECURITY INTERESTS. Agent shall have received satisfactory evidence
that all security interests and liens granted to Heller or Agent pursuant to the
Original Loan Agreement, the Existing Loan Agreement, this Agreement or the
other Loan Documents have been duly perfected and constitute first priority
liens on the Collateral, subject only to Permitted Encumbrances. Agent shall
have received all UCC termination statements and other releases of Liens, duly
executed by the applicable secured parties, releasing any and all Liens against
the Collateral, except Permitted Encumbrances.
(C) REPAYMENT OF LOANS. The Term Loan under the Existing Loan Agreement
shall be repaid in full on the Closing Date, and all remaining net proceeds of
the IPO not applied to prepay the Subordinated Debt as permitted under
subsection 7.5(c) hereof shall be applied to the Revolving Loans.
(D) IPO PROCEEDS. The IPO shall have been consummated, and Borrower
shall have received net cash proceeds therefrom of at least Twenty-Seven Million
Dollars ($27,000,000).
(E) FEES AND COSTS. Borrower shall have paid the fees payable on the
Closing Date referred to in subsections 2.3(A) and (D) and all fees and costs of
Agent's counsel.
(F) CORPORATE AUTHORIZATION AND OPINIONS. Agent shall have received
evidence satisfactory to it that all necessary actions of Borrower and its
Subsidiaries to authorize the execution, delivery and performance of this
Agreement and the other Loan Documents have been
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duly taken, and shall have received the opinion of Crosby, Heafey, Roach & May,
in form and substance acceptable to Agent and its counsel.
(G) SUBORDINATED DEBT DOCUMENTS. Borrower shall have obtained such
consents under, or an amendment to, the Subordinated Debt Agreement, in form and
substance acceptable to Agent, necessary to permit the execution, delivery and
performance of this Agreement, and confirm that all Obligations constitute
"Senior Indebtedness" under the Subordinated Debt Agreement.
(H) AVAILABILITY. After giving effect to any Loans made on the Closing
Date and the payment of all fees and expenses, the Maximum Revolving Loan Amount
shall exceed the outstanding principal balance of the Loans plus the Risk
Participation Reserve by at least Five Million Dollars ($5,000,000).
(J) BUSINESS PLAN. Lenders shall have received and approved Borrower's
Budget giving effect to the IPO and this Agreement, which shall be monthly for
the first year and annual for the next two years, and determined that Borrower
will be able to achieve such Budget.
3.2 CONDITIONS TO ALL LOANS AND LENDER LETTERS OF CREDIT. The obligations of
each Lender to make Loans or of Agent to issue Lender Letters of Credit or to
execute and deliver any Risk Participation Agreement on any Funding Date
(including the Closing Date) are subject to satisfaction of all of the
conditions set forth below.
(A) LOAN DOCUMENTS. Agent shall have received, in form and substance
satisfactory to Lender, all agreements, mortgages, financing statements and
other documents as required to perfect or continue the perfection of Agent's
first priority security interests in the Collateral for the benefit of Lenders.
(B) CONSENTS. All consents, approvals or authorizations of any Person
required for the execution, delivery or performance of the Loan Documents shall
have been obtained and remain in full force and effect.
(C) REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained herein and in the Loan Documents shall be true, correct and complete
in all material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except for any representation or warranty
limited by its terms to a specific date and taking into account any amendments
to the Schedules or Exhibits as a result of any disclosures made by Borrower to
Lenders after the Closing Date and approved by Agent.
(D) NO DEFAULT. No event shall have occurred and be continuing or would
result from the consummation of the requested borrowing or notice requesting
issuance of a Lender Letter of Credit or Underlying L/C that would constitute a
Default or an Event of Default.
(E) PERFORMANCE OF AGREEMENTS. Each Loan Party shall have performed in
all material respects all agreements and satisfied all conditions which any Loan
Document or (if failure to
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perform would have a Material Adverse Effect or permit other parties to exercise
remedies against a Loan Party) any other Transaction Document provides shall be
performed by it on or before that Funding Date.
(F) NO PROHIBITION. No provision of any law or regulation, and no
order, judgment or decree of any court, arbitrator or governmental authority,
shall purport to enjoin or restrain Agent or any Lender from making any Loans or
issuing or participating in any Lender Letters of Credit or Underlying L/C's or
impair any security interest in the Collateral.
(G) MARGIN REGULATIONS. The making of the Loans requested on such
Funding Date shall not violate Regulation G, Regulation T, Regulation U or
Regulation X of the Board of Governors of the Federal Reserve System.
(H) NO LITIGATION. There shall not be pending or, to the knowledge of
Borrower, threatened, any action, charge, claim, demand, suit, proceeding,
petition, governmental investigation or arbitration against or affecting any
Loan Party or any of its Subsidiaries or any property of any Loan Party or any
of its Subsidiaries that has not been disclosed by Borrower in writing, and
that, in the opinion of Agent, would reasonably be expected to have a Material
Adverse Effect and there shall have occurred no development in any such action,
charge, claim, demand, suit, proceeding, petition, governmental investigation or
arbitration that, in the opinion of Agent, would reasonably be expected to have
a Material Adverse Effect.
(I) NO MATERIAL ADVERSE CHANGE. No event shall have occurred since the
Original Closing Date which has resulted in any material adverse change in the
business, properties, assets or condition (financial or otherwise) of Borrower
individually or Borrower and its subsidiaries taken as a whole.
SECTION 4 BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce Agent and each Lender to enter into this
Agreement, to make Loans and to issue or participate in Lender Letters of Credit
and Risk Participation Agreements, Borrower represents and warrants to Agent and
each Lender that the following statements are and will be true, correct and
complete:
4.1 ORGANIZATION, POWERS, CAPITALIZATION.
(A) ORGANIZATION AND POWERS. Each of the Loan Parties is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and qualified to do business in all jurisdictions
where such qualification is required. Each of the Loan Parties has (and had at
all relevant times) all requisite corporate power and authority to own and
operate its properties, to carry on its business as now conducted and proposed
to be conducted and to enter into each Loan Document and other Transaction
Document to which such Loan Party is a signatory.
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(B) CAPITALIZATION. The authorized capital stock of each of the Loan
Parties is as set forth on Schedule 4.1(B). All issued and outstanding shares
of capital stock of each of the Loan Parties are duly authorized and validly
issued, fully paid, and nonassessable. The capital stock of each of Borrower's
Subsidiaries is free and clear of all Liens other than those in favor of Agent
for the benefit of Lenders. All shares of the capital stock of the Loan Parties
were issued in compliance with all applicable state and federal (domestic or
foreign) laws concerning the issuance of securities. As of the Closing Date,
after giving effect to the IPO, the Investor Group owns the capital stock of
Borrower in the amounts set forth on Schedule 4.1(B). All of the capital stock
of TNF Europe is owned by Borrower (except one director's qualifying share), and
all of the capital stock of TNF Canada is owned by Borrower. There are no
preemptive or other outstanding rights, options, warrants, conversion rights or
similar agreements or understandings for the purchase or acquisition (i) from
any Loan Party or any other Person of any securities of any of Borrower's
Subsidiaries or (ii) from any Loan Party or member of the Investor Group of any
securities of Borrower that would constitute a Change of Control. As of the
Closing Date, the IPO has been consummated in accordance with all applicable
laws.
4.2 AUTHORIZATION OF BORROWING AND ACQUISITION, NO CONFLICT. Borrower has
(and had at all relevant times) the corporate power and authority to incur the
Obligations and to grant security interests in the Collateral. The execution,
delivery and performance of the Loan Documents and the other Transaction
Documents by each Loan Party signatory thereto has been duly authorized by all
necessary corporate and shareholder action. The execution, delivery and
performance by each Loan Party of each Loan Document and other Transaction
Document to which it is a party and the consummation of the transactions
contemplated by this Agreement and the Transaction Documents do not and will not
be in contravention of any applicable law, the corporate charter or bylaws of
any Loan Party or any material agreement or order by which any Loan Party or any
of its property is bound. No consents, authorizations or permits are required
to be obtained by Borrower or any of its Subsidiaries for the execution,
delivery or performance of any Loan Document, except those which have been
obtained and delivered to Agent. This Agreement is, and the other Transaction
Documents, including the Notes, are the legally valid and binding obligations of
the applicable Loan Parties, respectively, enforceable against the Loan Parties
in accordance with the respective terms of the respective Transaction Documents.
4.3 FINANCIAL CONDITION. The financial statements of Borrower and its
Subsidiaries as of November 30, 1993 and for each period thereafter which have
been, and all financial statements concerning Borrower and its Subsidiaries
which have been furnished pursuant to the Existing Loan Agreement or will
hereafter be furnished by Borrower and its Subsidiaries to Agent or any Lender
pursuant to this Agreement have been or will be prepared in accordance with GAAP
consistently applied throughout the periods involved (except as disclosed
therein) and do or will present fairly in all material respects the financial
condition of the Persons covered thereby as at the dates thereof and the results
of their operations for the periods then ended. The Budgets delivered and to be
delivered have been and will be prepared by Borrower in light of the past
operations of the business of Borrower and its Subsidiaries.
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4.4 INDEBTEDNESS AND LIABILITIES. As of the Closing Date, except as set forth
on Schedule 7.1(C), neither Borrower nor any of its Subsidiaries has (a) any
Indebtedness except Indebtedness under the Existing Loan Agreement or as accrued
in the financial statements dated as of December 31, 1995 or April 30, 1996; or
(b) any liabilities other than as stated in financial statements dated as of
December 31, 1995 or April 30, 1996 or operating lease liabilities and trade
credit to Persons incurred in the ordinary course of business following the date
of the such financial statements.
4.5 ACCOUNT WARRANTIES. Borrower represents, warrants and covenants as to
each Account of Borrower or TNF Canada or any of Borrower's Subsidiaries which
is a party to a Loan Document that, at the time of its creation, the Account is
a valid, bona fide account, representing an indebtedness incurred by the named
account debtor for goods actually sold and delivered or for services completely
rendered; there are no setoffs, or counterclaims, genuine or otherwise, against
the Account; the Account does not represent a sale to an Affiliate (other than
Goldwin or TNF Canada) or a consignment, sale or return or a bill and hold
transaction; no agreement exists permitting any deduction or discount (other
than the discount stated on the invoice); Borrower or the applicable Subsidiary
is the lawful owner of the Account and Borrower or such Subsidiary has the right
to assign the same to Agent, for the benefit of Lenders; each Account is free of
all security interests, liens and encumbrances other than those in favor of
Agent, for the benefit of Lenders and, as to Accounts of TNF Canada Liens in
favor of Borrower which have been assigned to Agent, for the benefit of Lenders;
and the Account is due and payable in accordance with its terms.
4.6 NAMES. Borrower does not conduct business, nor has it at any time during
the past five years conducted business, under any name, trade name or fictitious
business name other than those names set forth on Schedule 4.6.
4.7 LOCATIONS; FEIN. Schedule 4.7 sets forth the locations of Borrower's and
each Subsidiary's principal places of business, the locations of their books and
records, the locations of all other offices of Borrower and its Subsidiaries and
all Collateral locations, and such locations are Borrower's and its Subsidiaries
sole locations for their respective businesses and the Collateral. Borrower's
federal employer identification number is 94-320-4082.
4.8 TITLE TO PROPERTIES; LIENS. Borrower and each of its Subsidiaries has
good, sufficient and legal title, subject to Permitted Encumbrances, to all its
respective material properties and assets. Except for Permitted Encumbrances,
all such properties and assets are free and clear of Liens. To the best
knowledge of Borrower after due inquiry, there are no actual, threatened or
alleged defaults with respect to any leases of real property under which
Borrower or any of its Subsidiaries is lessee or lessor which would have a
Material Adverse Effect.
4.9 LITIGATION; ADVERSE FACTS. Except as set forth on Schedule 4.9, there are
no judgments outstanding against any Loan Party or Old TNF or affecting any
property of any Loan Party or Old TNF nor is there any action, charge, claim,
demand, suit, proceeding, petition, governmental investigation or arbitration
now pending or, to the best knowledge of Borrower after due inquiry, threatened
against or affecting any Loan Party or Old TNF or any property of any Loan Party
or Old TNF which could reasonably be expected to result in any Material Adverse
Effect. No Loan Party
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has received any opinion or memorandum or legal advice from legal counsel to
the effect that such Loan Party is exposed to any liability which could
reasonably be expected to result in any Material Adverse Effect.
4.10 PAYMENT OF TAXES. Except as set forth on Schedule 4.10 or permitted
pursuant to Section 5.9, all tax returns and reports of Borrower and each of its
Subsidiaries required to be filed by any of them have been timely filed, and all
taxes, assessments, fees and other governmental charges upon such Persons and
upon their respective properties, assets, income and franchises which are shown
on such returns as due and payable have been paid when due and payable. None of
the income tax returns of Borrower or any of its Subsidiaries are under audit.
No tax liens have been filed against any assets of Borrower or its Subsidiaries
and not discharged and no claims are being asserted with respect to any taxes
against Borrower or its Subsidiaries. The charges, accruals and reserves on the
books of Borrower and each of its Subsidiaries in respect of any taxes or other
governmental charges are in accordance with GAAP.
4.11 PERFORMANCE OF AGREEMENTS. None of the Loan Parties, and none of their
respective Subsidiaries is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
contractual obligation of any such Person, and no condition exists that, with
the giving of notice or the lapse of time or both, would constitute such a
default, except as set forth in Schedule 4.11 and for such defaults which could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
4.12 EMPLOYEE BENEFIT PLANS. Borrower, each Subsidiary of Borrower and each
ERISA Affiliate is in compliance in all material respects with all applicable
provisions of ERISA, the IRC and all other applicable laws and the regulations
and interpretations thereof with respect to all Employee Benefit Plans and, as
to TNF Europe and TNF Canada, with all applicable laws relating to any employee
benefit or retirement plans. No liability has been incurred by Borrower, any
Subsidiary of Borrower, Old TNF or any ERISA Affiliate which remains unsatisfied
for any funding obligation, taxes or penalties with respect to any Employee
Benefit Plan or any similar plan of TNF Europe and TNF Canada, except the
liability of TNF Europe for underfunding of its pension plan as disclosed prior
to the Original Closing Date, for which Borrower has no liability. Neither
Borrower, any Subsidiary of Borrower, or any ERISA Affiliate has any withdrawal
liability under any multi-employer plan.
4.13 INTELLECTUAL PROPERTY. Borrower and each of its Subsidiaries owns, is
licensed to use or otherwise has the right to use, all Intellectual Property
used in or necessary for the conduct of its business as currently conducted and
as conducted by Old TNF and its Subsidiaries prior to the Original Closing Date
and all such Intellectual Property is identified on Schedule 4.13.
4.14 BROKER'S FEES. No broker's or finder's fee or commission will be payable
with respect to the issuance and sale of the Notes or any of the other
transactions contemplated hereby.
4.15 ENVIRONMENTAL COMPLIANCE. Each Loan Party and Old TNF has been and is
currently in compliance in all material respects with all applicable
Environmental Laws, including obtaining and
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maintaining in effect all permits, licenses or other authorizations required by
applicable Environmental Laws. There are no claims, liabilities,
investigations, litigation, administrative proceedings, whether pending or
threatened, or judgments or orders relating to any Hazardous Materials asserted
or (to the best knowledge of Borrower) threatened against any Loan Party or Old
TNF or relating to any real property currently or formerly owned, leased or
operated by any Loan Party or Old TNF which could have a Material Adverse
Effect.
4.16 SOLVENCY. As of and from and after the date of this Agreement, Borrower
and each of its Subsidiaries: (a) owns and will own assets the fair saleable
value of which are (i) greater than the total amount of its liabilities
(including contingent liabilities); (ii) greater than the amount that will be
required to pay its probable liabilities as they mature; (b) has capital that is
not unreasonably small in relation to its business as presently conducted or any
contemplated or undertaken transaction; and (c) does not intend to incur and
does not believe that it will incur debts beyond its ability to pay such debts
as they become due.
4.17 DISCLOSURE. No representation or warranty of Borrower, any of its
Subsidiaries or any other Loan Party contained in this Agreement, the Existing
Loan Agreement, the Purchase Agreement, or any other Transaction Document, the
financial statements described in subsection 4.3 or delivered by Borrower under
this Agreement, the other Loan Documents, or any other document, certificate or
written statement in final form furnished to Agent or any Lender by or on behalf
of any such Person for use in connection with the Loan Documents contains any
untrue statement of a material fact or omitted, omits or will omit (in each case
at the time made) to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made. The Budgets and pro forma financial
information contained in such materials are based upon good faith estimates and
assumptions believed by such Persons to be reasonable at the time made, it being
recognized by Agent and Lenders that such projections as to future events are
not to be viewed as facts and that actual results during the period or periods
covered by any such projections may differ from the projected results. There is
no material fact known to Borrower that has had or could reasonably be expected
to have a Material Adverse Effect and that has not been disclosed herein or in
such other documents, certificates and statements furnished to Agent and Lenders
for use in connection with the transactions contemplated hereby.
4.18 INSURANCE. Borrower and each of its Subsidiaries maintains insurance
policies for business interruptions and public liability and property and
casualty damage for its business and properties as required by subsection 5.10,
no notice of cancellation has been received with respect to such policies and
Borrower and each of its Subsidiaries is in compliance with all conditions
contained in such policies. Agent, for the benefit of Lenders has been named as
an additional insured and loss payee, respectively, on all such insurance
policies.
4.19 COMPLIANCE WITH LAWS. Neither Borrower nor any of its Subsidiaries is in
violation of any law, ordinance, rule, regulation, order, policy, guideline or
other requirement of any domestic or foreign government or any instrumentality
or agency thereof, having jurisdiction over the conduct of its business or the
ownership of its properties, including, without limitation, any violation
relating
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to any use, release, storage, transport or disposal of any Hazardous Material,
which violation would subject Borrower or any such Subsidiary, or any of their
respective officers to criminal liability or have a Material Adverse Effect and
no such violation has been alleged.
4.20 BANK ACCOUNTS. Schedule 4.20 sets forth the account numbers and locations
of all bank accounts of Borrower and its Subsidiaries as of the Closing Date.
4.21 SUBSIDIARIES. Borrower has no Subsidiaries other than TNF Canada, TNF
Europe and a dormant Subsidiary of TNF Europe, Black & Edgington (Exports)
Limited, which conducts no business and has no assets or liabilities other than
a guaranty of the indebtedness and/or obligations of TNF Europe.
4.22 USE OF PROCEEDS AND MARGIN SECURITY. Borrower shall use the proceeds of
all Loans for proper business purposes (as described in this Agreement)
consistent with all applicable laws, statutes, rules and regulations. No
portion of the proceeds of any Loan shall be used by Borrower or any of its
Subsidiaries in any manner that might cause the borrowing or the application of
such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation
X or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Exchange Act.
4.23 EMPLOYEE MATTERS. Except as set forth on Schedule 4.23, (a) no Loan Party
nor any of such Loan Party's employees is subject to any collective bargaining
agreement, (b) no petition for certification or union election is pending with
respect to the employees of any Loan Party and no union or collective bargaining
unit has sought such certification or recognition with respect to the employees
of any Loan Party within the past three (3) years and (c) there are no strikes,
slowdowns, work stoppages or controversies pending or, to the best knowledge of
Borrower after due inquiry, threatened between any Loan Party and its respective
employees, other than employee grievances arising in the ordinary course of
business which could not reasonably be expected to have, either individually or
in the aggregate, a Material Adverse Effect. Except as set forth on Schedule
4.23, neither Borrower nor any of its Subsidiaries is subject to an employment
contract or any liability for severance pay.
4.24 GOVERNMENTAL REGULATION. None of the Loan Parties is, or after giving
effect to any Loan will be, subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act or the Investment Company Act
of 1940 or to any federal or state statute or regulation limiting its ability to
incur Indebtedness for borrowed money.
4.25 PURCHASE AGREEMENT; TRANSACTION DOCUMENTS; EXISTING CREDIT AGREEMENT.
Borrower represents and warrants that each of the representations and warranties
of Sellers and Borrower in the Purchase Agreement and each representation and
warranty of Borrower in any other Transaction Document, all of which are
incorporated herein by this reference, were true and correct in all material
respects as of the Original Closing Date and each representation and warranty of
Borrower in the Existing Credit Agreement, all of which are incorporated herein
by reference, were true and correct when made under the Existing Credit
Agreement. Notwithstanding anything in the Purchase Agreement or any
Transaction Document or the Existing Credit Agreement to the contrary, all such
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representations and warranties incorporated herein shall, solely for purposes of
this Agreement, survive the execution and delivery of the Purchase Agreement or
any Transaction Document and the consummation of the Acquisition, the execution
and delivery of this Agreement and the making of the Loans.
4.26 TNF CANADA. TNF Canada has the corporate power and authority to purchase
Inventory from Borrower and to grant security interests in its assets to secure
the unpaid obligations owed to Borrower. The Canadian Documents executed and
delivered by TNF Canada have been duly authorized, executed and delivered by TNF
Canada, and neither the execution and delivery of such Canadian Documents, nor
TNF Canada's performance thereof, contravenes or violates its governing
documents, any applicable law or any agreement or order to which TNF Canada is a
party.
SECTION 5 AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall be in effect and until payment in full of all
Obligations and termination of all Lender Letters of Credit and Underlying
L/C's, unless Requisite Lenders or Agent at the direction of Requisite Lenders
shall otherwise give prior written consent, Borrower shall perform, and shall
cause each of its Subsidiaries to perform, all covenants in this Section 5
applicable to such Person.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will maintain, and cause
each of its Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP. Borrower will deliver to Agent
and each Lender the financial statements and other reports described below
(unless specified to be delivered solely to Agent).
(A) MONTHLY FINANCIALS. As soon as available and in any event within
thirty (30) days after the end of each month, Borrower will deliver (1) the
consolidated and consolidating balance sheet of Borrower and its Subsidiaries as
at the end of such month and the related consolidated and consolidating
statements of income, stockholders' equity and cash flow for such month and for
the period from the beginning of the then current Fiscal Year to the end of such
month, (2) the consolidated and consolidating balance sheet and the related
consolidated and consolidating statements of income, stockholders' equity and
cash flow for the same period of the prior year and (3) a schedule of the
outstanding Indebtedness for borrowed money of Borrower and its Subsidiaries
describing in reasonable detail each such debt issue or loan outstanding and the
principal amount and amount of accrued and unpaid interest with respect to each
such debt issue or loan.
(B) QUARTERLY FINANCIALS. As soon as available and in any event within
forty-five (45) days after the end of each quarter of a Fiscal Year, Borrower
will deliver the consolidated and consolidating balance sheet of Borrower and
its Subsidiaries as at the end of such period and the related consolidated and
consolidating statements of income, stockholders' equity and cash flow for such
quarter of a Fiscal Year and for the period from the beginning of the then
current Fiscal Year to the end of such quarter of a Fiscal Year. Borrower will
also deliver the consolidated and
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consolidating balance sheet, and the related consolidated and consolidating
statements of income, stockholders' equity and cash flow for the same periods in
the prior Fiscal Year.
(C) YEAR-END FINANCIALS. As soon as available and in any event within
ninety (90) days after the end of each Fiscal Year, Borrower will deliver:
(1) the consolidated balance sheet of Borrower and its Subsidiaries as at the
end of such year and the related consolidated statements of income,
stockholders' equity and cash flow for such Fiscal Year; (2) for the Fiscal Year
ending December 31, 1994, the consolidated balance sheet, and the related
consolidated statements of income, stockholders' equity and cash flow for Old
TNF for the prior Fiscal Year; (3) a schedule of the outstanding Indebtedness of
Borrower and its Subsidiaries describing in reasonable detail each such debt
issue or loan outstanding and the principal amount and amount of accrued and
unpaid interest with respect to each such debt issue or loan; and (4) a report
with respect to the financial statements of Borrower and its Subsidiaries from a
firm of independent certified public accountants selected by Borrower and
acceptable to Agent, which report shall be unqualified as to going concern and
scope of audit and shall state that (a) such consolidated financial statements
present fairly the consolidated financial position of Borrower and its
Subsidiaries as at the dates indicated and the results of their operations and
cash flow for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years and (b) that the examination by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards; and (5) copies of the
consolidating financial statements of Borrower and its Subsidiaries, including
(a) consolidating balance sheets of Borrower and its Subsidiaries as at the end
of such Fiscal Year showing intercompany eliminations and (b) related
consolidating statements of earnings of Borrower and its Subsidiaries showing
intercompany eliminations and (c) consolidating cash flows of Borrower and its
Subsidiaries.
(D) ACCOUNTANTS' CERTIFICATION AND REPORTS. Together with each delivery
of consolidated financial statements of Borrower and its Subsidiaries pursuant
to subsection 5.1(C), Borrower will deliver a written statement by its
independent certified public accountants (a) stating that the examination has
included a review of the terms of this Agreement as same relate to accounting
matters and (b) stating whether, in connection with the examination, any
condition or event that constitutes a Default or an Event of Default has come to
their attention and, if such a condition or event has come to their attention,
specifying the nature and period of existence thereof. Promptly upon receipt
thereof, Borrower will deliver copies of all significant reports submitted to
Borrower by independent public accountants in connection with each annual,
interim or special audit of the financial statements of Borrower made by such
accountants, including the comment letter submitted by such accountants to
management in connection with their annual audit.
(E) COMPLIANCE CERTIFICATE. Together with the delivery of each set of
financial statements referenced in subparts (B) and (C) of this subsection 5.1,
Borrower will deliver a Compliance Certificate.
(F) BORROWING BASE CERTIFICATES, REGISTERS AND JOURNALS. Subject to the
last sentence of this subsection 5.1(F), within five (5) Business Days after the
end of each fiscal month, Borrower shall deliver to Agent (1) a completed
Borrowing Base Certificate updated to reflect the most recent
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sales and collections of Borrower and TNF Canada through the end of such month
and the amount of the Intercompany Inventory Account at the end of such month;
(2) a completed assignment schedule of all Accounts created by Borrower and TNF
Canada during such month; (3) an invoice register or sales journal describing
all sales and credits of Borrower and TNF Canada for that month, in form and
substance acceptable to Agent, and, if Agent so requests, copies of invoices
evidencing such sales and proofs of delivery relating thereto; and (4) a
completed cash receipts journal (including information regarding non-cash
credits and adjustments) for that month.
(G) RECONCILIATION REPORTS, INVENTORY REPORTS AND LISTINGS AND AGINGS.
Within five (5) Business Days after the last day of each month and from time to
time upon the request of Agent, Borrower will deliver to Agent: (1) an aged
trial balance of all then existing Accounts of Borrower and its Subsidiaries;
and (2) an Inventory Report as of the last day of such period. As soon as
available and in any event within five (5) Business Days after the last day of
each month, and from time to time upon the request of Agent, Borrower will
deliver to Agent: (1) a Reconciliation Report as at the last day of such period;
and (2) an aged trial balance of all then existing accounts payable of Borrower
and its Subsidiaries. All such reports shall be in form and substance
acceptable to Agent. The reports shall show, in detail acceptable to Agent,
Borrower's Inventory in Canada and all Inventory sold by Borrower to TNF
Canada, and all additions to and payments on the Intercompany Inventory Account.
(H) MANAGEMENT REPORT. Together with each delivery of financial
statements of Borrower and its Subsidiaries pursuant to subdivisions (B) and (C)
of this subsection 5.1, Borrower will deliver a management report: (1)
describing the operations and financial condition of Borrower and its
Subsidiaries for the month then ended and the portion of the current Fiscal Year
then elapsed (or for the Fiscal Year then ended in the case of year-end
financials); (2) setting forth in comparative form the corresponding figures for
the corresponding periods of the previous Fiscal Year (or, as applicable, for
the Fiscal Year of Old TNF) and the corresponding figures from the most recent
Budget for the current Fiscal Year delivered to Agent and Lenders pursuant to
5.1(P); and (3) discussing the reasons for any significant variations. The
information above shall be presented in reasonable detail and shall be certified
by the chief financial officer of Borrower to the effect that such information
fairly presents the results of operations and financial condition of Borrower
and its Subsidiaries as at the dates and for the periods indicated.
(I) APPRAISALS. From time to time after the occurrence of an Event of
Default, upon the request of Agent, Borrower will obtain and deliver to Agent,
at Borrower's expense, appraisal reports in form and substance and from
appraisers acceptable to Agent, stating the then current fair market and orderly
liquidation values of all or any portion of the Collateral.
(J) GOVERNMENT NOTICES. Borrower will deliver to Agent promptly after
receipt by Borrower or any of its Subsidiaries copies of all notices, requests,
subpoenas, inquiries or other writings received from any governmental agency
concerning any Employee Benefit Plan, the violation or alleged violation of any
Environmental Laws, the storage, use or disposal of any Hazardous Material, the
violation or alleged violation of the Fair Labor Standards Act or Borrower's or
any Subsidiary's payment or nonpayment of any taxes, including any tax audit.
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(K) EVENTS OF DEFAULT, ETC. Promptly upon any officer of Borrower or of
any of its Subsidiaries obtaining knowledge of any of the following events or
conditions, Borrower shall deliver a certificate of Borrower's chief executive
officer specifying the nature and period of existence of such condition or event
and what action Borrower and/or its Subsidiary has taken, is taking and proposes
to take with respect thereto: (1) any condition or event that constitutes an
Event of Default or Default; (2) any notice of default that any Person has given
to Borrower or any of its Subsidiaries or any other action taken with respect to
a claimed default; or (3) any Material Adverse Effect.
(L) TRADE NAMES. Borrower and its Subsidiaries will give Agent at least
thirty (30) days advance written notice of any change of name or of any new
trade name or fictitious business name. Borrower's and each of its
Subsidiaries' use of any trade name or fictitious business name will be in
compliance with all laws regarding the use of such names.
(M) LOCATIONS. Borrower will give Agent at least thirty (30) days
advance written notice of any change in the principal place of business of
Borrower or of any of its Subsidiaries which is a party to any Loan Document or
any change in the location of the books and records or any of the Collateral or
of any new location for the books and records or any of the Collateral.
(N) BANK ACCOUNTS. Borrower will give Agent written notice after
Borrower or any of its Subsidiaries which is a party to any Loan Document opens
any new bank account no later than fifteen (15) days after opening such account.
(O) LITIGATION. Promptly upon any officer of Borrower or of any of its
Subsidiaries obtaining knowledge of (1) the institution of any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
Loan Party or any property of any Loan Party not previously disclosed by
Borrower to Agent (other than any such action, suit, proceeding, investigation
or arbitration which seeks only money damages in an amount not in excess of
$100,000) or (2) any material development in any action, suit, proceeding,
governmental investigation or arbitration at any time pending against or
affecting any Loan Party or any property of any Loan Party which is reasonably
likely to have a Material Adverse Effect, Borrower will promptly give notice
thereof to Agent and provide such other information as may be reasonably
available to them to enable Agent and its counsel to evaluate such matter.
(P) BUDGETS. As soon as available and in any event no later than the
end of each Fiscal Year of Borrower, Borrower will deliver a consolidated and
consolidating Budget of Borrower and its Subsidiaries for the forthcoming three
Fiscal Years, year by year, and for the forthcoming Fiscal Year, month by month.
(Q) SUBORDINATED DEBT AND EQUITY NOTICES. Borrower shall promptly
deliver to Agent copies of all notices given or received by Borrower or any of
its Subsidiaries with respect to noncompliance with any term or condition
related to any Subordinated Debt, and shall promptly notify Agent of any
potential or actual event of default with respect to any Subordinated Debt.
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Borrower shall deliver to Agent copies of notices given or received by Borrower
under the Preferred Stock Purchase Agreement.
(R) OTHER INFORMATION. With reasonable promptness, Borrower will
deliver such other information and data with respect to any Loan Party, any
Subsidiary of any Loan Party or any of the Collateral as Agent or any Lender may
reasonably request from time to time.
5.2 ACCESS TO ACCOUNTANTS. Borrower authorizes Agent to discuss the financial
condition and financial statements of Borrower and its Subsidiaries with
Borrower's or any of its Subsidiaries' independent public accountants upon
reasonable notice to Borrower of its intention to do so and authorizes such
accountants to respond to all of Agent's inquiries.
5.3 INSPECTION. Borrower shall permit Agent and any Lender and any authorized
representatives designated by Agent or any Lender to visit and inspect any of
the properties of Borrower or any of its Subsidiaries, including its and their
financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its and their affairs, finances and business with its
and their employees and independent public accountants, at such reasonable times
during normal business hours and as often as may be reasonably requested;
PROVIDED Lenders shall coordinate such visits through Agent and, except as
provided in this subsection 5.3 or subsection 10.1, at Lenders' expense.
Borrower agrees to pay to Agent audit fees equal to Five Hundred Dollars
($500.00) per auditor per day or any portion thereof, excluding all full days
spent by Agent traveling to or from Borrower's locations (but not to exceed Five
Thousand Dollars ($5,000) in any Fiscal Year for all Lenders and Agent so long
as no Event of Default has occurred), plus out of pocket expenses.
5.4 COLLATERAL RECORDS. Borrower shall keep and shall cause each of its
Subsidiaries to keep full and accurate books and records relating to the
Collateral and shall mark such books and records to indicate Agent's security
interests in the Collateral for the benefit of Lenders.
5.5 ACCOUNT COVENANTS; VERIFICATION. Borrower shall, at its own expense: (a)
cause all invoices evidencing Accounts of Borrower and all copies thereof to
bear a notice that such invoices are payable in the name of Borrower to the
Blocked Accounts established in accordance with subsection 5.6 and (b) use its
best efforts to assure prompt payment of all amounts due or to become due under
such Accounts. No discounts, credits or allowances will be issued, granted or
allowed by Borrower or any Subsidiary to customers and no returns will be
accepted without Agent's prior written consent except in the ordinary course of
business; PROVIDED, that until Agent notifies Borrower to the contrary after the
occurrence and during the continuance of an Event of Default, Borrower may
presume consent. Borrower will promptly notify Agent in the event that a
customer alleges any dispute or claim with respect to an Account of Borrower and
each of its Subsidiaries in excess of $50,000 or of any other circumstances
known to Borrower that may impair the validity or collectibility of such an
Account. Agent shall have the right, at any time or times hereafter, to verify
the validity, amount or any other matter relating to an Account, by mail,
telephone or in person. After the occurrence of a Default or an Event of
Default, Borrower shall not, and shall not permit any Subsidiary to, without the
prior consent of Agent, adjust, settle or compromise the amount or
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payment of any Account, or release wholly or partly any customer or obligor
thereof, or allow any credit or discount thereon.
5.6 COLLECTION OF ACCOUNTS AND PAYMENTS. Borrower shall establish such
lockboxes and depository accounts (collectively, "Blocked Accounts") with such
banks as are reasonably acceptable to Agent to which all account debtors shall
directly remit all payments on Accounts of Borrower and in which Borrower will
immediately deposit all cash payments made for Inventory or other cash payments
constituting proceeds of Collateral in the identical form in which such payment
was made, whether by cash or check. Unless a facility for a Permitted Canadian
Financing has been executed, Borrower shall cause TNF Canada to establish a
lockbox for payment of its Accounts, and all funds shall be transferred to a
Blocked Account. Prior to the occurrence of a Default or an Event of Default,
Agent shall instruct the banks to release all funds in the Blocked Accounts to
Borrower. After the occurrence of a Default or an Event of Default which has
not been cured, Agent may deliver a notice that all funds in the Blocked
Accounts shall be transferred to Agent and, in such event, Borrower hereby
agrees that all payments received by Agent, whether by cash, check, wire
transfer or any other instrument, made to such Blocked Accounts or otherwise
received by Agent and whether on the Accounts or as proceeds of other Collateral
or otherwise will be the sole and exclusive property of Agent for the benefit of
Lenders. Borrower, and any of its Affiliates, employees, agents or other
Persons acting for or in concert with Borrower, shall, acting as trustee for
Agent, receive, as the sole and exclusive property of Agent, any monies, checks,
notes, drafts or any other payments relating to and/or proceeds of Accounts or
other Collateral which come into the possession or under the control of Borrower
or any of Borrower's Affiliates, employees, agents or other Persons acting for
or in concert with Borrower, and immediately upon receipt thereof, Borrower or
such Persons shall remit the same or cause the same to be remitted, in kind, to
the Blocked Accounts, Agent's Account or to Agent at its address set forth in
subsection 9.6 below.
5.7 ENDORSEMENT. Borrower hereby constitutes and appoints, and shall cause
each of its Subsidiaries which is a party to any Loan Document to constitute and
appoint, Agent and all Persons designated by Agent for that purpose as
Borrower's true and lawful attorney-in-fact, with power to endorse Borrower's
name to any of the items of payment described in subsection 5.6 above and all
proceeds of Collateral that come into Agent's or any Lender's possession or
under Agent's or any Lender's control. Both the appointment of Agent as
Borrower's or its Subsidiary's attorney and Agent's rights and powers are
coupled with an interest and are irrevocable until payment in full and complete
performance of all of the Obligations.
5.8 CORPORATE EXISTENCE. Borrower will, and will cause each of its
Subsidiaries to, at all times preserve and keep in full force and effect its
corporate existence and all rights and franchises material to its business.
Borrower will promptly notify Agent of any change in its or any of its
Subsidiaries' corporate structures.
5.9 PAYMENT OF TAXES. Borrower will, and will cause each of its Subsidiaries
to, pay all taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or with respect to any of its franchises,
business, income or property before any penalty accrues thereon; PROVIDED that
no such tax need be paid if Borrower or such Subsidiary is contesting same
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in good faith by appropriate proceedings promptly instituted and diligently
conducted and if Borrower or such Subsidiary has established appropriate
reserves as shall be required in conformity with GAAP.
5.10 MAINTENANCE OF PROPERTIES; INSURANCE. Borrower will maintain or cause to
be maintained in good repair, working order and condition all material
properties used in the business of Borrower and its Subsidiaries and will make
or cause to be made all appropriate repairs, renewals and replacements thereof.
Borrower will maintain or cause to be maintained, with financially sound and
reputable insurers, business interruption insurance (with no exclusion for
earthquakes), public liability and property damage and casualty insurance with
respect to its business and properties and the business and properties of its
Subsidiaries against loss or damage of the kinds customarily carried or
maintained by corporations of established reputation engaged in similar
businesses and in amounts acceptable to Agent. Borrower shall cause Agent, for
the benefit of Lenders, to be named as loss payee on all insurance policies
relating to any Collateral and as additional insured under all liability
policies, in each case pursuant to appropriate endorsements in form and
substance acceptable to Agent. Borrower shall apply any proceeds received from
any policies of insurance relating to any Collateral to the Obligations as set
forth in subsection 2.4(B).
5.11 COMPLIANCE WITH LAWS. Borrower will, and will cause each of its
Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority as now in effect and which
may be imposed in the future in all jurisdictions in which Borrower or any of
its Subsidiaries is now doing business or may hereafter be doing business, other
than those laws the noncompliance with which would not have a Material Adverse
Effect.
5.12 FURTHER ASSURANCES. Borrower shall, and shall cause each of its
Subsidiaries to, from time to time, execute such guaranties, financing or
continuation statements, documents, security agreements, reports and other
documents or deliver to Agent such instruments, certificates of title or other
documents as Agent at any time may reasonably request to evidence, perfect or
otherwise implement the guaranties and security for repayment of the Obligations
provided for in the Loan Documents. At Agent's request, Borrower shall cause
any of its Subsidiaries promptly to guaranty the Obligations and to grant to
Agent, for the benefit of Lenders, security interests in the real, personal and
mixed property of such Subsidiary to secure the Obligations; PROVIDED that, so
long as Borrower does not loan or advance funds (by capital contribution or
otherwise) to TNF Europe, TNF Europe shall not be required to guaranty the
Obligations or grant Liens to Lender on its assets, and so long as Borrower and
TNF Canada are in compliance with this Agreement with respect to Indebtedness of
TNF Canada and investments by Borrower in TNF Canada, and the Liens granted to
Borrower by TNF Canada have been perfected and assigned to Agent, TNF Canada
shall not be required to guaranty the Obligations.
5.13 COLLATERAL LOCATIONS. Borrower will keep its Collateral at the locations
specified as Borrower's locations on Schedule 4.7. With respect to any new
location (which as to Borrower in any event shall be within the continental
United States or Canada), Borrower will execute such documents and take such
actions as Agent deems necessary to perfect and protect the security interests
of Agent in the Collateral, for the benefit of Lenders including obtaining
agreements from
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any landlord in form and substance acceptable to Agent. Borrower will segregate
its Collateral from any Inventory of TNF Canada, and undertake such procedures
as may be requested by Agent to identify all such Collateral. If TNF Canada
enters into a Permitted Canadian Financing, Borrower shall no longer keep any
Collateral in Canada.
5.14 BAILEES. If any Collateral is at any time in the possession or control of
any warehouseman, bailee or any of Borrower's or any Subsidiary's agents or
processors, Borrower shall, upon the request of Agent, notify, or cause its
Subsidiary to notify, such warehouseman, bailee, agent or processor of the
security interests in favor of Agent, for the benefit of Lenders, created hereby
and shall instruct such Person to hold all such Collateral for Agent's account
subject to Agent's instructions.
5.15 MORTGAGES; TITLE INSURANCE; SURVEYS.
(A) MORTGAGED PROPERTY. Agent may from time to time designate real
property or leasehold interests of any Loan Party or any Subsidiary of any Loan
Party after the date hereof as "Mortgaged Property", in which case Borrower
shall as promptly as possible (and in any event within sixty (60) days after
such designation) deliver to Agent, for the benefit of Lenders, a fully executed
Mortgage, in form and substance acceptable to Agent, together with title
insurance policies and surveys as required by this subsection 5.15. Borrower
agrees that, following the taking of the actions with respect to any Mortgaged
Property required by the immediately preceding sentence, Agent, for the benefit
of Lenders, shall have a valid and enforceable mortgage on the respective
Mortgaged Property, free and clear of all defects and encumbrances except for
Permitted Encumbrances. Notwithstanding the foregoing, Agent shall not require
a leasehold mortgage or deed of trust to the extent that it is prohibited by the
applicable lease, nor any Mortgage on the real property owned by TNF Europe so
long as TNF Europe is not required to guaranty the Obligations.
(B) TITLE INSURANCE. Within thirty (30) days following delivery of any
Mortgage with respect to Mortgaged Property, Borrower shall deliver or cause to
be delivered to Agent, for the benefit of Lenders, ALTA lender's title insurance
policies issued by title insurers reasonably satisfactory to Agent (the
"Mortgage Policies") in form and substance and in amounts reasonably acceptable
to Agent assuring Agent that the Mortgages are valid and enforceable first
priority mortgage liens on the respective Mortgaged Property, free and clear of
all defects and encumbrances except Permitted Encumbrances. The Mortgage
Policies shall be in form and substance reasonably acceptable to Agent and shall
include an endorsement insuring against the effect of future advances under this
Agreement, for mechanics' liens and for any other matter that Agent may
reasonably request, and shall provide for affirmative insurance and such
reinsurance as Agent may reasonably request. In the case of each leasehold
constituting Mortgaged Property, Agent shall have received such estoppel
letters, consents and waivers from the landlords and non-disturbance agreements
from any holders of mortgages or deeds of trust on such real estate as may have
been requested by Agent, which letters shall be in form and substance
satisfactory to Agent.
(C) SURVEYS. Within thirty (30) days following delivery of any Mortgage
with respect to Additional Mortgaged Property, Borrower shall deliver or cause
to be delivered to Agent current
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surveys, certified by a licensed surveyor, for all real property that is the
subject of the Mortgage Policies. All such surveys shall be sufficient to allow
the issuer of the mortgage policy to issue an ALTA lender's policy.
5.16 CANADIAN ACCOUNTS. Borrower will cause TNF Canada to apply proceeds of
the collections of its Accounts and any Permitted Canadian Financing to the
payment of the Intercompany Inventory Account and other Indebtedness owed to
Borrower. Unless a credit facility to provide a Permitted Canadian Financing is
in effect, TNF Canada shall not maintain more than Seventy-Five Thousand Dollars
($75,000) in cash or cash equivalents.
5.17 DIVIDENDS. Borrower will not pay any cash dividends on any Borrower
Stock.
SECTION 6 FINANCIAL COVENANTS
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations and termination of
all Lender Letters of Credit and Risk Participation Agreements, unless Borrower
has received the prior written consent of Requisite Lenders or of Agent at the
direction of Requisite Lenders, Borrower shall comply with and shall cause each
of its Subsidiaries to comply with all covenants in this Section 6 applicable to
such Person.
6.1 TANGIBLE NET WORTH. Tangible Net Worth shall be at least $6,300,000 as of
June 30, 1996 and as of the end of each Fiscal Quarter thereafter shall be at
least $26,000,000.
6.2 MINIMUM EBITDA. Minimum EBITDA at the end of each fiscal quarter set
forth below for the rolling four (4) quarter period ending on the last day of
each fiscal quarter set forth below shall not be less than the amount set forth
below opposite such date.
Fiscal Quarter Amount
-------------- ------
6/30/96 $ 8,000,000
9/30/96 $10,400,000
12/31/96 $10,700,000
3/31/97 and thereafter $11,000,000
and in each Fiscal Year, minimum EBITDA for the fiscal quarter ending September
30 shall not be less than $6,000,000.
6.3 CAPITAL EXPENDITURE LIMITS. The aggregate amount of all Capital
Expenditures of Borrower and its Domestic Subsidiaries (excluding (i) trade-ins,
and (ii) Capital Expenditures in respect of replacement assets to the extent
funded with casualty insurance proceeds, will not exceed Six Million Dollars
($6,000,000) in any Fiscal Year. In the event that Borrower or any of its
Domestic Subsidiaries enters into a Capital Lease or other contract with respect
to fixed assets, for purposes of calculating Capital Expenditures under this
subsection only, the amount of the Capital Lease
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initially capitalized on Borrower's balance sheet prepared in accordance with
GAAP shall be considered expended in full on the date that Borrower or any of
its Domestic Subsidiaries enters into such contract or Capital Lease.
6.4 FIXED CHARGE COVERAGE. Fixed Charge Coverage at the end of each fiscal
quarter for the rolling four (4) quarter period ending on the last day of each
fiscal quarter shall not be less than 1.2.
6.5 TOTAL INTEREST COVERAGE. Total Interest Coverage at the end of each
fiscal quarter for the rolling four (4) quarter period ending on the last day of
each fiscal quarter shall not be less than 1.75.
6.6 LEVERAGE RATIO. Commencing with the fiscal quarter ending March 31, 1995,
the Leverage Ratio at the end of each fiscal quarter for the rolling four (4)
quarter period (or three (3) fiscal quarters as of March 31, 1995) ending on the
last day of each fiscal quarter shall not exceed 6.5.
6.7 ADJUSTMENT OF FINANCIAL COVENANTS. If TNF Canada enters into a Permitted
Canadian Financing, Borrower, Agent and Lenders agree to negotiate in good faith
in order to amend the foregoing covenants and the related definitions to exclude
TNF Canada and provide criteria for evaluating Borrower's performance and
financial condition which shall be the same after such exclusion.
SECTION 7 NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any of the Commitments
remain in effect and until payment in full of all Obligations and termination of
all Lender Letters of Credit and Risk Participation Agreements, unless Borrower
has received the prior written consent of Requisite Lenders or of Agent at the
direction of Requisite Lender, Borrower shall comply, and shall cause each of
its Subsidiaries to comply, with all covenants in this Section 7 applicable to
such Person.
7.1 INDEBTEDNESS AND LIABILITIES. Borrower will not, and will not permit any
of its Subsidiaries to, directly or indirectly create, incur, assume, guaranty,
or otherwise become or remain directly or indirectly liable, on a fixed or
contingent basis, with respect to any Indebtedness except: (a) the Obligations;
(b) Indebtedness not to exceed One Hundred Thousand Dollars ($100,000) in the
aggregate at any time outstanding secured by purchase money Liens; (c)
Indebtedness with respect to Capital Leases permitted under subsection 6.3
hereof; (d) Indebtedness existing on the Closing Date not otherwise permitted
hereunder and identified on Schedule 7.1(C) and refinancings thereof in amounts
not in excess of that set forth on such Schedule 7.1(C); PROVIDED, that in no
event may any refinancing of the Indebtedness of TNF Europe require any guaranty
of payment or other credit support by Borrower; (e) Subordinated Debt in an
amount not in excess of the amount outstanding on the Original Closing Date; (f)
additional Subordinated Debt issued on the same terms as the Subordinated Debt
issued on the Original Closing Date in a principal amount not to exceed five
percent (5%) of the amount outstanding on the Original Closing Date if, at the
time of and after giving effect to the issuance thereof no Event of Default has
occurred and is continuing or would result therefrom and Borrower is in
compliance on a pro forma basis with the covenants contained
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in Section 6 of this Agreement; (g) until TNF Canada enters into a Permitted
Canadian Financing, the Intercompany Inventory Account and other intercompany
Indebtedness of TNF Canada to Borrower in an amount not to exceed the investment
permitted under subsection 7.4(d) and if a credit facility for a Permitted
Canadian Financing is in effect, the Intercompany Inventory Account in an amount
not to exceed Fifty Thousand Dollars ($50,000); and (h) a Permitted Canadian
Financing. Except for Indebtedness described in the preceding sentence,
Borrower will not, and will not permit any of its Subsidiaries to, incur any
indebtedness or liabilities except for trade payables, operating leases and
other liabilities not constituting Indebtedness in the ordinary course of
business not delinquent or with respect to which Borrower or any of its
Subsidiaries is contesting in good faith the amount or validity thereof by
appropriate proceedings and then only to the extent that Borrower or any of its
Subsidiaries has established adequate reserves therefor, if appropriate under
GAAP.
7.2 GUARANTIES. Except for guaranties issued to Agent for the benefit of
Lenders or endorsements of instruments or items of payment for collection in the
ordinary course of business or customary indemnities to corporate agents,
officers and directors (but subject to sub-section 7.5), Borrower shall not, and
shall not permit any of its Subsidiaries to, guaranty, endorse, or otherwise in
any way become or be responsible for any obligations of any other Person,
whether directly or indirectly by agreement to purchase the indebtedness of any
other Person or through the purchase of goods, supplies or services, or
maintenance of working capital or other balance sheet covenants or conditions,
or by way of stock purchase, capital contribution, advance or loan for the
purpose of paying or discharging any indebtedness or obligation of such other
Person or otherwise. The foregoing shall not prohibit Subsidiaries from
guarantying the Obligations, nor Borrower from guarantying the obligations of
TNF Canada under its lease; PROVIDED that the terms of such lease and guaranty
are acceptable to Lender.
7.3 TRANSFERS, LIENS AND RELATED MATTERS.
(A) TRANSFERS. Borrower shall not, and shall not permit any of its
Subsidiaries to, sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to any of the Collateral or the
assets of such Person, except that Borrower and its Subsidiaries may (i) sell
Inventory in the ordinary course of business; (ii) with the prior written
consent of Lender not to be unreasonably withheld or delayed, license trademarks
and tradenames in the ordinary course of business consistent with past practices
of Old TNF prior to the Original Closing Date; (iii) terminate the leases
described on Schedule 7.3(B); and (iv) make voluntary Asset Dispositions if all
of the following conditions are met: (1) the market value of assets sold or
otherwise disposed of in any single transaction or series of related
transactions does not exceed Twenty-five Thousand Dollar ($25,000) and the
aggregate market value of assets sold or otherwise disposed of in any Fiscal
Year does not exceed Seventy-five Thousand Dollars ($75,000); (2) the
consideration received is at least equal to the fair market value of such
assets; (3) the sole consideration received is cash; (4) the net proceeds of
such Asset Disposition are applied as required by subsection 2.4(B); (5) after
giving effect to the sale or other disposition of the assets included within the
Asset Disposition and the repayment of the Obligations with the proceeds
thereof, Borrower is in compliance on a pro forma basis with the covenants set
forth in Section 6 recomputed for the most recently ended
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month for which information is available and is in compliance with all other
terms and conditions contained in this Agreement; and (6) no Default or Event of
Default shall result from such sale or other disposition.
(B) LIENS. Except for Permitted Encumbrances, Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly create,
incur, assume or permit to exist any Lien on or with respect to any of the
Collateral or the assets of such Person or any proceeds, income or profits
therefrom.
(C) NO NEGATIVE PLEDGES. Neither Borrower nor any Subsidiary of
Borrower shall enter into or assume any agreement (other than the Loan Documents
and the Subordinated Debt Agreement) prohibiting the creation or assumption of
any Lien upon its properties or assets, whether now owned or hereafter acquired,
other than any such agreement entered into by TNF Europe prior to the Original
Closing Date or in connection with a refinancing of Indebtedness of TNF Europe
permitted by subsection 7.1(d) and any prohibition on Liens upon assets of TNF
Canada in any Permitted Canadian Financing.
(D) NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO BORROWER. Except as
provided herein and for any agreement entered into by TNF Europe prior to the
Original Closing Date, Borrower will not and will not permit any of its
Subsidiaries directly or indirectly to create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Subsidiary to: (1) pay dividends or make any other
distribution on any of such Subsidiary's capital stock owned by Borrower or any
Subsidiary of Borrower; or (2) subject to subordination provisions, pay any
indebtedness owed to Borrower or any other Subsidiary; (3) make loans or
advances to Borrower or any other Subsidiary; or (4) transfer any of its
property or assets to Borrower or any other Subsidiary.
7.4 INVESTMENTS AND LOANS. Borrower shall not, and shall not permit any of
its Subsidiaries to, make or permit to exist investments in or loans to any
other Person, except: (a) Cash Equivalents; (b) loans and advances to employees
for moving, entertainment, travel and other similar expenses in the ordinary
course of business in an aggregate outstanding amount not in excess of Two
Hundred Thousand Dollars ($200,000) at any time; (c) the investment of Borrower
in the stock of TNF Europe and of TNF Europe in the stock of Black & Edgington
(Exports) Limited, in each case existing on the Original Closing Date (but
excluding in each case any additional investments, by capital contribution or
otherwise, or loans); and (d) the investment (by loan, advance, capital
contribution or otherwise) of Borrower in TNF Canada in an amount not in excess
of Five Hundred Thousand Dollars ($500,000) in the aggregate plus liabilities of
TNF Canada for Inventory sold by Borrower in accordance with the Canadian
Documents; PROVIDED that the Intercompany Inventory Account and all Indebtedness
or liabilities of TNF Canada to Borrower shall be repaid with the initial
proceeds of any Permitted Canadian Financing and no further sales of Inventory
shall be made by Borrower to TNF Canada except as permitted under the definition
of Permitted Canadian Financing. Prior to TNF Canada's entering into an
agreement for a Permitted Canadian Financing, Borrower shall not amend the
provisions of the Canadian Documents relating to the price of
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Inventory sold by Borrower to TNF Canada, or the Liens granted to Borrower and
assigned to Agent.
7.5 RESTRICTED JUNIOR PAYMENTS. Borrower will not, and will not permit any of
its Subsidiaries to, directly or indirectly declare, order, pay, make or set
apart any sum for any Restricted Junior Payment, except that: (a) Subsidiaries
of Borrower may make Restricted Junior Payments to Borrower with respect to
their common stock; (b) Borrower may make payments of principal of and interest
on the Subordinated Debt and indemnity payments and expense reimbursements in
accordance with the terms of the Subordinated Debt Agreement PROVIDED that
Borrower shall have notified Lender at least five (5) Business Days prior to
making any indemnity payments; (c) Borrower may use up to Ten Million Dollars
($10,000,000) of the proceeds of the IPO PLUS an amount equal to the gross
proceeds of the IPO in excess of Thirty Million Dollars ($30,000,000) and any
proceeds of subsequent public offering of Common Stock to make pre-payments or
scheduled payments of principal on the Subordinated Debt; (d) Borrower may pay
dividends on its Preferred Stock in additional shares of such Borrower Stock and
may issue Common Stock upon conversion of its Preferred Stock or in connection
with grants or awards under the Management Stock Plans; and (e) so long as no
Default or Event of Default shall have occurred and be continuing or shall
result from the Restricted Junior Payment and Borrower is in compliance on a pro
forma basis with the covenants set forth in Section 6, Borrower may (i)
repurchase Common Stock or options or Management Restricted Stock held by an
employee of Borrower upon termination of employment of such employee in an
aggregate amount in each Fiscal Year not to exceed Five Hundred Thousand Dollars
($500,000); (ii) pay management fees in an amount not to exceed Sixty-two
Thousand Five Hundred Dollars ($62,500) in each fiscal quarter pursuant to the
Preferred Stock Agreement; (iii) pay director's fees in an amount not in excess
of One Hundred Fifty Thousand Dollars ($150,000.00) per year; and (f) Borrower
may pay base compensation to Borrower's two top executive officers in an amount
not in excess, in the aggregate, of One Million Dollars ($1,000,000.00) in each
Fiscal Year and such incentive compensation as may be approved by the
Compensation Committee of Borrower's Board of Directors plus an amount not in
excess of Five Hundred Thousand ($500,000) in the aggregate for legal fees and
expenses of such officers in connection with proceedings for which the Board of
Directors has approved Borrower's indemnification.
7.6 RESTRICTION ON FUNDAMENTAL CHANGES. Neither Borrower nor any of its
Subsidiaries will: (a) enter into any transaction of merger or consolidation;
(b) liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution); (c) convey, sell, lease, sublease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its business or assets, or the capital stock of any of its Subsidiaries,
whether now owned or hereafter acquired; or (d) acquire by purchase or otherwise
all or any substantial part of the business or assets of, or stock or other
evidence of beneficial ownership of, any Person.
7.7 CHANGES RELATING TO SUBORDINATED DEBT; TERMS OF PREFERRED STOCK. (a)
Borrower will not, and will not permit any of its Subsidiaries to, change or
amend the terms of the Subordinated Debt if the effect of such amendment is to:
(i) increase the interest rate on the Subordinated Debt; (ii) change the dates
upon which payments of principal or interest are due on the Subordinated Debt;
(iii) change any event of default or add any covenant with respect to the
Subordinated Debt; (iv)
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change the payment provisions of the Subordinated Debt; (v) change the
subordination provisions the Subordinated Debt Agreement; (vi) change or amend
any other term if such change or amendment would materially increase the
obligations of the obligor or confer additional material rights on the holder of
such Indebtedness in a manner adverse to Borrower, any of its Subsidiaries,
Agent or Lenders; or (vii) increase the outstanding principal amount of the
Subordinated Debt in excess of that permitted under subsection 7.1 hereof.
(b) Borrower will not issue any Preferred Stock which requires the cash
payment of dividends on the Series A Preferred Stock or any mandatory redemption
thereof.
7.8 TRANSACTIONS WITH AFFILIATES. Borrower will not, and will not permit any
Loan Party to, directly or indirectly, enter into or permit to exist any
transaction (including the purchase, sale or exchange of property or the
rendering of any service) with any Affiliate or with any officer, director or
employee of any Loan Party, except for (a) transactions in the ordinary course
of, and pursuant to the reasonable requirements of, Borrower's or a Subsidiary's
business and upon fair and reasonable terms which are fully disclosed to Agent
and Lenders and which are no less favorable to Borrower or such Subsidiary than
it would obtain in a comparable arm's length transaction with an unaffiliated
Person; (b) the transactions set forth in the Goldwin Stock Purchase Agreement;
(c) the issuance of grants or awards under the Management Stock Plans and
purchases of securities to the extent permitted by subsection 7.5; and (d) the
payment of fees pursuant to the Subordinated Debt Agreement and the Preferred
Stock Purchase Agreement to the extent permitted under subsection 7.5 hereof.
The foregoing shall not prohibit the transactions contemplated by the
Transaction Documents or Borrower's performance of the terms thereof so long as
Borrower fully complies with all restrictions contained in any other covenant in
this Agreement.
7.9 ENVIRONMENTAL LIABILITIES. Borrower will not, and will not permit any
Loan Party to: (a) violate in any material respect any applicable Environmental
Law; (b) dispose of any Hazardous Materials (except in accordance with
applicable law) into or onto or from, any real property owned, leased or
operated by any Loan Party; or (c) permit any Lien imposed pursuant to any
Environmental Law to be imposed or to remain on any real property owned, leased
or operated by any Loan Party.
7.10 CONDUCT OF BUSINESS. Borrower will not, and will not permit any of its
Subsidiaries to, engage in any business other than businesses of the type
engaged in by Borrower as of the date hereof.
7.11 COMPLIANCE WITH ERISA. Borrower will not, and will not permit any of its
Subsidiaries to establish any new Employee Benefit Plan or amend any existing
Employee Benefit Plan if the liability or increased liability resulting from
such establishment or amendment is material. Neither Borrower nor any
Subsidiary shall fail to establish, maintain and operate each Employee Benefit
Plan in compliance in all material respects with the provisions of ERISA, the
IRC and all other applicable laws and the regulations and interpretations
thereof.
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7.12 TAX CONSOLIDATIONS. Borrower will not, and will not permit any of its
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person other than Borrower or any of its Subsidiaries.
7.13 SUBSIDIARIES. Borrower will not, and will not permit any of its
Subsidiaries to, establish, create or acquire any new Subsidiaries after the
Closing Date without Lender's prior written consent. TNF Canada will remain a
wholly-owned Subsidiary of Borrower.
7.14 FISCAL YEAR. Neither Borrower nor any Subsidiary of Borrower shall change
its Fiscal Year.
7.15 PRESS RELEASE; PUBLIC OFFERING MATERIALS. Borrower will not, and will not
permit any Loan Party to, disclose the name of Agent or any Lender in any press
release or in any prospectus, proxy statement or other materials filed with any
governmental entity relating to a public offering of the capital stock of any
Loan Party without prior notice to Agent and Lenders and the approval of Agent
and such Lender the terms of the disclosure concerning it, which approval will
not be unreasonably withheld. Notwithstanding the foregoing, this Agreement may
be filed with the Securities and Exchange Commission to the extent required by
law.
SECTION 8 DEFAULT, RIGHTS AND REMEDIES
8.1 EVENT OF DEFAULT. "Event of Default" shall mean the occurrence or
existence of any one or more of the following:
(A) PAYMENT. Failure to make payment of the principal of any of the
Obligations when due (in installments, by mandatory prepayment, acceleration or
otherwise) or failure to pay interest or any other amount due to Lender under
the Loan Documents when due and such default is not remedied within five (5)
days after such interest or other amount becomes due; or
(B) DEFAULT IN OTHER AGREEMENTS. (1) Default of Borrower or any of its
Subsidiaries in payment when due of any principal or interest on any
Indebtedness or (2) breach or default of Borrower or any of its Subsidiaries
with respect to any Indebtedness, if such failure to pay, breach or default
entitles the holder to cause such Indebtedness having an individual principal
amount in excess of $250,000 or having an aggregate principal amount in excess
of $500,000 to become or be declared due prior to its stated maturity; or
(C) BREACH OF CERTAIN PROVISIONS. Failure of Borrower to perform or
comply with any term or condition contained in subsections 5.1, 5.3, 5.5, 5.6,
5.8 or contained in Section 6 or Section 7; or
(D) BREACH OF WARRANTY. Any representation, warranty, certification or
other statement made by any Loan Party in any Loan Document or in any statement
or certificate at any time given by such Person in writing pursuant or in
connection with any Loan Document is false in any material respect on the date
made; or
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(E) OTHER DEFAULTS UNDER LOAN DOCUMENTS. Borrower or any other Loan
Party defaults in the performance of or compliance with any term contained in
this Agreement or the other Loan Documents and such default is not remedied or
waived within ten (10) days after receipt by Borrower of notice from Agent or
Requisite Lenders of such default (other than occurrences described in other
provisions of this subsection 8.1 for which a different grace or cure period is
specified or which constitute immediate Events of Default); or
(F) CHANGE IN CONTROL. Any Change in Control occurs; or
(G) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) A court
enters a decree or order for relief with respect to Borrower or any of its
Subsidiaries in an involuntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, which
decree or order is not stayed or other similar relief is not granted under any
applicable federal or state law; or (2) the continuance of any of the following
events for forty-five (45) days unless dismissed, bonded or discharged: (a) an
involuntary case is commenced against Borrower or any of its Subsidiaries, under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or (b) a decree or order of a court for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over Borrower or any of its Subsidiaries, or over all or a substantial
part of their respective property, is entered; or (c) an interim receiver,
trustee or other custodian is appointed without the consent of Borrower or any
of its Subsidiaries, for all or a substantial part of the property of Borrower
or any such Subsidiary; or
(H) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (1) An order
for relief is entered with respect to Borrower or any of its Subsidiaries or
Borrower or any of its Subsidiaries commences a voluntary case under the
Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case or to the conversion of an involuntary case to a voluntary
case under any such law or consents to the appointment of or taking possession
by a receiver, trustee or other custodian for all or a substantial part of its
property; or (2) Borrower or any of its Subsidiaries makes any assignment for
the benefit of creditors; or (3) the board of directors of Borrower or any of
its Subsidiaries adopts any resolution or otherwise authorizes action to approve
any of the actions referred to in this subsection 8.1(H); or
(I) LIENS. Any lien, levy or assessment is filed or recorded with
respect to or otherwise imposed upon all or any part of the Collateral or the
assets of Borrower or any of its Subsidiaries by the United States or any
department or instrumentality thereof or by any state, county, municipality or
other governmental agency, domestic or foreign (other than Permitted
Encumbrances) and such lien, levy or assessment is not stayed, vacated, paid or
discharged within ten (10) days; or
(J) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process involving (1) an amount in any individual case in
excess of $250,000 or (2) an amount in the aggregate at any time in excess of
$500,000 (in either case not adequately covered by
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insurance, subject to the deductibles approved by Agent, as to which the
insurance company has acknowledged coverage) is entered or filed against
Borrower or any of its Subsidiaries or any of their respective assets or any
Collateral and remains undischarged, unvacated, unbonded or unstayed for a
period of forty-five (45) days or in any event later than five (5) days prior to
the date of any proposed sale thereunder; or
(K) DISSOLUTION. Any order, judgment or decree is entered against
Borrower or any of its Subsidiaries decreeing the dissolution or split up of
Borrower or that Subsidiary and such order remains undischarged or unstayed for
a period in excess of twenty (20) days; or
(L) INJUNCTION. Borrower or any of its Subsidiaries is enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business and such order continues for more than thirty (30) days; or
(M) INVALIDITY OF LOAN DOCUMENTS. Any of the Loan Documents for any
reason, other than a partial or full release in accordance with the terms
thereof, ceases to be in full force and effect or is declared to be null and
void, or any Loan Party or Shareholder denies that it has any further liability
under any Loan Documents to which it is party, or gives notice to such effect;
or
(N) FAILURE OF SECURITY. Agent, on behalf of Lenders, does not have or
ceases to have a valid and perfected first priority security interest in the
Collateral (subject to Permitted Encumbrances), in each case, for any reason
other than the failure of Agent or any Lender to take any action within its
control; or
(O) DAMAGE, STRIKE, CASUALTY. Any material damage to, or loss, theft or
destruction of, any Collateral, whether or not insured, or any strike, lockout,
labor dispute, embargo, condemnation, act of God or public enemy, or other
casualty which causes, for more than fifteen (15) consecutive days beyond the
coverage period of any applicable business interruption insurance as to which
Borrower has received payments, the cessation or substantial curtailment of
revenue producing activities at any facility of Borrower or any of its
Subsidiaries if any such event or circumstance could reasonably be expected to
have a Material Adverse Effect; or
(P) LICENSES AND PERMITS. The loss, suspension or revocation of, or
failure to renew, any license or permit now held or hereafter acquired by
Borrower or any of its Subsidiaries, if such loss, suspension, revocation or
failure to renew could have a Material Adverse Effect.
8.2 SUSPENSION OF COMMITMENTS. Upon the occurrence of any Default or Event of
Default, notwithstanding any grace period or right to cure, Agent may, and upon
the demand of Requisite Lenders shall, without notice or demand, immediately
cease making additional Loans and the Commitments shall be suspended; PROVIDED
that, in the case of a Default, if the subject condition or event is waived,
cured or removed by Requisite Lenders within any applicable grace or cure
period, the Commitments shall be reinstated.
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8.3 ACCELERATION. Upon the occurrence of any Event of Default described in
the foregoing subsections 8.1(G) or 8.1(H), all Obligations shall automatically
and immediately be immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Borrower, and the Commitments shall thereupon terminate. Upon the
occurrence and during the continuance of any other Event of Default, Agent may,
and upon demand by Requisite Lenders shall, by written notice to Borrower, (a)
declare all or any portion of the Obligations to be, and the same shall
forthwith become, immediately due and payable and the Commitments shall
thereupon terminate and (b) demand that Borrower immediately deposit with Agent
an amount equal to the Risk Participation Liability to enable Lender to make
payments under the Lender Letters of Credit and Lender Guaranties when required
and such amount shall become immediately due and payable.
8.4 REMEDIES. If any Event of Default shall have occurred and be continuing,
Agent may, and upon demand of Requisite Lenders shall, exercise in respect of
the Collateral, in addition to all other rights and remedies provided for herein
or in any other Loan Documents or otherwise available to Agent or Lenders, all
the rights and remedies of a secured party on default under the UCC (whether or
not the UCC applies to the affected Collateral) and may also (a) notify any or
all obligors on the Accounts to make all payments directly to Agent; (b) require
Borrower and any other Loan Party to, and Borrower hereby agrees that it will,
at its expense and upon request of Agent forthwith, assemble all or part of the
Collateral as directed by Agent and make it available to Agent at a place to be
designated by Agent which is reasonably convenient to both parties; (c) withdraw
all cash in the Blocked Accounts and apply such monies in payment of the
Obligations in the manner provided in subsection 8.7; (d) without notice or
demand or legal process, enter upon any premises of Borrower and any other Loan
Party and take possession of the Collateral; and (e) without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of the Lender's offices or elsewhere, at such
time or times, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as Agent may deem commercially reasonable.
Borrower agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days notice to Borrower of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. At any sale of the Collateral, if permitted by law,
Agent or any Lender may bid (which bid may be, in whole or in part, in the form
of cancellation of indebtedness) for the purchase of the Collateral or any
portion thereof for the account of Agent or such Lender. Agent and Lenders
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. Borrower shall remain liable for any deficiency. Agent
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. Agent shall not be
required to proceed against any Collateral but may proceed against Borrower
directly. To the extent permitted by law, Borrower hereby specifically waives
all rights of redemption, stay or appraisal which it has or may have under any
law now existing or hereafter enacted.
8.5 APPOINTMENT OF ATTORNEY-IN-FACT. Borrower hereby constitutes and appoints
Agent as Borrower's attorney-in-fact with full authority in the place and stead
of Borrower and in the name of Borrower, Agent or otherwise, from time to time
in Agent's discretion to take any action and to
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execute any instrument that Agent may deem necessary or advisable to accomplish
the purposes of this Agreement, including: (a) to ask, demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of any of the Collateral; (b) to adjust,
settle or compromise the amount or payment of any Account, or release wholly or
partly any customer or obligor thereunder or allow any credit or discount
thereon; (c) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above; (d) to file
any claims or take any action or institute any proceedings that Agent may deem
necessary or desirable for the collection of any of the Collateral or otherwise
to enforce the rights of Agent and Lenders with respect to any of the
Collateral; and (e) to sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, assignments, verifications and
notices in connection with Accounts and other documents relating to the
Collateral. The appointment of Agent as Borrower's attorney and Agent's rights
and powers are coupled with an interest and are irrevocable until payment in
full and complete performance of all of the Obligations.
8.6 LIMITATION ON DUTY OF AGENT AND LENDERS WITH RESPECT TO COLLATERAL.
Beyond the safe custody thereof, neither Agent nor any Lender shall have any
duty with respect to any Collateral in its possession or control (or in the
possession or control of any agent or bailee of Agent ) or with respect to any
income thereon or the preservation of rights against prior parties or any other
rights pertaining thereto. Agent and each Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which it accords its own property. Neither Agent nor any Lender shall be
liable or responsible for any loss or damage to any of the Collateral, or for
any diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or other agent or bailee
selected by Agent or any Lender in good faith.
8.7 APPLICATION OF PROCEEDS. Upon the occurrence and during the continuance
of an Event of Default, the proceeds of any sale of, or other realization upon,
all or any part of the Collateral shall be applied: FIRST, to all fees, costs
and expenses incurred by Agent or any Lender with respect to this Agreement, the
other Loan Documents or the Collateral; SECOND, to all fees due and owing to
Agent and Lenders; THIRD, to accrued and unpaid interest on the Obligations;
FOURTH, to the principal amounts of the Obligations outstanding in such order as
Agent may determine in its sole discretion; and FIFTH, to any other indebtedness
or obligations of Borrower owing to Agent or any Lender.
8.8 WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the part of Agent or any
Lender to exercise, and no delay in exercising and no course of dealing with
respect to, any right under this Agreement or any other Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise by Agent
or any Lender of any right under this Agreement or any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right. The rights in this Agreement and the other Loan Documents are cumulative
and are not exclusive of any other remedies provided by law.
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SECTION 9 ASSIGNMENTS; AGENCY PROVISIONS
9.1 ASSIGNMENTS AND PARTICIPATIONS. Each Lender may assign its rights and
delegate its obligations under this Agreement to another Person; PROVIDED that
such assignment shall be of a constant and not a varying percentage of its
Commitments and shall be of the same percentage of the Revolving Loan Commitment
and Term Loan Commitment (or outstanding Term Loan); PROVIDED that (a) unless
such assignment is to a Lender or an Affiliate of a Lender, the assigning Lender
shall first obtain the written consent of Agent, which consent is not to be
unreasonably withheld; (b) the amount of Commitments and Loans of the assigning
Lender being assigned shall in no event be less than the lesser of (i) Five
Million Dollars ($5,000,000) or (ii) the entire amount of the Commitments and
Loans of such assigning Lender, (c) the Lender and its assignee shall have
executed and delivered to Agent a Lender Addition Agreement and paid to Agent a
processing fee of Two Thousand Five Hundred Dollars ($2,500); (d) as a condition
to the effectiveness of such assignment, Borrower shall have complied with its
obligations under the last sentence of subsection 2.1(F); and (e) no assignment
may be made to any Odyssey Bank.
In the case of an assignment authorized under this subsection 9.1, the
assignee shall have, to the extent of such assignment, the same rights, benefits
and obligations as it would if it were a Lender hereunder. The assigning Lender
shall be relieved of its obligations hereunder with respect to its Commitment or
such assigned portion thereof. Borrower hereby acknowledges and agrees that any
assignment will give rise to a direct obligation of Borrower to the assignee and
that the assignee shall be considered to be a "Lender". Each Lender may sell
participations in all or any part of any Loans made by it to another Person;
PROVIDED that no participation may be sold to any Odyssey Bank; and PROVIDED,
FURTHER that any such participation shall be in a minimum amount of Five Million
Dollars ($5,000,000) and PROVIDED, FURTHER, that all amounts payable by Borrower
hereunder shall be determined as if that Lender had not sold such participation
and the holder of any such participation shall not be entitled to require such
Lender to take or omit to take any action hereunder except action directly
affecting (a) any reduction in the principal amount, interest rate or fees
payable with respect to any Loan in which such holder participates; (b) any
extension of the Term or the date fixed for any payment of interest or fees
payable with respect to any Loan in which such holder participates; and (c) any
release of substantially all of the Collateral (other than in accordance with
the terms of this Agreement or the Loan Documents). Borrower hereby
acknowledges and agrees that any participation will give rise to a direct
obligation of Borrower to the participant, and the participant shall for
purposes of subsections 2.8, 2.9, 2.10, 9.4 and 10.2 be considered to be a
"Lender".
Except as otherwise provided in this subsection 9.1, no Lender shall, as
between Borrower and that Lender, be relieved of any of its obligations
hereunder as a result of any sale, assignment, transfer or negotiation of, or
granting of participation in, all or any part of the Loans or other obligations
owed to such Lender. Each Lender may furnish any information concerning
Borrower and its Subsidiaries in the possession of that Lender from time to time
to an assignee or participant which is an institutional lender (including
prospective assignees and participants) and may furnish such information to
other Persons upon taking reasonable steps to assure the confidentiality
thereof.
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Agent shall provide Borrower with written notice of the name and address
of any new Lender after the date hereof.
9.2 AGENT.
(A) APPOINTMENT. Each Lender hereby designates and appoints Heller as
its Agent under this Agreement and the Loan Documents, and each Lender hereby
irrevocably authorizes Agent to take such action or to refrain from taking such
action on its behalf under the provisions of this Agreement and the Loan
Documents and to exercise such powers as are set forth herein or therein,
together with such other powers as are reasonably incidental thereto. Agent is
authorized and empowered to amend, modify, or waive any provisions of this
Agreement or the other Loan Documents on behalf of Lenders subject to the
requirement that certain of Lenders' consent be obtained in certain instances as
provided in subsection 9.3 or otherwise specifically required under this
Agreement. Agent agrees to act as such on the express conditions contained in
this subsection 9.2. The provisions of this subsection 9.2 are solely for the
benefit of Agent and Lenders and neither Borrower nor any Loan Party shall have
any rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement, Agent does not assume
and shall not be deemed to have assumed any obligation toward or relationship of
agency or trust with or for Borrower or any Loan Party. Agent may perform any
of its duties hereunder, or under the Loan Documents, by or through its agents
or employees.
(B) NATURE OF DUTIES. Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement or in the Loan Documents.
The duties of Agent shall be mechanical and administrative in nature. Agent
shall not have by reason of this Agreement a fiduciary relationship in respect
of any Lender. Nothing in this Agreement or any of the Loan Documents, express
or implied, is intended to or shall be construed to impose upon Agent any
obligations in respect of this Agreement or any of the Loan Documents except as
expressly set forth herein or therein. Each Lender shall make its own
independent investigation of the financial condition and affairs of Borrower and
its Subsidiaries in connection with the extension of credit hereunder and shall
make its own appraisal of the credit worthiness of Borrower, and Agent shall
have no duty or responsibility, either initially or on a continuing basis, to
provide any Lender with any credit or other information with respect thereto
(other than financial information received by it in accordance herewith),
whether coming into its possession before the Closing Date hereunder or at any
time or times thereafter. If Agent seeks the consent or approval of any Lenders
to the taking or refraining from taking any action hereunder, then Agent shall
send notice thereof to each Lender. Agent shall promptly notify each Lender any
time that the Requisite Lenders have instructed Agent to act or refrain from
acting pursuant hereto.
(C) RIGHTS, EXCULPATION, ETC. Neither Agent nor any of its
officers, directors, employees or agents shall be liable to any Lender for any
action taken or omitted by them hereunder or under any of the Loan Documents, or
in connection herewith or therewith, except that Agent shall be liable with
respect to its own gross negligence or willful misconduct. Agent shall not be
liable for any apportionment or distribution of payments made by it in good
faith and if any such apportionment or distribution is subsequently determined
to have been made in error, the sole
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recourse of any Lender to whom payment was due but not made shall be to recover
from other Lenders any payment in excess of the amount to which they are
determined to be entitled (and such other Lenders hereby agree to return to such
Lender any such erroneous payments received by them). In performing its
functions and duties hereunder, Agent shall exercise the same care which it
would in dealing with loans for its own account, but Agent shall not be
responsible to any Lender for any recitals, statements, representations or
warranties herein or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility, or sufficiency of this Agreement or any of the
Loan Documents or the transactions contemplated thereby, or for the financial
condition of any Loan Party. Agent shall not be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement or any of the Loan Documents or the financial
condition of any Loan Party, or the existence or possible existence of any
Default or Event of Default. Agent may at any time request instructions from
Lenders with respect to any actions or approvals which by the terms of this
Agreement or of any of the Loan Documents Agent is permitted or required to take
or to grant, and if such instructions are promptly requested, Agent shall be
absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under any of the Loan
Documents until it shall have received such instructions from Requisite Lenders
or all of the Lenders, as applicable. In no event shall Agent be required to
take any action or to refrain from taking any action which, in Agent's opinion,
would expose Agent to any liability. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against Agent as a result of Agent
acting or refraining from acting under this Agreement or any of the other Loan
Documents in accordance with the instructions of Requisite Lenders.
(D) RELIANCE. Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message or
other communication (including any writing, telex, telecopy or telegram)
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Agreement or any of the Loan Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it. Agent shall be entitled to
rely upon the advice of legal counsel, independent accountants, and other
experts selected by Agent in its sole discretion.
(E) INDEMNIFICATION. Lenders will reimburse and indemnify Agent for and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Agreement or any of
the Loan Documents or any action taken or omitted by Agent under this Agreement
for any of the Loan Documents, in proportion to each Lender's Pro Rata Share;
PROVIDED, HOWEVER, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, advances or disbursements resulting from Agent's gross
negligence or willful misconduct. The obligations of Lenders under this
subsection 9.2(E) shall survive the payment in full of the Obligations and the
termination of this Agreement.
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(F) HELLER INDIVIDUALLY. With respect to its Commitments and the Loans
made by it, and the Notes issued to it, Heller shall have and may exercise the
same rights and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other Lender. The
terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the
context clearly otherwise indicates, include Heller in its individual capacity
as a Lender or one of the Requisite Lenders. Heller may lend money to, and
generally engage in any kind of banking, trust or other business with any Loan
Party as if it were not acting as Agent pursuant hereto.
(G) SUCCESSOR AGENT.
(1) RESIGNATION. Agent may resign from the performance of all its
functions and duties hereunder at any time by giving at least thirty (30)
Business Days' prior written notice to Borrower and Lenders. Such resignation
shall take effect upon the acceptance by a successor Agent of its appointment
pursuant to clause (2) below or as otherwise provided below.
(2) APPOINTMENT OF SUCCESSOR. Upon any such notice of resignation
pursuant to clause (G) (1) above, Requisite Lenders shall appoint a successor
Agent. If a successor Agent shall not have been so appointed within said thirty
(30) Business Day period, the retiring Agent, shall then appoint a successor
Agent who shall serve as Agent until such time, if any, as Requisite Lenders,
appoint a successor Agent as provided above.
(3) SUCCESSOR AGENT. Upon the acceptance of any appointment as
Agent under the Loan Documents by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under the Loan Documents. Even after any
retiring Agent's resignation as Agent under the Loan Documents, the provisions
of this subsection 9.2 shall continue to inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under the Loan Documents.
(H) COLLATERAL MATTERS.
(1) RELEASE OF COLLATERAL. (a) Lenders hereby irrevocably
authorize Agent, at its option and in its discretion, to release any Lien
granted to or held by Agent upon any property covered by this Agreement or the
Loan Documents (i) upon termination of the Commitments and payment and
satisfaction of all Obligations; (ii) constituting property being sold or
disposed of if Borrower certifies to Agent that the sale or disposition is made
in compliance with the provisions of this Agreement (and Agent may rely in good
faith conclusively on any such certificate, without further inquiry); (iii)
constituting property leased to Borrower under a lease which has expired or been
terminated in a transaction permitted under this Agreement or is about to expire
and which has not been, and is not intended by Borrower to be, renewed or
extended; or (iv) on assets of TNF Canada if required in connection with a
Permitted Canadian Financing (and Agent may rely in good faith conclusively on a
certificate of Borrower that the conditions to such Permitted Canadian Financing
have been met).
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(b) In any year, without requiring the consent of any Lender,
Agent may release or compromise any Collateral and the proceeds thereof having a
value not greater than ten percent (10%) of the total book value of all
Collateral, and, with the prior consent of Requisite Lenders, may release or
compromise any Collateral and the proceeds thereof having a value not greater
than twenty-five percent (25%) of the book value of all Collateral. With the
consent of Lenders owning a total of at least eighty-five percent (85%) of the
Commitments of all Lenders, Agent may release or compromise any Collateral or
proceeds thereof in excess of that otherwise permitted hereunder. Lenders
hereby irrevocably authorize Agent to release or compromise Collateral or
proceeds as permitted under this subsection 9.2(H)(1)(b).
(c) Notwithstanding anything to the contrary contained
herein, Agent may, at its sole discretion, release or compromise Collateral and
the proceeds thereof to the extent permitted by subsection 9.2(H)(1)(a).
(2) CONFIRMATION OF AUTHORITY; EXECUTION OF RELEASES. Without in
any manner limiting Agent's authority to act without any specific or further
authorization of Lenders or with the consent by Requisite Lenders or with the
consent of less than all Lenders (as set forth in subsection 9.2(H)(1)), each
Lender agrees to confirm in writing, upon request by Borrower, the authority to
release any property covered by this Agreement or the Loan Documents conferred
upon Agent under subsections 9.2(H)(1)(a) and (b). So long as no Event of
Default is then continuing, upon receipt by Agent of confirmation from the
Requisite Lenders or from the requisite percentage of Lenders specifically
required by subsection 9.2(H)(1)(b), as the case may be, of its authority to
release any particular item or types of property covered by this Agreement or
the Loan Documents, and upon at least five (5) Business Days prior written
request by Borrower, Agent shall (and is hereby irrevocably authorized by
Lenders to) execute such documents as may be necessary to evidence the release
of the Liens granted to Agent for the benefit of Lenders herein or pursuant
hereto upon such collateral; PROVIDED, HOWEVER, that (i) Agent shall not be
required to execute any such document on terms which, in Agent's opinion, would
expose Agent to liability or create any obligation or entail any consequence
other than the release of such Liens without recourse or warranty, and (ii) such
release shall not in manner discharge, affect or impair the Obligations or any
Liens upon (or obligations of any Loan Party, in respect of), all interests
retained by any Loan Party, including (without limitation) the proceeds of any
sale, all of which shall continue to constitute part of the property covered by
this Agreement or the Loan Documents.
(3) ABSENCE OF DUTY. Agent shall have no obligation whatsoever to any
Lender or any other Person to assure that the property covered by this Agreement
or the Loan Documents exists or is owned by Borrower or is cared for, protected
or insured or has been encumbered or that the Liens granted to Agent, on behalf
of Lenders, herein or pursuant hereto have been properly or sufficiently or
lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to Agent in this subsection
9.2(H) or in any of the Loan Documents, it being understood and agreed that in
respect of the property covered by this Agreement or the Loan Documents or any
act, omission or event related thereto, Agent may act in any manner it may deem
appropriate, in its
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discretion, given Agent's own interest in property covered by this Agreement or
the Loan Documents as one of the Lenders and that Agent shall have no duty or
liability whatsoever to any of the other Lenders; PROVIDED, that Agent shall
exercise the same care which it would in dealing with loans for its own account.
(I) AGENCY FOR PERFECTION. Agent and each Lender hereby appoints each
other Lender as agent for the purpose of perfecting Lenders' security interest
in assets which, in accordance with Article 9 of the Uniform Commercial Code in
any applicable jurisdiction, can be perfected only by possession. Should any
Lender (other than Agent) obtain possession of any such Collateral, such Lender
shall notify Agent thereof, and, promptly upon Agent's request therefor, shall
deliver such Collateral to Agent or in accordance with Agent's instructions.
Each Lender agrees that it will not have any right individually to enforce or
seek to enforce this Agreement or any Loan Document or to realize upon any
collateral security for the Loans, it being understood and agreed that such
rights and remedies may be exercised only by Agent.
9.3 AMENDMENTS, CONSENTS AND WAIVERS FOR CERTAIN ACTIONS.
(A) Except as otherwise provided in this subsection 9.3 or in
subsections 9.2 and 10.3 and except as to matters set forth in other subsections
hereof as requiring only Agent's consent, the consent of Requisite Lenders shall
be required to amend, modify, terminate, or waive any provision of this
Agreement, including, but not limited to, any amendment, modification,
termination, or waiver with regard to Sections 5, 6 and 7.
(B) In the event Agent requests the consent of a Lender and does not
receive a written denial thereof within five (5) Business Days after such
Lender's receipt of such request, then such Lender will be deemed to have given
such consent.
(C) In the event Agent requests the consent of a Lender and such consent
is denied, then Heller or the Lender which assigned its interest in the Loans to
such Lender (the "Assigning Lender") may, at its option, require such Lender to
reassign its interest in the Loans to Heller or the Assigning Lender, as
applicable, for a price equal to the then outstanding principal amount thereof
plus accrued and unpaid interest and fees due such Lender, which interest and
fees will be paid when collected from Borrower. In the event that Heller or
the Assigning Lender elects to require any Lender to reassign its interest to
Heller or the Assigning Lender, Heller or the Assigning Lender, as applicable,
will so notify such Lender in writing within forty-five (45) days following such
Lender's denial, and such Lender will reassign its interest to Heller or the
Assigning Lender, as applicable, no later than five (5) days following receipt
of such notice.
(D) In the event Agent waives (1) any Default arising under subsection
8.1(E) as a result of the breach of any of the provisions of Section 5 of this
Agreement (other than any such breach which constitutes an Event of Default) or
(2) any Default constituting a condition to the funding of any Revolving Loan or
issuance of any Lender Letter of Credit or execution of a Risk Participation
Agreement, such waiver shall expire on the date upon which the Default which was
the subject of such waiver matures into an Event of Default pursuant to the
terms of this Agreement.
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9.4 SET OFF AND SHARING OF PAYMENTS. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default,
each Lender is hereby authorized by Borrower at any time or from time to time,
with reasonably prompt subsequent notice to Borrower or to any other Person (any
prior or contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (A) balances held by such Lender or such
holder at any of its offices for the account of Borrower or any of its
Subsidiaries (regardless of whether such balances are then due to Borrower or
its Subsidiaries), and (B) other property at any time held or owing by such
Lender or such holder to or for the credit or for the account of Borrower or any
of its Subsidiaries, against and on account of any of the Obligations which are
not paid when due; except that no Lender or any such holder shall exercise any
such right without the prior written consent of Agent. Any Lender having a
right to set off shall, to the extent the amount of any such set off exceeds its
Pro Rata Share of the Obligations, purchase for cash (and the other Lenders or
holders shall sell) participations in each such other Lender's or holder's Pro
Rata Share of the Obligations as would be necessary to cause such Lender to
share such excess with each other Lender or holder in accordance with their
respective Pro Rata Shares. Borrower agrees, to the fullest extent permitted by
law, that (a) any Lender or holder may exercise its right to set off with
respect to amounts in excess of its Pro Rata Share of the Obligations and may
sell participations in such excess to other Lenders and holders, and (b) any
Lender or holder so purchasing a participation in the Loans made or other
obligations held by other Lenders or holders may exercise all rights of set-off,
bankers' lien, counterclaim or similar rights with respect to such participation
as fully as if such Lender or holder were a direct holder of Loans and other
Obligations in the amount of such participation.
9.5 DISBURSEMENT OF FUNDS. Agent may, on behalf of Lenders, disburse funds
to Borrower for Loans requested. Each Lender shall reimburse Agent on demand
for all funds disbursed on its behalf by Agent, or if Agent so requests, each
Lender will remit to Agent its Pro Rata Share of any Loan before Agent disburses
same to Borrower. If any Lender fails to pay the amount of its Pro Rata Share
forthwith upon Agent's demand, Agent shall promptly notify Borrower, and
Borrower shall immediately repay, such amount to Agent. Any repayment required
pursuant to this subsection 9.5 shall be without premium or penalty. Nothing in
this subsection 9.5 or elsewhere in this Agreement or the other Loan Documents,
including without limitation the provisions of subsection 9.6, shall be deemed
to require Agent to advance funds on behalf of any Lender or to relieve any
Lender from its obligation to fulfill its Commitments hereunder or to prejudice
any rights that Agent or Borrower may have against any Lender as a result of any
default by such Lender hereunder.
9.6 DISBURSEMENTS OF ADVANCES, PAYMENTS AND INFORMATION.
(A) REVOLVING LOAN ADVANCES AND PAYMENTS; FEE PAYMENTS.
(1) The Revolving Loan balance may fluctuate from day to day
through Agent's disbursement of funds to, and receipt of funds from, Borrower.
In order to minimize the frequency of transfers of funds between Agent and each
Lender notwithstanding terms to the contrary set forth in Section 2, Revolving
Loan advances and payments will be settled according to the procedures described
in subsection 9.6(A)(2) and 9.6(A)(3) of this Agreement. Payments of principal
interest
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and fees in respect of the Term Loan will be settled on the Business Day
received in accordance with the provisions of Section 2. Notwithstanding these
procedures, each Lender's obligation to fund its portion of any advances made by
Agent to Borrower will commence on the date such advances are made by Agent.
Such payments will be made by such Lender without set-off, counterclaim or
reduction of any kind.
(2) Once each week, or more frequently (including daily) , if
Agent so elects, Agent will advise each Lender by telephone, telex, or telecopy
of the amount of each such Lender's Pro Rata Share of the Revolving Loan
balance. In the event that payments are necessary to adjust the amount of such
Lender's Pro Rata Share of the Revolving Loan balance to such Lender's Pro Rata
Share of the Revolving Loan, the party from which such payment is due will pay
the other, in same day funds, by wire transfer to the other's account not later
than 3:00 p.m. (New York time) on such date. Notwithstanding the foregoing, if
Agent so elects, Agent may require that each Lender make its Pro Rata Share of
any requested Loan available to Agent for disbursement on or prior to the
Funding Date applicable to such Loan. If Agent elects to require that such
funds be made available, Agent shall promptly advise each Lender by telephone,
telex or telecopy of the amount of such Lender's Pro Rata Share of such
requested Loan. Each Lender shall pay Agent such Lender's Pro Rata Share of
such requested Loan in same day funds, by wire transfer to Agent's account not
later than 3:00 p.m. (New York) time on such Funding Date.
(3) For purposes of this subsection 9.6(A)(3), the following terms
and conditions will have the meanings indicated:
(a) "Daily Loan Balance" means an amount calculated as of the
end of each calendar day by subtracting (i) the cumulative principal amount paid
by Agent to a Lender on a Loan from the Closing Date through and including such
calendar day, from (ii) the cumulative principal amount on a Loan advanced by
such Lender to Agent on that Loan from the Closing Date through and including
such calendar day.
(b) "Daily Interest Rate" means an amount calculated by
dividing the interest rate payable to a Lender on a Loan (as set forth in
subsection 2.2) as of each calendar day by three hundred sixty (360).
(c) "Daily Interest Amount" means an amount calculated by
multiplying the Daily Loan Balance of a Loan by the associated Daily Interest
Rate on that Loan.
(d) "Interest Ratio" means a number calculated by dividing
the total amount of the interest on a Loan received by Agent with respect to the
immediately preceding month by the total amount of interest on that Loan due
from Borrower during the immediately preceding month.
On the first Business Day of each month ("Interest Settlement Date"), Agent will
advise each Lender by telephone, telex, or telecopy of the amount of such
Lender's share of interest and fees payable with respect to the Obligations
outstanding during the immediately preceding month. Provided that such Lender
has made all payments required to be made by it under this Agreement, Agent will
pay
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to such Lender, by wire transfer to such Lender's account (as specified by such
Lender on the signature page of this Agreement or the applicable Lender Addition
Agreement as amended by such Lender from time to time after the date hereof
pursuant to the notice provisions contained herein or in the applicable Lender
Addition Agreement) not later than 3:00 p.m. (New York time) on the next
Business Day following the Interest Settlement Date, such Lender's share of such
interest and fees. Such Lender's share of interest on each Loan will be
calculated for that Loan by adding together the Daily Interest Amounts for each
calendar day of the prior month for that Loan and multiplying the total thereof
by the Interest Ratio for that Loan. Such Lender's share of the total Unused
Line Fee payable in respect thereto and received by Agent shall be equal to the
product of (i) (A) the Commitments of the Lenders minus the average daily
balance of Risk Participation Reserve during the preceding month, multiplied by
such Lender's Pro Rata Share of the Commitments, minus (B) the average daily
balance of such Lender's advances under the Revolving Loan during the preceding
month, multiplied by (ii) one-half of one percent (.50%) per annum. Such
Lender's share of any Lender Letter of Credit and Risk Participation Agreement
fees shall be equal to such fees received by Agent multiplied by such Lender's
Pro Rata Share of the Commitments.
(B) AVAILABILITY OF LENDER'S PRO RATA SHARE.
(1) Unless Agent has been notified by a Lender prior to a Funding
Date of such Lender's intention not to fund its Pro Rata Share of the Loan
amount requested by Borrower, Agent may assume that such Lender will make such
amount available to Agent on the Business Day following the next Settlement
Date. If such amount is not, in fact, made available to Agent by such Lender
when due, Agent will be entitled to recover such amount on demand from such
Lender without set-off, counterclaim or deduction of any kind.
(2) Nothing contained in this subsection 9.6(B) will be deemed to
relieve a Lender of its obligation to fulfill its Commitments or to prejudice
any rights Agent or Borrower may have against such Lender as a result of any
default by such Lender under this Agreement.
(3) Without limiting the generality of the foregoing, each Lender
shall be obligated to fund its Pro Rata Share of any Revolving Loan made after
any acceleration of the Obligations with respect to any draw on a Lender Letter
of Credit or Underlying L/C.
(C) RETURN OF PAYMENTS.
(1) If Agent pays an amount to a Lender under this Agreement in
the belief or expectation that a related payment has been or will be received by
Agent from Borrower and such related payment is not received by Agent, then
Agent will be entitled to recover such amount from such Lender without set-off,
counterclaim or deduction of any kind.
(2) If Agent determines at any time that any amount received by
Agent under this Agreement must be returned to Borrower or paid to any other
Person pursuant to any solvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement, Agent will not be required to
distribute any portion thereof to any Lender. In addition, each Lender
will repay
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to Agent on demand any portion of such amount that Agent has distributed to such
Lender, together with interest at such rate, if any, as Agent is required to pay
to Borrower or such other Person, without set-off, counterclaim or deduction of
any kind.
(D) DISSEMINATION OF INFORMATION. Agent will use its best efforts to
provide Lenders with any information received by Agent from Borrower which is
required to be provided to a Lender hereunder; provided, however, that Agent
shall not be liable to Lenders for any failure to do so, except to the extent
that such failure is attributable to Agent's gross negligence or willful
misconduct.
SECTION 10 MISCELLANEOUS
10.1 EXPENSES AND ATTORNEYS' FEES. Whether or not the transactions
contemplated hereby shall be consummated, Borrower agrees to promptly pay all
fees, costs and expenses incurred by Agent and, to the extent specified below,
Lenders in connection with any matters contemplated by or arising out of this
Agreement or any other Loan Document including the following, and all such fees,
costs and expenses shall be part of the Obligations, payable on demand and
secured by the Collateral: (a) fees, costs and expenses of Agent (including
attorneys' fees, allocated costs of internal counsel and fees of environmental
consultants, accountants and other professionals retained by Agent) incurred in
connection with the examination, review, due diligence investigation,
documentation and closing of the financing arrangements evidenced by the Loan
Documents; (b) fees, costs and expenses of Agent (including attorneys' fees,
allocated costs of internal counsel and fees of environmental consultants,
accountants and other professionals retained by Agent) incurred in connection
with the review, negotiation, preparation, documentation, execution and
administration of the Loan Documents, the Loans, and after the occurrence and
during the continuance of an Event of Default, the fees, costs and expenses of
Agent and Lenders (including attorney's fees and allocated costs of internal
counsel) in connection with any amendments, waivers, consents, forbearance and
other modifications relating thereto or any subordination or intercreditor
agreements; (c) fees, costs and expenses incurred in creating, perfecting and
maintaining perfection of Liens in favor of Agent for the benefit of Lenders;
(d) fees, costs and expenses incurred in connection with forwarding to Borrower
the proceeds of Loans including Agent's standard wire transfer fee; (e) fees,
costs, expenses and bank charges, including bank charges for returned checks,
incurred by Agent in establishing, maintaining and handling lock box accounts,
Blocked Accounts or other accounts for collection of the Collateral; (f) fees,
costs, and expenses of Agent and Lenders (including attorneys' fees and
allocated costs of internal counsel) and costs of settlement incurred in
collecting upon or enforcing rights against the Collateral or incurred in any
action to enforce this Agreement or other Loan Document or to collect any
payments due from Borrower or any other Loan Party under this Agreement or any
other Loan Document or incurred in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement, whether
in the nature of a "workout" or in connection with any insolvency or bankruptcy
proceedings or otherwise.
10.2 INDEMNITY. In addition to the payment of expenses pursuant to subsection
10.1, whether or not the transactions contemplated hereby shall be consummated,
Borrower agrees to indemnify, pay
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and hold Agent and each Lender and any holder of the Notes or other assignee
under section 9.1, and the officers, directors, employees, agents, affiliates
and attorneys of Agent and each Lender and such holders or assignees
(collectively called the "Indemnitees") harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including the fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnitee shall be designated a
party thereto) that may be imposed on, incurred by, or asserted against that
Indemnitee, in any manner relating to or arising out of this Agreement or any
other Loan Document, the consummation of the transactions contemplated by this
Agreement, the statements contained in the commitment letters, if any, delivered
by Agent or any Lender, Agent or any Lender's agreement to make the Loans
hereunder, the use or intended use of the proceeds of any of the Loans or the
exercise of any right or remedy hereunder or under any other Loan Document (the
"Indemnified Liabilities"); PROVIDED that Borrower shall have no obligation to
an Indemnitee hereunder with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of that Indemnitee as determined by a
court of competent jurisdiction.
10.3 AMENDMENTS AND WAIVERS. Except as otherwise provided herein or in Section
9, no amendment, modification, termination or waiver of any provision of this
Agreement, the Note(s) or any other Loan Document, or consent to any departure
by any Loan Party therefrom, shall in any event be effective unless the same
shall be in writing and signed by Requisite Lenders or Agent, as applicable;
PROVIDED, no amendment, modification, termination or waiver shall, unless in
writing and signed by all Lenders, do any of the following: (a) increase the
Commitment of any Lender; (b) reduce the principal of, rate of interest on or
fees payable with respect to any Loan; (c) extend the scheduled maturity date of
the principal amount of the Loans; (d) change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Loans, or the percentage of
Lenders which shall be required for Lenders or any of them to take any action
hereunder; (e) release Collateral (except to the extent permitted under
subsection 9.2(H) and except if the sale or disposition of such Collateral is
permitted under any other provision of this Agreement or any other Loan
Document); (f) amend or waive this subsection 10.3 or the definitions of the
terms used in this subsection 10.3 insofar as the definitions affect the
substance of this subsection 10.3; (g) any increase in the advance rates
contained in the definition of "Borrowing Base" or in subsection 2.1(C); and (h)
consent to the assignment or other transfer by any Loan Party of any of its
rights and obligations under any Loan Document; and PROVIDED, FURTHER, that no
amendment, modification, termination or waiver affecting the rights or duties of
Agent under any Loan Document shall in any event be effective unless in writing
and signed by Agent, in addition to Lenders required hereinabove to take such
action. Each amendment, modification, termination or waiver shall be effective
only in the specific instance and for the specific purpose for which it was
given. No amendment, modification, termination or waiver shall be required for
Agent to take additional Collateral pursuant to any Loan Document. No
amendment, modification, termination or waiver of any provision of any Note
shall be effective without the written concurrence of the holder of that Note.
No notice to or demand on Borrower or any other Loan Party in any case shall
entitle Borrower or any other Loan Party to any other or further notice or
demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in
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accordance with this subsection 10.3 shall be binding upon each holder of the
Note[s] at the time outstanding, each future holder of the Note[s], and, if
signed by a Loan Party, on such Loan Party.
10.4 NOTICES. Unless otherwise specifically provided herein, all notices shall
be in writing addressed to the respective party as set forth below and may be
personally served, telecopied or sent by overnight courier service or United
States mail and shall be deemed to have been given: (a) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. (New York time) or, if not, on
the next succeeding Business Day; (c) if delivered by overnight courier, two (2)
days after delivery to such courier properly addressed; or (d) if by U.S. Mail,
four Business Days after depositing in the United States mail, with postage
prepaid and properly addressed.
If to Borrower: THE NORTH FACE, INC.
2013 Farallon Drive
San Leandro, California 94577
Attention: Chief Financial Officer
Telecopy No.: (510) 618-3530
With a copy to: Crosby, Heafey, Roach & May
1999 Harrison Street
Oakland, California 94612-3573
Attention: Philip L. Bush
Telecopy No.: (510) 273-8832
If to Agent: HELLER FINANCIAL, INC.
or Heller 500 West Monroe Street
Chicago, Illinois 60661
Attention: Heller Business Credit
Portfolio Manager
Telecopy No.: (312) 441-6969
With a copy to: HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, Illinois 60661
Attention: Heller Business Credit
Legal Department
Telecopy No.: (312) 441-7652
If to any Lender: its address indicated on the
signature page hereto, in a Lender
Addition Agreement or in a notice to
Agent and Borrower
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or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this subsection
10.4.
10.5 SURVIVAL OF WARRANTIES AND CERTAIN AGREEMENTS. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrower set forth in subsections 10.1 and 10.2 and the
indemnities set forth in the Existing Loan Agreement shall survive the payment
of the Loans and the termination of this Agreement.
10.6 INDULGENCE NOT WAIVER. No failure or delay on the part of Agent, any
Lender or any holder of a Notes in the exercise of any power, right or privilege
hereunder or under a Note shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
10.7 MARSHALING; PAYMENTS SET ASIDE. Neither Agent nor any Lender shall be
under any obligation to marshal any assets in favor of any Loan Party or any
Shareholder or any other party or against or in payment of any or all of the
Obligations. To the extent that any Loan Party or any Shareholder makes a
payment or payments to Agent or any Lender or Agent and/or any Lender enforces
its security interests or exercise its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Obligations or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor, shall be revived and
continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
10.8 ENTIRE AGREEMENT. This Agreement, the Notes, and the other Loan Documents
referred to herein embody the final, entire agreement among the parties hereto
and supersede any and all prior commitments, agreements, representations, and
understandings, whether written or oral, relating to the subject matter hereof
and may not be contradicted or varied by evidence of prior, contemporaneous, or
subsequent oral agreements or discussions of the parties hereto or their agents
or attorneys. There are no oral agreements among the parties hereto.
10.9 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.
10.10 SEVERABILITY. The invalidity, illegality or unenforceability in any
jurisdiction of any provision in or obligation under this Agreement or the other
Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
or the other Loan Documents or of such provision or obligation in any other
jurisdiction.
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10.11 LENDERS' OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The
obligation of each Lender hereunder is several and not joint and no Lender shall
be responsible for the obligation or commitment of any other Lender hereunder.
In the event that any Lender at any time should fail to make a Loan as herein
provided, the Lenders, or any of them, at their sole option, may make the Loan
that was to have been made by the Lender so failing to make such Loan. Nothing
contained in any Loan Document and no action taken by Agent or any Lender
pursuant hereto or thereto shall be deemed to constitute Lenders to be a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and, subject to the terms of any Lender Addition Agreement,
each Lender shall be entitled to protect and enforce its rights arising out of
this Agreement and it shall not be necessary for any other Lender to be joined
as an additional party in any proceeding for such purpose.
10.12 HEADINGS. Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.13 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.14 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
except that Borrower may not assign its rights or obligations hereunder without
the written consent of Lenders.
10.15 NO FIDUCIARY RELATIONSHIP; LIMITATION OF LIABILITIES.
(A) No provision in this Agreement or in any other Loan Document and no
course of dealing between the parties shall be deemed to create any fiduciary
duty by Agent or any Lender to Borrower.
(B) Neither Agent nor any Lender, nor any affiliate, officer, director,
employee, attorney, or agent of Agent or any Lender shall have any liability
with respect to, and Borrower hereby waives, releases, and agrees not to sue any
of them upon, any claim for any special, indirect, incidental, or consequential
damages suffered or incurred by Borrower in connection with, arising out of, or
in any way related to, this Agreement or any other Loan Document, or any of the
transactions contemplated by this Agreement or any other Loan Document.
Borrower hereby waives, releases, and agrees not to sue Agent or any Lender or
any of its affiliates, officers, directors, employees, attorneys, or agents for
punitive damages in respect of any claim in connection with, arising out of, or
in any way related to, this Agreement or any other Loan Document, or any of the
transactions contemplated by this Agreement or any of the transactions
contemplated hereby.
10.16 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF
ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
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COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO
AGENT'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT SHALL BE LITIGATED IN SUCH
COURTS. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE
NOTES, ANY OTHER LOAN DOCUMENT OR THE OBLIGATIONS.
10.17 WAIVER OF JURY TRIAL. BORROWER, AGENT AND EACH LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENT. BORROWER,
AGENT AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER
IN ENTERING INTO THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS AND THAT
EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
BORROWER, AGENT AND EACH LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
10.18 CONSTRUCTION. Borrower, Agent and each Lender each acknowledge that it has
had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the other Loan Documents with its own
legal counsel and that this Agreement and the other Loan Documents shall be
construed without regard to which party may be deemed to have drafted the same
or any provision thereof.
10.19 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments, waivers,
consents, or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto, and acceptance of the Borrower's counterpart by
Agent at its office in Chicago and satisfaction or waiver of the conditions set
forth in subsection 3.1. At the time of the effectiveness of this Agreement,
this Agreement shall amend and restate and thereby supersede the Existing Loan
Agreement. From and after the date on which this Agreement becomes effective,
all references in the other Loan Documents shall be deemed references to this
Agreement, as it may be amended, supplemented or otherwise modified from time to
time.
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10.20 NO DUTY. All attorneys, accountants, appraisers, and other professional
Persons and consultants respectively retained by Agent, any Lender, Borrower and
Borrower's Affiliates shall have the right to act exclusively in the interest of
the party retaining then and shall have no duty of disclosure, duty of loyalty,
duty of care, or other duty or obligation of any type or nature whatsoever to
any other party; PROVIDED that this Section 10.20 shall not be deemed to reduce
the legal or contractual duty of any Person providing reports, opinions,
financial statements, audit reports or other documents to any Person.
[remainder of page intentionally blank]
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Witness the due execution of this Second Amended and Restated Loan
and Security Agreement by the respective duly authorized officers of the
undersigned as of the date first written above.
THE NORTH FACE, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Its:
----------------------------------------
[Signature pages continue]
<PAGE>
HELLER FINANCIAL, INC.,
as a Lender and as Agent
Revolving Loan
Commitment: $27,691,000 By:
-----------------------------------------
Term Loan Name:
---------------------------------------
Commitment:$2,309,000 Its:
----------------------------------------
BANK OF AMERICA ILLINOIS
Revolving Loan
Commitment: $18,462,000 By:
-----------------------------------------
Term Loan Name:
---------------------------------------
Commitment:$1,538,000 Its:
----------------------------------------
Address for Notices:
BANK OF AMERICA ILLINOIS
231 South LaSalle Street, 6th Floor
Chicago, Illinois 60697
Attention: Jeffrey Utz
Telecopy: (312) 828-1874
IBJ SCHRODER BANK & TRUST COMPANY
Revolving Loan
Commitment: $13,847,000 By:
-----------------------------------------
Term Loan Name:
---------------------------------------
Commitment:$1,153,000 Its:
----------------------------------------
Address for Notices:
IBJ SCHRODER BANK & TRUST COMPANY
1 State Street
New York, New York 10004
Attention: Jim Steffy
Telecopy: (212) 858-2151
<PAGE>
TNF HOLDINGS COMPANY, INC.
1994 STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
GENERAL
1.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Persons Eligible for Awards . . . . . . . . . . . . . . . . . . 3
1.4 Types of Awards Under Plan. . . . . . . . . . . . . . . . . . . 3
1.5 Shares Available for Awards . . . . . . . . . . . . . . . . . . 3
1.6 Definitions of Certain Terms. . . . . . . . . . . . . . . . . . 5
ARTICLE II
AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards. . . . . . . . . . . . . . . . . . 6
2.2 Grant of Stock Options. . . . . . . . . . . . . . . . . . . . . 7
2.3 Exercise of Options . . . . . . . . . . . . . . . . . . . . . . 8
2.4 Termination of Employment; Death. . . . . . . . . . . . . . . . 10
2.5 Grant of Restricted Stock . . . . . . . . . . . . . . . . . . . 12
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards . . . . . . . . . 14
3.2 Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.3 Nonassignability. . . . . . . . . . . . . . . . . . . . . . . . 16
3.4 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Right of Discharge Reserved . . . . . . . . . . . . . . . . . . 18
3.6 Nature of Payments. . . . . . . . . . . . . . . . . . . . . . . 18
3.7 Non-Uniform Determinations. . . . . . . . . . . . . . . . . . . 19
3.8 Other Payments or Awards. . . . . . . . . . . . . . . . . . . . 19
3.9 Section Headings. . . . . . . . . . . . . . . . . . . . . . . . 20
3.10 Effective Date and Term of Plan . . . . . . . . . . . . . . . . 20
3.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 20
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ARTICLE I
GENERAL
1.1 PURPOSE
The purpose of the TNF Holdings Company, Inc. 1994 Stock Incentive Plan
(the "Plan") is to provide for officers and other employees (including directors
whether or not employees) of, and consultants to, TNF Holdings Company, Inc.
(the "Company") an incentive (a) to enter into and remain in the service of the
Company, (b) to enhance the long-term performance of the Company, and (c) to
acquire a proprietary interest in the success of the Company.
1.2 ADMINISTRATION
1.2.1 Subject to Section 1.2.6, the Plan shall be administered by the
Compensation Committee (the "Committee") of the board of directors of the
Company (the "Board"), which shall consist of not less than two directors (at
least a majority of which are not officers or employees of the Company) and to
which the Board shall grant power to authorize the issuance of the Company's
capital stock pursuant to awards granted under the Plan. The members of the
Committee shall be appointed by, and serve at the pleasure of, the Board.
1.2.2 The Committee shall have the authority (a) to exercise all of the
powers granted to it under the Plan,
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(b) to construe, interpret and implement the Plan and any Plan Agreements
executed pursuant to Section 2.1, (c) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules governing its own operations,
(d) to make all determinations necessary or advisable in administering the Plan,
(e) to correct any defect, supply any omission and reconcile any inconsistency
in the Plan, and (f) to amend the Plan to reflect changes in applicable law.
1.2.3 Actions of the Committee shall be taken by the vote of a majority
of its members. Any action may be taken by a written instrument signed by a
majority of the Committee members, and action so taken shall be fully as
effective as if it had been taken by a vote at a meeting.
1.2.4 The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be final, binding and conclusive.
1.2.5 No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder.
1.2.6 Notwithstanding anything to the contrary contained herein: (a)
until the Board shall appoint the members of the Committee, the Plan shall be
administered by the Board; and (b) the Board may, in its sole discretion, at
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any time and from time to time, resolve to administer the Plan. In either of
the foregoing events, the term "Committee" as used herein shall be deemed to
mean the Board.
1.3 PERSONS ELIGIBLE FOR AWARDS
Awards under the Plan may be made to such officers, directors, and other
employees of the Company, and to such consultants to the Company (collectively,
"key persons"), as the Committee shall in its sole discretion select with
consideration given to recommendations by senior management.
1.4 TYPES OF AWARDS UNDER PLAN
Awards under the Plan shall be in the form of (a) nonqualified stock
options or (b) restricted stock, as determined by the Committee in its sole
discretion. The term "award" means any of the foregoing.
1.5 SHARES AVAILABLE FOR AWARDS
1.5.1 The total number of shares of common stock of the Company, par
value $.01 per share ("Common Stock"), with respect to which awards may be
granted pursuant to the Plan shall not exceed 371,250 shares, no more than
110,000 of which shares may be used for awards in the form of nonqualified stock
options and no more than 261,250 of which shares may be used for awards in the
form of restricted
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stock. Such shares may be authorized but unissued Common Stock or authorized
and issued Common Stock held in the Company's treasury or acquired by the
Company for the purposes of the Plan. The Committee may direct that any stock
certificate evidencing shares issued pursuant to the Plan shall bear a legend
setting forth such restrictions on transferability as may apply to such shares
pursuant to the Plan.
1.5.2 If there is any change in the outstanding shares of Common Stock
by reason of a stock dividend or distribution, stock split-up, recapitalization,
combination or exchange of shares, or by reason of any merger, consolidation,
spinoff or other corporate reorganization in which the Company is the surviving
corporation, the number of shares available for issuance both in the aggregate
and with respect to each outstanding award, and the purchase price per share
under outstanding awards, shall be equitably adjusted by the Committee, whose
determination shall be final, binding and conclusive. After any adjustment made
pursuant to this Section 1.5.2, the number of shares subject to each outstanding
award shall be rounded to the nearest whole number.
1.5.3 Any shares subject to an award under the Plan that remain
unissued upon the cancellation or
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termination of such award for any reason whatsoever, and any shares of
restricted stock forfeited pursuant to Section 2.5.5, shall again become
available for awards under the Plan. Except as provided in this Section 1.5,
there shall be no limit on the number or the value of the shares of Common Stock
issuable to any individual under the Plan.
1.6 DEFINITIONS OF CERTAIN TERMS
1.6.1 The "Fair Market Value" of a share of Common Stock on any day
shall be the Fair Market Value of a share of Common Stock on any day determined
by the Committee; the Fair Market Value of a share of Common Stock as of the
date of adoption of the Plan is $1.00 per share. The "Fair Market Value" of all
or part of an option on any day shall be the product of (a) the number of shares
for which such option (or part thereof) is then exercisable, multiplied by (b)
the excess of the Fair Market Value of a share of Common Stock on such day over
the exercise price with respect to such option.
1.6.2 The term "employment" means, in the case of a grantee of an award
under the Plan who is not an employee of the Company, the grantee's association
with the Company as a-consultant or otherwise.
1.6.3 A grantee shall be deemed to have a "termination of employment" upon
ceasing to be employed by
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the Company and all of its subsidiaries or by a corporation assuming awards in a
transaction to which section 424(a) of the Code applies. The Committee may in
its discretion determine (a) whether any leave of absence constitutes a
termination of employment for purposes of the Plan, (b) the impact, if any, of
any such leave of absence on awards theretofore made under the Plan, and (c)
when a change in a non-employee's association with the Company constitutes a
termination of employment for purposes of the Plan. The Committee shall have
the right to determine whether the termination of a grantee's employment is a
dismissal for cause and the date of termination in such case, which date the
Committee may retroactively deem to be the date of the action that is cause for
dismissal. Such determinations of the Committee shall be final, binding and
conclusive.
1.6.4 The terms "parent corporation" and "subsidiary corporation" have
the meanings given them in section 424(e) and (f) of the Code, respectively.
ARTICLE II
AWARDS UNDER THE PLAN
2.1 AGREEMENTS EVIDENCING AWARDS
Each award granted under the Plan shall be evidenced by a written agreement
("Plan Agreement") which shall contain such provisions as the Committee may in
its
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sole discretion deem necessary or desirable. By accepting an award pursuant to
the Plan, a grantee thereby agrees (a) that the award shall be subject to all of
the terms and provisions of the Plan and the applicable Plan Agreement and (b)
to be bound by the terms and conditions of the Company's Securityholders
Agreement, dated as of the date of adoption of the Plan. As a condition to
receiving an award, a grantee shall have executed a counterpart of such
Securityholders Agreement.
2.2 GRANT OF STOCK OPTIONS
2.2.1 The Committee may grant nonqualified stock options to purchase
shares of Common Stock from the Company, to such persons, and in such amounts
and subject to such terms and conditions, as the Committee shall determine in
its sole discretion, subject to the provisions of the Plan.
2.2.2 Each Plan Agreement with respect to an option shall set forth the
amount (the "option exercise price") payable by the grantee to the Company upon
exercise of the option evidenced thereby. The option exercise price per share
shall be determined by the Committee in its sole discretion, provided that in no
event shall it be less than the Fair Market Value of a share of Common Stock.
2.2.3 Each Plan Agreement with respect to an option shall set forth the
periods during which the award
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evidenced thereby shall be exercisable, whether in whole or in part. Such
periods shall be determined by the Committee in its sole discretion; provided
that except as and to the extent that the Committee may otherwise provide
pursuant to Section 3.1.3, no option shall be exercisable prior to the first
anniversary of the date of grant.
2.3 EXERCISE OF OPTIONS
Subject to the provisions of this Article II, each option granted under the
Plan shall be exercisable as follows:
2.3.1 Unless the applicable Plan Agreement otherwise provides, an
option shall become exercisable on the tenth anniversary of the date the option
is granted.
2.3.2 Unless the applicable Plan Agreement otherwise provides, once an
installment becomes exercisable, it shall remain exercisable until expiration,
cancellation or termination of the award.
2.3.3 Unless the applicable Plan Agreement otherwise provides, an
option may be exercised from time to time AS to all or part of the shares as to
which such award is then exercisable.
2.3.4 An option shall be exercised by the filing of a written notice
with the Company, on such form and in
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such manner as the Committee shall in its sole discretion prescribe.
2.3.5 Any written notice of exercise of an option shall be accompanied
by payment for the shares being purchased. Such payment shall be made: (a) by
certified or official bank check (or the equivalent thereof acceptable to the
Company) for the full option exercise price; (b) BY (i) delivery of shares of
Common Stock and/or (ii) conversion in whole or in part of an option (to the
extent then exercisable), in either case having a Fair Market Value (determined
as of the exercise date) equal to all or part of the option exercise price,
together with a certified or official bank check (or the equivalent thereof
acceptable to the Company) for any remaining portion of the full option exercise
price; or (c) at the discretion of the Committee and to the extent permitted by
law, by such other provision, consistent with the terms of the Plan, as the
Committee may from time to time prescribe.
2.3.6 Promptly after receiving payment of the full option exercise
price, the Company shall, subject to the provisions of Section 3.2, deliver to
the grantee or to such other person as may then have the right to exercise the
award, a certificate or certificates for the shares of Common Stock for which
the award has been exercised. If the
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method of payment employed upon option exercise so requires, and if applicable
law permits, an optionee may direct the Company to deliver the certificate(s) to
the optionee's stockbroker.
2.3.7 No grantee of an option (or other person having the right to
exercise such award) shall have any of the rights of a stockholder of the
Company with respect to shares subject to such award until the issuance of a
stock certificate to such person for such shares. Except as otherwise provided
in Section 1.5.2, no adjustment shall be made for dividends, distributions or
other rights (whether ordinary or extraordinary, and whether in cash, securities
or other property) for which the record date IS prior to the date such stock
certificate is issued.
2.4 TERMINATION OF EMPLOYMENT; DEATH
2.4.1 Except to the extent otherwise provided in Section 2.4.2 or 2.4.3
or in the applicable Plan Agreement, all options not theretofore exercised shall
terminate upon termination OF the grantee's employment for any reason (including
death). To the extent options held by a grantee are not exercisable on the date
of any such termination, such options shall not thereafter become exercisable.
2.4.2 If a grantee's employment terminates for any reason other than
death or dismissal for cause, the
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grantee (or his legal representative, if applicable) may exercise any
outstanding option on the following terms and conditions: (a) exercise may be
made only to the extent that the grantee was entitled to exercise the award on
the date of employment termination; and (b) exercise must occur within three
months after employment terminates, but in no event after the expiration date of
the award as set forth in the Plan Agreement.
2.4.3 If a grantee dies while employed by the Company or any
subsidiary, or after employment termination but during the period in which the
grantee's awards are exercisable pursuant to Section 2.4.2, any outstanding
option shall be exercisable on the following terms and conditions: (a) exercise
may be made only to the extent that the grantee was entitled to exercise the
award on the date of death; and (b) exercise must occur by the earlier of the
first anniversary of the grantee's death or the expiration date of the award.
Any such exercise of an award following a grantee's death shall be made only by
the grantee's executor or administrator, unless the grantee's will specifically
disposes of such award, in which case such exercise shall be made only by the
recipient of such specific disposition. If a grantee's personal representative
or the recipient of a specific disposition under the grantee's
11
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will shall be entitled to exercise any award pursuant to the preceding sentence,
such representative or recipient shall be bound by all the terms and conditions
of the Plan and the applicable Plan Agreement which would have applied to the
grantee including, without limitation, the provisions of Section 3.2 hereof.
2.5 GRANT OF RESTRICTED STOCK
2.5.1 The Committee may grant restricted shares of Common Stock to such
persons, in such amounts, and subject to such terms and conditions as the
Committee shall determine in its sole discretion, subject to the provisions of
the Plan. Restricted stock awards may be made independently of or in connection
with any other award under the Plan. A grantee of a restricted stock award
shall have no rights with respect to such award unless such grantee accepts the
award within such period as the Committee shall specify by executing a Plan
Agreement in such form as the Committee shall determine and, if the Committee
shall so require, makes payment to the Company by certified or official bank
check (or the equivalent thereof acceptable to the Company) in such amount as
the Committee may determine.
2.5.2 Promptly after a grantee accepts a restricted stock award, the
Company shall issue to the grantee a certificate or certificates for the shares
of
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Common Stock covered by the award. Upon the issuance of such certificate(s),
the grantee shall have the rights of a stockholder with respect to the
restricted stock, subject to the forfeiture provisions of Section 2.5, subject
also to the nontransferability restrictions and Company repurchase rights
described in Sections 2.5.4 and 2.5.6, and subject also to any other
restrictions and conditions contained in the applicable Plan Agreement, except
that (unless otherwise provided in the applicable Plan Agreement) the grantee
shall not have the right to receive any dividends or distributions in respect of
the shares of Common Stock covered by the award until such shares have vested
pursuant to Section 2.5.5.
2.5.3 Unless the Committee shall otherwise determine, any certificate
issued evidencing shares of restricted stock shall remain in the possession of
the Company until such shares are free of any restrictions specified in the
applicable Plan Agreement.
2.5.4 Shares of restricted stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of until such shares
vest pursuant to Section 2.5.5, except as specifically provided in the
applicable Plan Agreement.
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2.5.5 Unless the applicable Plan Agreement otherwise provides, shares
of restricted stock shall be forfeitable until the tenth anniversary of the date
hereof.
2.5.6 During the 90 days following the termination of the grantee's
employment for any reason (including death), the Company shall have the right to
require the return of any shares (together with any accumulated dividends
thereon) that are forfeitable pursuant to Section 2.5.5 on the date of such
termination, in exchange for which the Company shall repay to the grantee (or
the grantee's estate) any amount paid by the grantee for such shares.
ARTICLE III
MISCELLANEOUS
3.1 AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS
3.1.1 The Board may from time to time suspend, discontinue, revise or
amend the Plan in any respect whatsoever, except that no such amendment shall
materially impair any rights or materially increase any obligations under any
award theretofore made under the Plan without the consent of the grantee (or,
upon the grantee's death, the person having the right to exercise the award).
For purposes of this Section 3.1, any action of the Board or the Committee that
alters or affects the tax treatment of any
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award shall not be considered to materially impair any rights of any grantee.
3.1.3 The Committee may amend any outstanding Plan Agreement,
including, without limitation, by amendment which would (a) accelerate the time
or times at which the award may be exercised, or (b) waive or amend any goals,
restrictions or conditions set forth in the Agreement, or (c) extend the
scheduled expiration date of the award. However, any such cancellation or
amendment that materially impairs the rights or materially increases the
obligations of a grantee under an outstanding award shall be made only with the
consent of the grantee (or, upon the grantee's death, the person having the
right to exercise the award).
3.2 RESTRICTIONS
3.2.1 If the Committee shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights thereunder, or the taking of any other action
thereunder (each such action being hereinafter referred to as a "Plan Action"),
then such Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the full satisfaction of
the Committee.
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3.2.2 The term "Consent" as used herein with respect to any Plan Action
means (a) any and all listings, registrations or qualifications in respect
thereof upon any securities exchange or under any federal, state or local law,
rule or regulation, (b) any and all written agreements and representations by
the grantee with respect to the disposition of shares, or with respect to any
other matter, which the Committee shall deem necessary or desirable to comply
with the terms of any such listing, registration or qualification or to obtain
an exemption from the requirement that any such listing, qualification or
registration be made and (c) any and all consents, clearances and approvals in
respect of a Plan Action by any governmental or other regulatory bodies.
3.3 NONASSIGNABILITY
No award or right granted to any person under the Plan or under any Plan
Agreement shall be assignable or transferable other than by will or by the laws
of descent and distribution. All rights granted under the Plan or any Plan
Agreement shall be exercisable during the life of the grantee or during the
period specified in Section 2.4.3 only by the grantee or the grantee's legal
representative.
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3.4 REQUIREMENT OF NOTIFICATION OF
ELECTION UNDER SECTION 83(b) OF THE CODE
If any grantee shall, in connection with the acquisition of shares of
Common Stock under the Plan, make the election permitted under section 83(b) of
the Code (i.e., an election to include in gross income in the year of transfer
the amounts specified in section 83(b)), such grantee shall notify the Company
of such election within 10 days of filing notice of the election with the
Internal Revenue Service, in addition to any filing and notification required
pursuant to regulations issued under the authority of Code section 83(b).
3.4 WITHHOLDING TAXES
3.4.1 Whenever cash is to be paid pursuant to an award under the Plan,
the Company shall be entitled to deduct therefrom an amount sufficient in its
opinion to satisfy all federal, state and other governmental tax withholding
requirements related to such payment.
3.5.2 Whenever shares of Common Stock are to be delivered pursuant to
an award under the Plan, the Company shall be entitled to require as a condition
of delivery that the grantee remit to the Company an amount sufficient in the
opinion of the Company to satisfy all federal, state and other governmental tax
withholding requirements related thereto. With the approval of the Committee,
which it shall
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have sole discretion to grant, the grantee may satisfy the foregoing condition
by electing to have the Company withhold from delivery shares having a value
equal to the amount of tax to be withheld. Such shares shall be valued at their
Fair Market Value on the date as of which the amount of tax to be withheld is
determined (the "Tax Date"). Fractional share amounts shall be settled in cash.
Such a withholding election may be made with respect to all or any portion of
the shares to be delivered pursuant to an award.
3.5 RIGHT OF DISCHARGE RESERVED
Nothing in the Plan or in any Plan Agreement shall confer upon any grantee
the right to continue in the employ of the Company or affect any right which the
Company may have to terminate such employment.
3.6 NATURE OF PAYMENT
3.6.1 Any and all grants of awards and issuances of shares of Common
Stock under the Plan shall be in consideration of services performed for the
Company by the grantee.
3.6.2 All such grants and issuances shall constitute a special
incentive payment to the grantee and shall not be taken into account in
computing the amount of salary or compensation of the grantee for the purpose of
determining any benefits under any pension, retirement,
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profit-sharing, bonus, life insurance or other benefit plan of the Company or
under any agreement between the Company and the grantee, unless such plan or
agreement specifically provides otherwise.
3.7 NON-UNIFORM DETERMINATIONS
The Committee's determinations under the Plan need not be uniform and may
be made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan (whether or not such persons are similarly situated).
Without limiting the generality of the foregoing, the Committee shall be
entitled, among other things, to make non-uniform and selective determinations,
and to enter into non-uniform and selective Plan agreements, as to (a) the
persons to receive awards under the Plan, (b) the terms and provisions of awards
under the Plan, and (c) the treatment of leaves of absence pursuant to Section
1.6.4.
3.8 OTHER PAYMENTS OR AWARDS
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company from making any award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
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3.9 SECTION HEADINGS
The section headings contained herein are for the purpose of convenience
only and are not intended to define or limit the contents of said sections.
3.10 EFFECTIVE DATE AND TERM OF PLAN
The Plan was adopted by the Board and approved by the Company's
shareholders on June 7, 1994.
3.11 GOVERNING LAW
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws.
* * * * *
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THE NORTH FACE, INC.
1995 STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
THE NORTH FACE, INC.
1995 STOCK INCENTIVE PLAN
ARTICLE I
GENERAL.......................................................................1
1.1 PURPOSE..............................................................1
1.2 ADMINISTRATION.......................................................1
1.3 PERSONS ELIGIBLE FOR AWARDS..........................................2
1.4 TYPES OF AWARDS UNDER PLAN...........................................2
1.5 SHARES AVAILABLE FOR AWARDS..........................................2
1.6 DEFINITIONS OF CERTAIN TERMS.........................................3
ARTICLE II
AWARDS UNDER THE PLAN.........................................................3
2.1 AGREEMENTS EVIDENCING AWARDS.........................................3
2.2 GRANT OF STOCK OPTIONS...............................................4
2.3 EXERCISE OF OPTIONS..................................................4
2.4 TERMINATION OF EMPLOYMENT; DEATH.....................................5
ARTICLE III
MISCELLANEOUS.................................................................6
3.1 AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS........................6
3.2 RESTRICTIONS.........................................................6
3.3 NONASSIGNABILITY.....................................................7
3.4 WITHHOLDING TAXES....................................................7
3.5 RIGHT OF DISCHARGE RESERVED..........................................7
3.6 NATURE OF PAYMENTS...................................................7
3.7 NON-UNIFORM DETERMINATIONS...........................................8
3.8 OTHER PAYMENTS OR AWARDS.............................................8
3.9 SECTION HEADINGS.....................................................8
3.10 EFFECTIVE DATE AND TERM OF PLAN......................................8
3.11 GOVERNING LAW........................................................9
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ARTICLE I
GENERAL
1.1 PURPOSE
The purpose of the The North Face, Inc. 1995 Stock Incentive Plan (the
"Plan") is to provide for officers and other employees (including directors
whether or not employees) of, and consultants to, The North Face, Inc. (The
"Company") an incentive (a) to enter into and remain in the service of the
Company, (b) to enhance the long-term performance of the Company, and (c) to
acquire a proprietary interest in the success of the Company.
1.2 ADMINISTRATION
1.2.1 Subject to Section 1.2.6, the Plan shall be administered by the
Compensation Committee (the "Committee") of the board of directors of the
Company (the "Board"), which shall consist of not less than two directors (at
least a majority of which are not officers or employees of the Company) and to
which the Board shall grant power to authorize the issuance of the Company's
capital stock pursuant to awards granted under the Plan. The members of the
Committee shall be appointed by, and serve at the pleasure of, the Board.
1.2.2 The Committee shall have the authority (a) to exercise all of the
powers granted to it under the Plan, (b) to construe, interpret and implement
the Plan and any Plan Agreements executed pursuant to Section 2.1, (c) to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules governing its own operations, (d) to make all determinations
necessary or advisable in administering the Plan, (e) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan, and (f) to
amend the Plan to reflect changes in applicable law.
1.2.3 Actions of the Committee shall be taken by the vote of a majority
of its members. Any action may be taken by a written instrument signed by a
majority of the Committee members, and action so taken shall be fully as
effective as if it had been taken by a vote at a meeting.
1.2.4 The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be final, binding and conclusive.
1.2.5 No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder.
1.2.6 Notwithstanding anything to the contrary contained herein: (a)
until the Board shall appoint the members of the Committee, the Plan shall be
administered by the Board; and (b) the Board may, in its sole discretion, at any
time and from time to time, resolve to administer
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the Plan. In either of the foregoing events, the term "Committee" as used
herein shall be deemed to mean the Board.
1.3 PERSONS ELIGIBLE FOR AWARDS
Awards under the Plan may be made to such officers, directors, and other
employees of the Company, and to such consultants to the Company (collectively,
"key persons"), as the Committee shall in its sole discretion select with
consideration given to recommendations by senior management.
1.4 TYPES OF AWARDS UNDER PLAN
Awards under the Plan shall be in the form of nonqualified stock options.
The term "award" means any award of nonqualified stock options under the Plan.
1.5 SHARES AVAILABLE FOR AWARDS
1.5.1 The total number of shares of common stock of the Company, par
value $.01 per share ("Common Stock"), with respect to which awards may be
granted pursuant to the Plan shall not exceed 54,250 shares. Such shares may
be authorized but unissued Common Stock or authorized and issued Common Stock
held in the Company's treasury or acquired by the Company for the purposes of
the Plan. The Committee may direct that any stock certificate evidencing shares
issued pursuant to the Plan shall bear a legend setting forth such restrictions
on transferability as may apply to such shares pursuant to the Plan.
1.5.2 If there is any change in the outstanding shares of Common Stock
by reason of a stock dividend or distribution, stock split-up, recapitalization,
combination or exchange of shares, or by reason of any merger, consolidation,
spinoff or other corporate reorganization in which the Company is the surviving
corporation, the number of shares available for issuance both in the aggregate
and with respect to each outstanding award, and the purchase price per share
under outstanding awards, shall be equitably adjusted by the Committee, whose
determination shall be final, binding and conclusive. After any adjustment made
pursuant to this Section 1.5.2, the number of shares subject to each outstanding
award shall be rounded to the nearest whole number.
1.5.3 Any shares subject to an award under the Plan that remain
unissued upon the cancellation or termination of such award for any reason
whatsoever, shall again become available for awards under the Plan. Except as
provided in this Section 1.5, there shall be no limit on the number or the value
of the shares of Common Stock issuable to any individual under the Plan.
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1.6 DEFINITIONS OF CERTAIN TERMS
1.6.1 The "Fair Market Value" of a share of Common Stock on any day
shall be the Fair Market Value of a share of Common Stock on any day determined
by the Committee; the Fair Market Value of a share of Common Stock as of the
date of adoption of the Plan is FIVE DOLLARS ($5.00) per share. The "Fair
Market Value" of all or part of an option on any day shall be the product of (a)
the number of shares for which such option (or part thereof) is then
exercisable, multiplied by (b) the excess of the Fair Market Value of a share of
Common Stock on such day over the exercise price with respect to such option.
1.6.2 The term "employment" means, in the case of a grantee of an award
under the Plan who is not an employee of the Company, the grantee's association
with the Company as a consultant or otherwise.
1.6.3 A grantee shall be deemed to have a "termination of employment"
upon ceasing to be employed by the Company and all of its subsidiaries or by a
corporation assuming awards in a transaction to which section 424(a) of the Code
applies. The Committee may in its discretion determine (a) whether any leave of
absence constitutes a termination of employment for purposes of the Plan, (b)
the impact, if any, of any such leave of absence on awards theretofore made
under the Plan, and (c) when a change in a non-employee's association with the
Company constitutes a termination of employment for purposes of the Plan. The
Committee shall have the right to determine whether the termination of a
grantee's employment is a dismissal for cause and the date of termination in
such case, which date the Committee may retroactively deem to be the date of the
action that is cause for dismissal. Such determinations of the Committee shall
be final, binding and conclusive.
1.6.4 The terms "parent corporation" and "subsidiary corporation" have
the meanings given them in section 424(e) and (f) of the Code, respectively.
ARTICLE II
AWARDS UNDER THE PLAN
2.1 AGREEMENTS EVIDENCING AWARDS
Each award granted under the Plan shall be evidenced by a written agreement
("Plan Agreement") which shall contain such provisions as the Committee may in
its sole discretion deem necessary or desirable. By accepting an award pursuant
to the Plan, a grantee thereby agrees that the award shall be subject to all of
the terms and provisions of the Plan and the applicable Plan Agreement.
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2.2 GRANT OF STOCK OPTIONS
2.2.1 The Committee may grant nonqualified stock options to purchase
shares of Common Stock from the Company, to such persons, and in such amounts
and subject to such terms and conditions, as the Committee shall determine in
its sole discretion, subject to the provisions of the Plan.
2.2.2 Each Plan Agreement with respect to an option shall set forth the
amount (the "option exercise price") payable by the grantee to the Company upon
exercise of the option evidenced thereby. The option exercise price per share
shall be determined by the Committee in its sole discretion, provided that in no
event shall it be less than the Fair Market Value of a share of Common Stock.
2.2.3 Each Plan Agreement with respect to an option shall set forth the
periods during which the award evidenced thereby shall be exercisable, whether
in whole or in part. Such periods shall be determined by the Committee in its
sole discretion, provided that except as and to the extent that the Committee
may otherwise provide pursuant to Section 3.1.3, no option shall be exercisable
prior to the first anniversary of the date of grant.
2.3 EXERCISE OF OPTIONS
Subject to the provisions of this Article II, each option granted under the
Plan shall be exercisable as follows:
2.3.1 Unless the applicable Plan Agreement otherwise provides, an
option shall become exercisable on the tenth anniversary of the date the option
is granted.
2.3.2 Unless the applicable Plan Agreement otherwise provides, once an
installment becomes exercisable, it shall remain exercisable until expiration,
cancellation or termination of the award.
2.3.3 Unless the applicable Plan Agreement otherwise provides, an
option may be exercised from time to time as to all or part of the shares as to
which such award is then exercisable.
2.3.4 An option shall be exercised by the filing of a written notice
with the Company, on such form and in such manner as the Committee shall in its
sole discretion prescribe.
2.3.5 Any written notice of exercise of an option shall be accompanied
by payment for the shares being purchased. Such payment shall be made: (a) by
certified or official bank check (or the equivalent thereof acceptable to the
Company) for the full option exercise price; (b) by (i) delivery of shares of
Common Stock held by the optionee for the requisite period necessary to avoid a
charge to the Company's earnings for financial reporting purposes, and/or (ii)
conversion
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in whole or in part of an option (to the extent then exercisable), in either
case having a Fair Market Value (determined as of the exercise date) equal to
all or part of the option exercise price, together with a certified or official
bank check (or the equivalent thereof acceptable to the Company) for any
remaining portion of the full option exercise price; or (c) at the discretion of
the Committee and to the extent permitted by law, by such other provision,
consistent with the terms of the Plan, as the Committee may from time to time
prescribe.
2.3.6 Promptly after receiving payment of the full option exercise
price, the Company shall, subject to the provisions of Section 3.2, deliver to
the grantee or to such other person as may then have the right to exercise the
award, a certificate or certificates for the shares of Common Stock for which
the award has been exercised. If the method of payment employed upon option
exercise so requires, and if applicable law permits, an optionee may direct the
Company to deliver the certificate(s) to the optionee's stockbroker.
2.3.7 No grantee of an option (or other person having the right to
exercise such award) shall have any of the rights of a stockholder of the
Company with respect to shares subject to such award until the issuance of a
stock certificate to such person for such shares. Except as otherwise provided
in Section 1.5.2, no adjustment shall be made for dividends, distributions or
other rights (whether ordinary or extraordinary, and whether in cash, securities
or other property) for which the record date is prior to the date such stock
certificate is issued.
2.4 TERMINATION OF EMPLOYMENT; DEATH
2.4.1 Except to the extent otherwise provided in Section 2.4.2 or 2.4.3
or in the applicable Plan Agreement, all options not theretofore exercised shall
terminate upon termination of the grantee's employment for any reason (including
death). To the extent options held by a grantee are not exercisable on the date
of any such termination, such options shall not thereafter become exercisable.
2.4.2 If a grantee's employment terminates for any reason other than
death or dismissal for cause, the grantee (or his legal representative, if
applicable) may exercise any outstanding option on the following terms and
conditions: (a) exercise may be made only to the extent that the grantee was
entitled to exercise the award on the date of employment termination; and (b)
exercise must occur within three months after employment terminates, but in no
event after the expiration date of the award as set forth in the Plan Agreement.
2.4.3 If a grantee dies while employed by the Company or any
subsidiary, or after employment termination but during the period in which the
grantee's awards are exercisable pursuant to Section 2.4.2, any outstanding
option shall be exercisable on the following terms and conditions: (a) exercise
may be made only to the extent that the grantee was entitled to exercise the
award on the date of death; and (b) exercise must occur by the earlier of the
first anniversary of the grantee's death or the expiration date of the award.
Any such exercise of an award following a grantee's death shall be made only by
the grantee's executor or administrator, unless
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the grantee's will specifically disposes of such award, in which case such
exercise shall be made only by the recipient of such specific disposition. If a
grantee's personal representative or the recipient of a specific disposition
under the grantee's will shall be entitled to exercise any award pursuant to the
preceding sentence, such representative or recipient shall be bound by all the
terms and conditions of the Plan and the applicable Plan Agreement which would
have applied to the grantee including, without limitation, the provisions of
Section 3.2 hereof.
ARTICLE III
MISCELLANEOUS
3.1 AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS
3.1.1 The Board may from time to time suspend, discontinue, revise or
amend the Plan in any respect whatsoever, except that no such amendment shall
materially impair any rights or materially increase any obligations under any
award theretofore made under the Plan without the consent of the Grantee (or,
upon the grantee's death, the person having the right to exercise the award).
For purposes of this Section 3.1, any action of the Board or the Committee that
alters or affects the tax treatment of any award shall not be considered to
materially impair any rights of any grantee.
3.1.3 The Committee may amend any outstanding Plan Agreement,
including, without limitation, by amendment which would (a) accelerate the time
or times at which the award may be exercised, or (b) waive or amend any goals,
restrictions or conditions set forth in the Agreement, or (c) extend the
scheduled expiration date of the award. However, any such cancellation or
amendment that materially impairs the rights or materially increases the
obligations of a grantee under an outstanding award shall be made only with the
consent of the grantee (or, upon the grantee's death, the person having the
right to exercise the award).
3.2 RESTRICTIONS
3.2.1 If the Committee shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights thereunder, or the taking of any other action
thereunder (each such action being hereinafter referred to as a "Plan Action"),
then such Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the full satisfaction of
the Committee.
3.2.2 The term "Consent" as used herein with respect to any Plan Action
means (a) any and all listings, registrations or qualifications in respect
thereof upon any securities exchange or under any federal, state or local law,
rule or regulation, (b) any and all written agreements and representations by
the grantee with respect to the disposition of shares, or with respect to any
other matter, which the Committee shall deem necessary or desirable to comply
with the terms of any such listing, registration or qualification or to obtain
an exemption from the requirement that
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any such listing, qualification or registration be made and (c) any and all
consents, clearances and approvals in respect of a Plan Action by any
governmental or other regulatory bodies.
3.3 NONASSIGNABILITY
No award or right granted to any person under the Plan or under any Plan
Agreement shall be assignable or transferable other than by will or by the laws
of descent and distribution. All rights granted under the Plan or any Plan
Agreement shall be exercisable during the life of the grantee or during the
period specified in Section 2.4.3 only by the grantee or the grantee's legal
representative.
3.4 WITHHOLDING TAXES
3.4.1 Whenever cash is to be paid pursuant to an award under the Plan,
the Company shall be entitled to deduct therefrom an amount sufficient in its
opinion to satisfy all federal, state and other governmental tax withholding
requirements related to such payment.
3.4.2 Whenever shares of Common Stock are to be delivered, or whenever
an option to purchase stock may be "converted" as a means of exercising the
option, pursuant to an award under the Plan, the Company shall be entitled to
require as a condition of delivery that the grantee remit to the Company an
amount sufficient in the opinion of the Company to satisfy all federal, state
and other governmental tax withholding requirements related thereto. With the
approval of the Committee, which it shall have sole discretion to grant, the
grantee may satisfy the foregoing condition by electing to have the Company
withhold from delivery shares having a value equal to the amount of tax to be
withheld. Such shares shall be valued at their Fair Market Value on the date as
of which the amount of tax to be withheld is determined (the "Tax Date").
Fractional share amounts shall be settled in cash. Such a withholding election
may be made with respect to all or any portion of the shares to be delivered
pursuant to an award.
3.5 RIGHT OF DISCHARGE RESERVED
Nothing in the Plan or in any Plan Agreement shall confer upon any grantee
the right to continue in the employ of the Company or affect any right which the
Company may have to terminate such employment.
3.6 NATURE OF PAYMENTS
3.6.1 Any and all grants of awards and issuances of shares of Common
Stock under the Plan shall be in consideration of services performed for the
Company by the grantee.
3.6.2 All such grants and issuances shall constitute a special
incentive payment to the grantee and shall not be taken into account in
computing the amount of salary or compensation of the grantee for the purpose of
determining any benefits under any pension, retirement, profit-
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sharing, bonus, life insurance or other benefit plan of the Company or under any
agreement between the Company and the grantee, unless such plan or agreement
specifically provides otherwise.
3.7 NON-UNIFORM DETERMINATIONS
The Committee's determinations under the Plan need not be uniform and may
be made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan (whether or not such persons are similarly situated).
Without limiting the generality of the foregoing, the Committee shall be
entitled, among other things, to make non-uniform and selective determinations,
and to enter into non-uniform and selective Plan agreements, as to (a) the
persons to receive awards under the Plan, (b) the terms and provisions of awards
under the Plan, and (c) the treatment of leaves of absence pursuant to Section
1.6.4.
3.8 OTHER PAYMENTS OR AWARDS
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company from making any award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
3.9 SECTION HEADINGS
The section headings contained herein are for the purpose of convenience
only and are not intended to define or limit the contents of said sections.
3.10 EFFECTIVE DATE AND TERM OF PLAN
The Plan was adopted by the Board and approved by the Company's
shareholders on ______________, 1995.
[the balance of this page is intentionally left blank.]
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3.11 GOVERNING LAW
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws.
The undersigned hold shares representing more than 75% of the voting power of
the capital stock of the Company entitled to vote on matters presented to the
stockholders as of _________, 1995, and hereby approve the 1995 Stock Incentive
Plan set forth above.
- ------------------------------------
Marsden S. Cason
J.H. Whitney & Co. Whitney Subordinated Debt
Fund, L.P.
By --------------------------------- By -------------------------------------
Ray E. Newton, III Ray E. Newton, III
Whitney 1990 Equity Fund, L.P.
By ---------------------------------
Ray E. Newton, III
<PAGE>
THE NORTH FACE, INC.
1996 STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Persons Eligible for Awards. . . . . . . . . . . . . . . . . . . 2
1.4 Types of Awards Under Plan . . . . . . . . . . . . . . . . . . . 2
1.5 Shares Available for Awards. . . . . . . . . . . . . . . . . . . 2
1.6 Definitions of Certain Terms . . . . . . . . . . . . . . . . . . 3
ARTICLE II AWARDS UNDER THE PLAN. . . . . . . . . . . . . . . . . . . . . . 4
2.1 Agreements Evidencing Awards . . . . . . . . . . . . . . . . . . 4
2.2 Grant of Stock Options . . . . . . . . . . . . . . . . . . . . . 4
2.3 Exercise of Options. . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Termination of Employment; Death . . . . . . . . . . . . . . . . 6
2.5 Restrictions upon Option Shares. . . . . . . . . . . . . . . . . 7
2.6 Special Incentive Stock Option Requirement . . . . . . . . . . . 7
ARTICLE III MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Amendment of the Plan; Modification of Awards. . . . . . . . . . 7
3.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 Right of Discharge Reserved. . . . . . . . . . . . . . . . . . . 9
3.6 Nature of Payments . . . . . . . . . . . . . . . . . . . . . . . 9
3.7 Non-Uniform Determinations . . . . . . . . . . . . . . . . . . .10
3.8 Other Payments or Awards . . . . . . . . . . . . . . . . . . . .10
3.9 Section Headings . . . . . . . . . . . . . . . . . . . . . . . .10
3.10 Effective Date and Term of Plan. . . . . . . . . . . . . . . . .10
3.11 Information to Grantees. . . . . . . . . . . . . . . . . . . . .10
3.12 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . .10
<PAGE>
ARTICLE I
GENERAL
1.1 PURPOSE
The purpose of The North Face, Inc. 1996 Stock Incentive Plan (the
"Plan") is to provide for officers and other employees (including directors
whether or not employees) of, and consultants to, The North Face, Inc. (The
"Company") an incentive (a) to enter into and remain in the service of the
Company, (b) to enhance the long-term performance of the Company, and (c) to
acquire a proprietary interest in the success of the Company.
1.2 ADMINISTRATION
1.2.1 Subject to Section 1.2.6, the Plan shall be administered by the
Compensation Committee (the "Committee") of the board of directors of the
Company (the "Board"), which shall consist of not less than two directors and to
which the Board shall grant power to authorize the issuance of the Company's
capital stock pursuant to awards granted under the Plan. It is intended that
the directors appointed to serve on the Committee shall be "disinterested
persons" within the meaning of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 ("Rule 16b-3") and "outside directors" within the meaning
of Code Section 162(m) to the extent Rule 16b-3 and Code Section 162(m),
respectively, are applicable; however, the mere fact that a Committee member
shall fail to qualify under either of the foregoing requirements shall not
invalidate any award made by the Committee which award is otherwise validly made
under the Plan. The members of the Committee shall be appointed by, and serve
at the pleasure of, the Board.
1.2.2 The Committee shall have the authority (a) to exercise all of the
powers granted to it under the Plan, (b) to construe, interpret and implement
the Plan and any Plan Agreements executed pursuant to Section 2.1, (c) to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules governing its own operations, (d) to make all determinations
necessary or advisable in administering the Plan, (e) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan, and (f) to
amend the Plan to reflect changes in applicable law.
1.2.3 Actions of the Committee shall be taken by the vote of a majority
of its members. Any action may be taken by a written instrument signed by a
majority of the Committee members, and action so taken shall be fully as
effective as if it had been taken by a vote at a meeting.
1.2.4 The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be final, binding and conclusive.
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1.2.5 No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder.
1.2.6 Notwithstanding anything to the contrary contained herein: (a)
until the Board shall appoint the members of the Committee, the Plan shall be
administered by the Board; and (b) the Board may, in its sole discretion, at any
time and from time to time, resolve to administer the Plan. In either of the
foregoing events, the term "Committee" as used herein shall be deemed to mean
the Board.
1.3 PERSONS ELIGIBLE FOR AWARDS
Awards under the Plan may be made to such officers, directors, and other
salaried employees of the Company or its majority or wholly owned subsidiaries,
and to such consultants to the Company (collectively, "key persons"), as the
Committee shall in its sole discretion select with consideration given to
recommendations by senior management. However, only employees of the Company
and its majority or wholly owned subsidiaries shall be eligible to receive
awards of Incentive Stock Options defined in Section 1.4.
1.4 TYPES OF AWARDS UNDER PLAN
Awards under the Plan may be granted, as determined in the discretion of
the Committee, in the form of (i) stock options which are intended to qualify as
incentive stock options (the "Incentive Stock Options") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or (ii) nonqualified
stock options (the "Nonqualified Stock Options") which are not intended to
qualify as Incentive Stock Options. Awards shall be designated as either an
Incentive Stock Option or a Nonqualified Stock Option in the applicable Plan
Agreement. All awards when granted are intended to be nonqualified stock
options, unless the applicable Plan Agreement explicitly states that the option
is intended to be an incentive stock option. If an option is intended to be an
incentive stock option, and if for any reason such option (or any portion
thereof) shall not qualify as an incentive stock option, then, to the extent of
such nonqualification, such option (or portion) shall be regarded as a
nonqualified stock option appropriately granted under the Plan provided that
such option (or portion) otherwise meets the Plan's requirements relating to
nonqualified stock options. The term "award" means any award of stock options
under the Plan.
1.5 SHARES AVAILABLE FOR AWARDS
1.5.1 Subject to Section 1.5.2, the total number of shares of common
stock of the Company, par value $0.0025 per share ("Common Stock"), with respect
to which awards may be granted pursuant to the Plan shall equal 616,171 shares
(or 683,950 shares upon effectiveness of a 1.11 for 1 stock split intended to be
effected after the adoption of this Plan). Such shares may be authorized but
unissued Common Stock or authorized and issued Common Stock held in the
Company's treasury or acquired by the Company for the purposes of the Plan. The
Committee
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may direct that any stock certificate evidencing any shares issued pursuant to
the Plan shall bear a legend setting forth such restrictions on transferability
as may apply to such shares pursuant to the Plan.
1.5.2 If there is any change in the outstanding shares of Common Stock
by reason of a stock dividend or distribution, stock split-up, recapitalization,
combination or exchange of shares, or by reason of any merger, consolidation,
spinoff or other corporate reorganization in which the Company is the surviving
corporation, the number of shares available for issuance both in the aggregate
and with respect to each outstanding award, and the purchase price per share
under outstanding awards, shall be equitably adjusted by the Committee, whose
determination shall be final, binding and conclusive. After any adjustment made
pursuant to this Section 1.5.2, the number of shares subject to each outstanding
award shall be rounded to the nearest whole number, subject to Section 1.5.1.
1.5.3 Any shares subject to an award under the Plan that remain
unissued upon the cancellation or termination of such award for any reason
whatsoever (other than by reason of exercise), shall again become available for
awards under the Plan. In any year, a person eligible for awards under the Plan
may not be granted options under the Plan covering a total of more than 400,000
shares of Common Stock.
1.6 DEFINITIONS OF CERTAIN TERMS
1.6.1 The "Fair Market Value" of a share of Common Stock on any day
shall be the Fair Market Value of a share of Common Stock on such day as
determined by the Committee; provided that the Fair Market Value of a share of
Common Stock as of the date of adoption of the Plan shall be deemed to be NINE
DOLLARS AND SIXTY CENTS ($9.60) per share if the 1.11 for 1 stock split referred
to in Section 1.5.1 is effected (or $10.66 per share prior to that stock split).
The "Fair Market Value" of all or part of an option on any day shall be the
product of (a) the number of shares for which such option (or part thereof) is
then exercisable, multiplied by (b) the excess of the Fair Market Value of a
share of Common Stock on such day over the exercise price with respect to such
option.
1.6.2 The term "employment" means, in the case of a grantee of an award
under the Plan who is not an employee of the Company, the grantee's association
with the Company as a consultant or otherwise.
1.6.3 A grantee shall be deemed to have a "termination of employment"
upon ceasing to be employed by the Company and any of its parent or subsidiary
corporations or by a corporation assuming awards in a transaction to which
section 424(a) of the Code applies. The Committee may in its discretion
determine (a) whether any leave of absence constitutes a termination of
employment for purposes of the Plan, (b) the impact, if any, of any such leave
of absence on awards theretofore made under the Plan, and (c) when a change in a
non-employee's association with the Company constitutes a termination of
employment for purposes of the Plan. The
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Committee shall have the right to determine whether the termination of a
grantee's employment is a dismissal for cause and the date of termination in
such case, which date the Committee may retroactively deem to be the date of the
action that is cause for dismissal. Such determinations of the Committee shall
be final, binding and conclusive.
1.6.4 The terms "parent corporation" and "subsidiary corporation" have
the meanings given them in section 424(e) and (f) of the Code, respectively.
ARTICLE II
AWARDS UNDER THE PLAN
2.1 AGREEMENTS EVIDENCING AWARDS
Each award granted under the Plan shall be evidenced by a written agreement
("Plan Agreement") which shall contain such provisions as the Committee may in
its sole discretion deem necessary or desirable, consistent with the terms of
this Plan. By accepting an award pursuant to the Plan, a grantee thereby agrees
that the award shall be subject to all of the terms and provisions of the Plan
and the applicable Plan Agreement.
2.2 GRANT OF STOCK OPTIONS
2.2.1 During the term of the Plan specified in Section 3.10, the
Committee may grant Incentive Stock Options and/or Nonqualified Stock Options to
purchase shares of Common Stock from the Company, to such persons, and in such
amounts and subject to such terms and conditions, as the Committee shall
determine in its sole discretion, subject to the provisions of the Plan, EXCEPT
THAT, no options shall be granted under this Plan to any person (i) owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company (or its parent or subsidiary corporations), or
(ii) owning more than ten percent (10%) of the Company's voting stock (as
determined under federal income tax laws and regulations relating to Incentive
Stock Options).
2.2.2 Each Plan Agreement with respect to an option shall set forth the
amount (the "option exercise price") payable by the grantee to the Company upon
exercise of the option evidenced thereby. The option exercise price per share
shall be determined by the Committee in its sole discretion, provided that in no
event shall it be less than the Fair Market Value of a share of Common Stock.
2.2.3 No option granted under this Plan may be exercised in whole or in
part more than ten (10) years after its date of grant, and the Committee in its
sole discretion may grant options which may be exercised during terms of ten
(10) years or less. Each Plan Agreement with respect to an option shall set
forth the periods during which the award evidenced thereby shall be exercisable,
whether in whole or in part, consistent with the requirements of this
Section 2.2.3.
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2.3 EXERCISE OF OPTIONS
Subject to the provisions of this Article II, each option granted under the
Plan shall be exercisable as follows:
2.3.1 Any option granted under this Plan shall be exercisable at such
times and under such conditions as determined by the Committee. In no case
shall options be exercisable at a rate of less than twenty percent (20%) per
year over five (5) years from the date the option is granted, unless otherwise
permitted by applicable law, except that the Committee may provide that any
option granted under this Plan to any vice president or more senior executive
officer will require that one or more financial or other targets based on the
performance of the Company or of the individual must be satisfied as a further
condition to the option becoming exercisable.
2.3.2 Unless the applicable Plan Agreement otherwise provides, once an
option (or portion thereof) becomes exercisable, such option (or portion) shall
remain exercisable until exercise, expiration, cancellation or termination of
the award, but in no event later than ten (10) years following the date of grant
of such option.
2.3.3 Unless the applicable Plan Agreement otherwise provides, an
option may be exercised from time to time as to all or part of the shares as to
which such award is then exercisable.
2.3.4 An option shall be exercised by the filing of a written notice
with the Company, on such form and in such manner as the Committee shall in its
sole discretion prescribe.
2.3.5 Any written notice of exercise of an option shall be accompanied
by payment for the shares being purchased. Such payment, which shall be equal
in amount to the exercise price of the portion of the option being exercised,
shall consist of (a) cash, (b) certified or official bank check payable to the
Company (or the equivalent thereof acceptable to the Committee), (c) with the
consent of the Committee in its sole discretion, by the promissory note and
agreement of the grantee providing for payment with interest on the unpaid
balance accruing at a rate not less than that needed to avoid the imputation of
income under Code Section 7872 and upon such terms and conditions (including the
security, if any, therefor) as the Committee may determine, (d) other shares
which (i) have been owned by the grantee for the requisite period, if any,
necessary to avoid a charge to the Company's earnings for financial reports
purposes, and (ii) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the shares as to which the option is being
exercised, (e) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, (f) any
combination of the foregoing methods of payment, or (g) such other consideration
and method of payment for the issuance of shares as determined by the Committee
to the extent permitted under applicable laws.
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2.3.6 Promptly after receiving payment of the full option exercise
price, the Company shall, subject to the provisions of Section 3.2, deliver to
the grantee or to such other person as may have exercised the award, a
certificate or certificates for the shares of Common Stock for which the award
has been exercised. If the method of payment employed upon option exercise so
requires, and if applicable law permits, an optionee may direct the Company to
deliver the certificate(s) to the optionee's stockbroker.
2.3.7 No grantee of an option (or other person having the right to
exercise such award) shall have any of the rights of a stockholder of the
Company with respect to shares subject to such award until the issuance of a
stock certificate to such person for such shares. Except as otherwise provided
in Section 1.5.2, no adjustment shall be made for dividends, distributions or
other rights (whether ordinary or extraordinary, and whether in cash, securities
or other property) for which the record date is prior to the date such stock
certificate is issued.
2.4 TERMINATION OF EMPLOYMENT; DEATH
2.4.1 The provisions of Section 2.4 of this Plan shall apply unless an
applicable Plan Agreement otherwise provides. Except to the extent otherwise
provided in Section 2.4.2 or 2.4.3 or 2.4.4 or in the applicable Plan Agreement,
all options not theretofore exercised shall terminate upon termination of the
grantee's employment for any reason (including death). To the extent options
held by a grantee are not exercisable on the date of any such termination, such
options shall not thereafter become exercisable.
2.4.2 If a grantee's employment terminates for any reason other than
death or disability, or, to the extent permitted by applicable law, dismissal
for cause, the grantee (or his legal representative, if applicable) may
exercise any outstanding option on the following terms and conditions: (a)
exercise may be made only to the extent that the grantee was entitled to
exercise the award on the date of employment termination; and (b) exercise must
occur within three (3) months after employment terminates, but in no event after
the expiration date of the award as set forth in the Plan Agreement.
2.4.3 If a grantee dies while employed by the Company or any
subsidiary, or after employment termination but during the period in which the
grantee's awards are exercisable pursuant to Section 2.4.2, any outstanding
option shall be exercisable on the following terms and conditions: (a) exercise
may be made only to the extent that the grantee was entitled to exercise the
award on the date of death; and (b) exercise must occur by the earlier of the
first anniversary of the grantee's death or the expiration date of the award.
Any such exercise of an award following a grantee's death shall be made only by
the grantee's executor or administrator, unless the grantee's will specifically
disposes of such award, in which case such exercise shall be made only by the
recipient of such specific disposition. If a grantee's personal representative
or the recipient of a specific disposition under the grantee's will shall be
entitled to exercise any award pursuant to the preceding sentence, such
representative or recipient shall be bound by all the
6
<PAGE>
terms and conditions of the Plan and the applicable Plan Agreement which would
have applied to the grantee including, without limitation, the provisions of
Section 3.2 hereof.
2.4.4 If a grantee's employment by the Company is terminated as a
result of his or her disability, any outstanding option shall be exercisable on
the following terms and conditions: (a) exercise may be made only to the extent
that the grantee was entitled to exercise the award on the date of termination
of employment; and (b) exercise must occur by the earlier of the first
anniversary of the date of such termination of employment or the expiration date
of the award. Notwithstanding the foregoing, if the grantee holds an award
intended to be an Incentive Stock Option and such disability is not a
"disability" as defined in applicable provisions of the Code relating to
incentive stock options, such Incentive Stock Option shall to the extent not
then exercised automatically convert to a Nonqualified Stock Option on the day
which is three months and one day following the date of such termination of
employment.
2.5 RESTRICTIONS UPON OPTION SHARES. In addition to such restrictions as may
apply or be imposed upon shares acquired pursuant to awards under applicable
state or federal securities laws, the Committee may in its sole discretion
provide for one or more of the following: rights of first refusal, rights to
repurchase shares following termination of employment, and other restrictions
upon transfer, PROVIDED THAT any Plan Agreement permitting the Company to
repurchase shares upon termination of employment shall provide, to the extent
required by law, that the price paid upon such repurchase shall be cash equal
to the higher of the original purchase price or fair value, and that such
repurchase right must be exercised within ninety (90) days after termination of
employment.
2.6 SPECIAL INCENTIVE STOCK OPTION REQUIREMENT. In order for a grantee to
receive special tax treatment with respect to stock acquired under an option
intended to be an Incentive Stock Option, the grantee of such option must be, at
all times during the period beginning as of the date of grant and ending on the
date three (3) months before the date of exercise of such option, an employee of
the Company or any of the Company's parent or subsidiary corporations, or of a
corporation or a parent or subsidiary corporation of such corporation issuing or
assuming a stock option in a transaction to which Code Section 424(a) applies.
ARTICLE III
MISCELLANEOUS
3.1 AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS
3.1.1 The Board may from time to time, without stockholder approval,
suspend, discontinue, revise or amend the Plan in any respect whatsoever, except
that no such amendment shall materially impair any of the grantee's rights or
materially increase any of the grantee's obligations under any award theretofore
made under the Plan without the consent of the grantee (or, upon the grantee's
death, the person having the right to exercise the award). For purposes of this
Section 3.1, any action of the Board or the Committee that alters or affects the
tax treatment
7
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of any award shall not be considered to materially impair any rights of any
grantee merely because of such alteration or effect. Furthermore, except as and
to the extent otherwise permitted by Section 1.5.2, no such amendment shall,
without stockholder approval, (i) materially increase the benefits accruing to
grantees under the Plan, (ii) materially increase, beyond the amounts set forth
in Section 1.5.1 the number of shares of Common Stock in respect of which
awards may be granted under the Plan or increase the number of shares of Common
Stock in respect of which options may be granted in any year under Section
1.5.3, (iii) materially modify the designation of Section 1.3 of the class of
persons eligible to receive awards under the Plan, (iv) provide for the grant of
stock options having an option exercise price per share of Common Stock less
than one hundred percent (100%) of the Fair Market Value of a share of Common
Stock on the date of grant, (v) permit a stock option to be exercisable more
than ten (10) years after the date of grant, or (vi) extend the term of the Plan
beyond the period set forth in Section 3.10.
3.1.3 The Committee may amend any outstanding Plan Agreement,
including, without limitation, by amendment which would (a) accelerate the time
or times at which the award may be exercised, (b) waive or amend any goals,
restrictions or conditions set forth in the Agreement, (c) extend the scheduled
expiration date of the award, or (d) cancel any Plan Agreement with or without
substituting a new Plan Agreement therefor. However, any such cancellation or
amendment that materially impairs the rights or materially increases the
obligations of a grantee under an outstanding award shall be made only with the
consent of the grantee (or, upon the grantee's death, the person having the
right to exercise the award).
3.2 RESTRICTIONS
3.2.1 If the Committee shall at any time determine that any Consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights hereunder, or the taking of any other action
hereunder (each such action being hereinafter referred to as a "Plan Action"),
then such Plan Action shall not be taken, in whole or in part, unless and until
such Consent shall have been effected or obtained to the full satisfaction of
the Committee.
3.2.2 The term "Consent" as used herein with respect to any Plan Action
means (a) any and all listings, registrations or qualifications in respect
thereof upon any securities exchange or other self-regulatory organization or
under any federal, state or local law, rule or regulation, (b) the expiration,
elimination or satisfaction of any prohibitions, restrictions or limitations
under any federal, state or local law, rule or regulation or the rules of any
securities exchange or other self-regulatory organization, (c) any and all
written agreements and representations by the grantee with respect to the
disposition of shares, or with respect to any other matter, which the Committee
shall deem necessary or desirable to comply with the terms of any such listing,
registration or qualification or to obtain an exemption from the requirement
that any such listing, qualification or registration be made, and (d) any and
all consents, clearances and approvals in respect of a Plan Action by any
governmental or other regulatory bodies or any parties to any loan agreements or
other contractual obligations of the Company or any affiliate.
8
<PAGE>
3.3 NONASSIGNABILITY
No award or right granted to any person under the Plan or under any Plan
Agreement shall be assignable or transferable other than by will or by the laws
of descent and distribution. All rights granted under the Plan or any Plan
Agreement shall be exercisable during the life of the grantee only by the
grantee.
3.4 WITHHOLDING TAXES
3.4.1 Whenever cash is to be paid pursuant to an award under the Plan,
the Company shall be entitled to deduct therefrom an amount sufficient in its
opinion to satisfy all federal, state and other governmental tax withholding
requirements related to such payment.
3.4.2 Whenever shares of Common Stock are to be delivered pursuant to
an award under the Plan, the Company shall be entitled to require as a condition
of delivery that the grantee remit to the Company an amount sufficient in the
opinion of the Company to satisfy all federal, state and other governmental tax
withholding requirements related thereto. With the approval of the Committee,
which it shall have sole discretion to grant, the grantee may satisfy the
foregoing condition by electing to have the Company withhold from delivery
shares having a value equal to the amount of tax to be withheld. Such shares
shall be valued at their Fair Market Value on the date as of which the amount of
tax to be withheld is determined (the "Tax Date"). Fractional share amounts
shall be settled in cash. Such a withholding election may be made with respect
to all or any portion of the shares to be delivered pursuant to an award.
3.5 RIGHT OF DISCHARGE RESERVED
Nothing in the Plan or in any Plan Agreement shall confer upon any grantee
the right to continue in the employ of the Company or affect any right which the
Company may have to terminate such employment.
3.6 NATURE OF PAYMENTS
3.6.1 Any and all grants of awards and issuances of shares of Common
Stock under the Plan shall be in consideration of services performed for the
Company by the grantee.
3.6.2 All such grants and issuances shall constitute a special
incentive payment to the grantee and shall not be taken into account in
computing the amount of salary or compensation of the grantee for the purpose of
determining any benefits under any pension, retirement, profit-sharing, bonus,
life insurance or other benefit plan of the Company or under any agreement
9
<PAGE>
between the Company and the grantee, unless such plan or agreement specifically
provides otherwise.
3.7 NON-UNIFORM DETERMINATIONS
The Committee's determinations under the Plan need not be uniform and may
be made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan (whether or not such persons are similarly situated).
Without limiting the generality of the foregoing, the Committee shall be
entitled, among other things, to make non-uniform and selective determinations,
and to enter into non-uniform and selective Plan Agreements, as to (a) the
persons to receive awards under the Plan, (b) the terms and provisions of awards
under the Plan, and (c) the treatment of leaves of absence pursuant to Section
1.6.3.
3.8 OTHER PAYMENTS OR AWARDS
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company from making any award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
3.9 SECTION HEADINGS
The section headings contained herein are for the purpose of convenience
only and are not intended to define or limit the contents of said sections.
3.10 EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective upon the earlier to occur of its adoption
by the Board of Directors or its approval by the stockholders of the Company.
No award under the Plan shall be exercisable until the Plan is approved by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is so adopted by the Board of Directors. The term of the Plan shall
end on the tenth anniversary of the Plan's effective date.
3.11 INFORMATION TO GRANTEES.
To the extent required by law, the Company shall provide to each grantee of
an award, during the period for which such grantee has one or more options
granted hereunder outstanding, and to each stockholder who has purchased shares
of stock pursuant to such awards, copies of consolidated financial statements of
the Company no less frequently than annually.
3.12 GOVERNING LAW
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws.
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THE NORTH FACE, INC.
EMPLOYEE STOCK PURCHASE PLAN
June 10, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 Purpose............................................................1
SECTION 2 Definitions........................................................1
SECTION 3 Eligibility........................................................4
SECTION 4 Participation and Payroll Deductions...............................5
SECTION 5 Offerings..........................................................7
SECTION 6 Distributions of Common Stock Account..............................9
SECTION 7 Dividends on Shares...............................................10
SECTION 8 Rights as a Stockholder...........................................10
SECTION 9 Options Not Transferable..........................................11
SECTION 10 Common Stock......................................................11
SECTION 11 Adjustment Upon Changes In Capitalization.........................12
SECTION 12 Administration....................................................13
SECTION 13 Amendment and Termination.........................................15
SECTION 14 Effective Date....................................................15
SECTION 15 Governmental and Other Regulations................................16
SECTION 16 No Employment Rights..............................................16
SECTION 17 Withholding.......................................................16
SECTION 18 Offsets...........................................................17
SECTION 19 Notices, Etc......................................................17
SECTION 20 Captions, Etc.....................................................18
SECTION 21 Effect of Plan....................................................18
SECTION 22 Governing Law.....................................................18
<PAGE>
SECTION 1
PURPOSE
The purpose of the Plan is to secure for the Company and its
stockholders the benefits of the incentive inherent in the ownership of Common
Stock by current and future Eligible Employees. The Plan is intended to comply
with the provisions of Code section 423 and shall be administered, interpreted
and construed in accordance with such provisions.
SECTION 2
DEFINITIONS
When used herein, the following terms shall have the following
meanings:
2.1 "BOARD OF DIRECTORS" means the Board of Directors of the Company.
2.2 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute thereto.
2.3 "COMMITTEE" means the committee appointed by the Board of
Directors to administer the Plan pursuant to Section 12.
2.4 "COMMON STOCK" means common stock, par value $0.0025 per share,
of the Company.
2.5 "COMMON STOCK ACCOUNT" means the account established with, and
maintained by, the Custodian for the purpose of holding Common Stock purchased
pursuant to this Plan.
<PAGE>
2
2.6 "COMPANY" means The North Face, Inc., a Delaware corporation, and
its successors and assigns.
2.7 "CUSTODIAN" means the agent selected by the Company to hold
Common Stock purchased under the Plan.
2.8 "EFFECTIVE DATE" means the date on which shares of Common Stock
are initially offered to the public in an offering registered under the
Securities Act of 1933, as amended.
2.9 "ELIGIBLE COMPENSATION" means the sum of: (i) the total
compensation paid to an Eligible Employee by the Company and its Subsidiaries
that is subject to tax under Code section 3402, or any successor provision
thereto (or which would be subject to tax thereunder if the employee were fully
subject to Federal income tax with respect to such compensation), plus (ii)
amounts deferred under a plan of the Company or a Subsidiary intended to qualify
under Code section 401(k) (a "401(k) Plan") by such Eligible Employee, plus
(iii) amounts deferred under a plan of the Company or a Subsidiary intended to
qualify under Code section 125.
2.10 "ELIGIBLE EMPLOYEE" means each employee of the Company or any
Subsidiary who has been employed by the Company or any Subsidiary for at least
90 days excluding any such employee whose customary employment is 20 hours or
less per week or whose customary employment is not more than five months in any
calendar year.
2.11 "ENTRY DATE" means the Effective Date and the first day of each
calendar year quarter commencing thereafter.
<PAGE>
3
2.12 "FAIR MARKET VALUE" means:
(a) With respect to options granted on the Effective Date, the
price of the initial public offering of a share of Common Stock.
(b) With respect to options granted after the Effective Date:
(i) if the Common Stock is listed for trading on the
New York Stock Exchange, the mean between the high and low sales prices of the
Common Stock as reported on the New York Stock Exchange Composite Tape on the
date in question; or
(ii) if the Common Stock is not listed for trading on
the New York Stock Exchange but is listed on another national securities
exchange or authorized for quotation on the National Association of Securities
Dealers, Inc.'s Nasdaq National Market ("Nasdaq National Market"), the mean
between the high and low sales prices of the Common Stock on the date in
question on such exchange or Nasdaq National Market, as the case may be; or
(iii) if the Common Stock is not listed for trading on
a national securities exchange or authorized for quotation on Nasdaq National
Market, the average of the closing bid and asked prices on the date in question
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ"), such other amount as may be determined by the
Committee in its discretion.
2.13 "PARTICIPANT" means an Eligible Employee who has met the
requirements of Section 3 and has elected to participate in the Plan pursuant to
Section 4.1.
<PAGE>
4
2.14 "PAYROLL DEDUCTION ACCOUNT" means the bookkeeping entry
established by the Company for each Participant pursuant to Section 4.3.
2.15 "PLAN" means the The North Face, Inc. Employee Stock Purchase
Plan as set forth herein and as amended from time to time.
2.16 "PLAN YEAR" means the 1996 calendar year and each calendar year
thereafter.
2.17 "PURCHASE PERIOD" means (i) the period commencing on the
Effective Date and ending on September 30, 1996 and (ii) each calendar quarter
thereafter.
2.18 "SUBSIDIARY" means any corporation designated by the Board of
Directors, in its sole discretion, of which the Company owns or controls,
directly or indirectly, not less than 50% of the total combined voting power of
all classes of stock and which constitutes a "subsidiary" of the Company within
the meaning of Code section 424(f).
SECTION 3
ELIGIBILITY
3.1 GENERAL RULE. Subject to Section 3.3, an Eligible Employee shall
be eligible to become a Participant in the Plan beginning on the Entry Date
coincident with or next following the date he becomes an Eligible Employee.
3.2 LEAVE OF ABSENCE. Unless the Committee otherwise determines, a
Participant on a paid leave of absence shall continue to be a Participant in the
Plan so long as such Participant is on such paid leave of absence. Unless
otherwise
<PAGE>
5
determined by the Committee, a Participant on an unpaid leave of absence shall
not be entitled to participate in any offering commencing after such unpaid
leave has begun but shall not be deemed to have terminated employment for
purposes of the Plan. A Participant who, upon failing to return to work
following a leave of absence, is deemed not to be an employee, shall not be
entitled to participate in any offering commencing after such termination of
employment and such Participant's Payroll Deduction Account shall be paid out in
accordance with Section 6.1.
3.3 COMMON STOCK ACCOUNT. As a condition to participation in this
Plan, each Eligible Employee shall be required to hold shares purchased
hereunder in a Common Stock Account and such employee's decision to participate
in the Plan shall constitute the appointment of the Custodian as custodial agent
for the purpose of holding such shares. Such Common Stock Account will be
governed by, and subject to, the terms and conditions of a written agreement
with the Custodian.
SECTION 4
PARTICIPATION AND PAYROLL DEDUCTIONS
4.1 ENROLLMENT. Each Eligible Employee may elect to participate in
the Plan for a Plan Year by completing an enrollment form prescribed by the
Committee and returning it to the Company on or before the date specified by the
Committee.
4.2 AMOUNT OF DEDUCTION. The enrollment form shall specify a
percentage (in whole numbers, up to a maximum of 10%) of Eligible Compensation
which shall be withheld from the Participant's regular paychecks, including
bonus
<PAGE>
6
paychecks, if any, for the Plan Year. No amount shall be withheld in excess of
the amount described in Section 5.4.
4.3 PAYROLL DEDUCTION ACCOUNTS. Each Participant's payroll deduction
shall be credited, as soon as practicable following the relevant pay date, to a
Payroll Deduction Account, pending the purchase of Common Stock in accordance
with the provisions of the Plan. All such amounts shall be assets of the
Company and may be used by the Company for any corporate purpose. No interest
shall accrue or be paid on amounts credited to a Payroll Deduction Account.
4.4 SUBSEQUENT PLAN YEARS. Unless otherwise specified prior to the
beginning of any Plan Year on an enrollment form prescribed by the Committee, a
Participant shall be deemed to have elected to participate in each subsequent
Plan Year for which he is eligible to the same extent and in the same manner as
at the end of the prior Plan Year.
4.5 CHANGES IN PARTICIPATION.
(a) At any time during a Plan Year, a Participant may cease
participation in the Plan by completing and filing the form prescribed by the
Committee with the Company. Such cessation will become effective as soon as
practicable following receipt of such form by the Company, whereupon no further
payroll deductions will be made and the Company shall pay to such Participant an
amount equal to the balance in the Participant's Payroll Deduction Account as
soon as practicable thereafter. To the extent then eligible, any Participant
who ceased to participate may elect to participate again on any subsequent Entry
Date in any calendar quarter after the quarter in which such Participant ceased
to participate.
<PAGE>
7
(b) At any time during the Plan Year (but not more than once in
any calendar quarter) a Participant may increase or decrease the percentage of
Eligible Compensation subject to payroll deduction within the limits provided in
Section 4.2 by filing the form prescribed by the Committee with the Company.
Such increase or decrease shall become effective with the first pay period
following receipt of such form to which it may be practicably applied.
(c) Any Participant who receives a distribution under a 401(k)
Plan on account of Hardship, as determined under such plan, shall be suspended
from participation in the Plan for the same period as such Participant's
participation in the 401(k) Plan shall be suspended.
SECTION 5
OFFERINGS
5.1 MAXIMUM NUMBER OF SHARES. The Plan will be implemented by making
offerings of Common Stock during each Purchase Period until the maximum number
of shares of Common Stock available under the Plan have been issued pursuant to
the exercise of options.
5.2 GRANT AND EXERCISE OF OPTIONS.
(a) Subject to Section 5.3, on the first day of each Purchase
Period, each Participant shall be deemed, subject to Section 5.4, to have been
granted an option to purchase on the last day of such Purchase Period, without
any further action, the number of whole shares of Common Stock determined by
dividing the amount credited to the Participant's Payroll Deduction Account on
the last day of
<PAGE>
8
such Purchase Period by the applicable purchase price (as determined in
paragraph (b) below) for such purchase, but in no event more than 250 shares per
Purchase Period. All such shares shall be credited to the Participant's Common
Stock Account. The balance of any amount credited to the Participant's Payroll
Deduction Account that is not sufficient to purchase a whole share of Common
Stock shall remain in the Payroll Deduction Account and shall be applied to the
next offering under this Plan.
(b) The purchase price for each share of Common Stock shall be
equal to the lesser of (i) eighty-five percent (85%) of the Fair Market Value of
each share on the first day of the Purchase Period and (ii) eighty-five percent
(85%) of the Fair Market Value of such share on the last day of the applicable
Purchase Period.
5.3 OVERSUBSCRIPTION OF SHARES. If the total number of shares for
which options are exercised on the last day of any calendar year quarter ending
on or prior to the last day of any Purchase Period exceeds the maximum number of
shares so available, the Company shall make an allocation of the shares
available for delivery and distribution among the Participants in as nearly a
uniform manner as shall be practicable, and the balance of all amounts credited
to the Payroll Deduction Accounts shall be applied to the next offering.
5.4 LIMITATIONS ON GRANT AND EXERCISE OF OPTIONS.
(a) No option granted under this Plan shall permit a participant
to purchase stock under all employee stock purchase plans (as defined by Code
section 423(b)) of the Company and its Subsidiaries at a rate which, in the
aggregate, exceeds $25,000 of the Fair Market Value (payroll deductions not in
<PAGE>
9
excess of $21,250) of such stock (determined at the time the option is granted)
for each calendar year in which the option is outstanding at any time. No
employee may be granted an option under the terms of the Plan if, immediately
after the option would be granted, he would own stock possessing five percent or
more of the total combined voting power of value of all classes of capital stock
of the Company or any Subsidiary thereof.
SECTION 6
DISTRIBUTIONS OF COMMON STOCK ACCOUNT
6.1 TERMINATION OF EMPLOYMENT. If a Participant's employment with
the Company and its Subsidiaries terminates for any reason during a Plan Year,
all shares credited to the Participant's Common Stock Account shall be
distributed, and any amount credited to the Participant's Payroll Deduction
Account shall be refunded, to the Participant or, in the event of the
Participant's death, to the Participant's estate, as soon as practicable.
6.2 DURING EMPLOYMENT. Prior to the Participant's termination of
employment with the Company and its Subsidiaries, a Participant may withdraw
some or all of the whole shares credited to the Participant's Common Stock
Account, subject to the provisions of Section 10.3.
SECTION 7
DIVIDENDS ON SHARES
All cash dividends paid with respect to shares of Common Stock held in
a Participant's Common Stock Account shall be invested automatically in whole
<PAGE>
10
shares of Common Stock purchased at one-hundred percent (100%) of Fair Market
Value on the first day of the calendar year quarter following the dividend
payment date. Notwithstanding the foregoing, the amount of any cash dividend
that is not sufficient to purchase a whole share of Common Stock shall be
credited to the Participant's Payroll Deduction Account as soon as practicable
after the payment date of each dividend. All non-cash distributions paid on
Common Stock held in a Participant's Common Stock Account shall be paid to the
Participant as soon as practicable.
SECTION 8
RIGHTS AS A STOCKHOLDER
When a Participant purchases Common Stock pursuant to the Plan or when
Common Stock is credited to a participant's Common Stock Account, the
Participant shall have all of the rights and privileges of a stockholder of the
Company with respect to the shares so purchased or credited, whether or not
certificates representing full shares shall have been issued.
SECTION 9
OPTIONS NOT TRANSFERABLE
Options granted under the Plan are not transferable by a Participant
other than by will or the laws of descent and distribution and are exercisable
during the Participant's lifetime only by the Participant or the Participant's
court-appointed legal guardian.
<PAGE>
11
SECTION 10
COMMON STOCK
10.1 RESERVED SHARES. There shall be reserved for issuance and
purchase under the Plan an aggregate of 150,000 shares of Common Stock, subject
to adjustment as provided in Section 11. Shares subject to the Plan may be
shares now or hereafter authorized but unissued, treasury shares, or both.
10.2 RESTRICTIONS ON EXERCISE. In its sole discretion, the Board of
Directors may require as conditions to the exercise of any option that shares of
Common Stock reserved for issuance upon the exercise of an option shall have
been duly listed on any recognized national securities exchange, and that either
a registration statement under the Securities Act of 1933, as amended, with
respect to said shares shall be effective, or the Participant shall have
represented at the time of purchase, in form and substance satisfactory to the
Company, that it is the Participant's intention to purchase the shares for
investment only and not for resale or distribution.
10.3 RESTRICTION ON SALE. Shares of Common Stock purchased hereunder
shall not be transferable by a Participant for a period of six months
immediately following the date on which the shares were deemed purchased.
10.4 ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions
of options granted hereunder to, and the purchase of shares by, persons subject
to Section 16 of the Securities Exchange Act of 1934 shall comply with the
applicable provisions of rule 16b-3. This Plan shall be deemed to contain, and
such options shall contain, and the shares issued upon exercise thereof shall be
subject to, such
<PAGE>
12
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Securities Exchange Act
of 1934 with respect to Plan transactions.
SECTION 11
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event of a subdivision or consolidation of the outstanding
shares of Common Stock, or the payment of a stock dividend thereon, the number
of shares reserved or authorized to be reserved under this Plan shall be
increased or decreased, as the case may be, proportionately, and such other
adjustments shall be made as may be deemed necessary or equitable by the Board
of Directors. In the event of any other change affecting the Common Stock, such
adjustments shall be made as may be deemed equitable by the Board of Directors,
in its sole discretion, to give proper effect to such event, subject to the
limitations of Code section 424.
SECTION 12
ADMINISTRATION
12.1 APPOINTMENT. The Plan shall be administered by the Committee.
The Committee shall consist of two or more members who shall serve at the
pleasure of the Board of Directors. The Board of Directors may from time to
time appoint members of the Committee in substitution for, or in addition to,
members previously appointed and may fill vacancies, however caused, in the
Committee.
<PAGE>
13
12.2 AUTHORITY. Subject to the express provisions of the Plan, the
Committee shall have authority to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable in administering the Plan, all of which
determinations shall be final and binding upon all persons. If and to the
extent required by Rule 16b-3 or any successor exemption under which the
Committee believes it is appropriate for the Plan to qualify, the Committee may
restrict a Participant's ability to participate in the Plan or sell any Stock
received under the Plan for such period as the Committee deems appropriate or
may impose such other conditions in connection with participation or
distributions under the Plan as the Committee deems appropriate.
12.3 COMMITTEE PROCEDURES. The Committee may select one of its
members as its Chairman and shall hold its meetings at such times and places as
it shall deem advisable and may hold telephonic meetings. A majority of its
members shall constitute a quorum. All determinations of the Committee shall be
made by a majority of its members. Any decision or determination reduced to
writing and signed by a majority of the members of the Committee shall be as
fully effective as if it had been made by a majority vote at a meeting duly
called and held. The Committee may request advice or assistance or employ such
other persons as are necessary for the proper administration of the Plan.
12.4 DUTIES OF COMMITTEE. The Committee shall establish and maintain
records of the Plan and of each Payroll Deduction Account and Common Stock
Account established for any Participant hereunder.
<PAGE>
14
12.5 PLAN EXPENSES. The Company shall pay the fees and expenses of
accountants, counsel, agents and other personnel and all other costs of
administration of the Plan.
12.6 INDEMNIFICATION. To the maximum extent permitted by law, no
member of the Committee shall be personally liable by reason of any contract or
other instrument executed by such member or on such member's behalf in such
member's capacity as a member of the Committee or for any mistake of judgment
made in good faith, and the Company shall indemnify and hold harmless, directly
from its own assets (including the proceeds of any insurance policy the premiums
of which are paid from the Company's own assets), each member of the Committee
and each other officer, employee or director of the Company to whom any duty or
power relating to the administration or interpretation of the Plan or to the
management or control of the assets of the Plan may be delegated or allocated,
against any cost or expense (including fees, disbursements and other charges of
legal counsel) or liability (including any sum paid in settlement of a claim
with the approval of the Company) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud, willful
misconduct or bad faith. The foregoing shall not be deemed to limit the
Company's obligation to indemnify any member of the Committee under the
Company's Certificate of Incorporation or By-laws, or any other agreement
between the Company and such member.
<PAGE>
15
SECTION 13
AMENDMENT AND TERMINATION
13.1 AMENDMENT. Subject to the provisions of Code section 423, the
Board of Directors may amend the Plan in any respect; PROVIDED, HOWEVER, that
the Plan may not be amended in any manner that will retroactively impair or
otherwise adversely affect the rights of any person to benefits under the Plan
which have accrued prior to the date of such action.
13.2 TERMINATION. Subject to the foregoing terms of the Plan, the
Plan will terminate on the date in which the Participants become entitled to
purchase a number of shares greater than the number of reserved shares available
for purchase. In addition, the Plan may be terminated at any time in the sole
discretion of the Board of Directors.
SECTION 14
EFFECTIVE DATE
The Plan shall become effective on the Effective Date, subject to
approval by the holders of the majority of shares of Common Stock present and
represented at an annual or special meeting of the stockholders held within 12
months of the date the Plan is adopted.
<PAGE>
16
SECTION 15
GOVERNMENTAL AND OTHER REGULATIONS
The Plan and the grant and exercise of options to purchase shares
hereunder, and the Company's obligation to sell and deliver shares upon the
exercise of options to purchase shares, shall be subject to all applicable
Federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or governmental agency as, in the opinion of counsel to the
Company, may be required.
SECTION 16
NO EMPLOYMENT RIGHTS
The Plan does not create, directly or indirectly, any right for the
benefit of any employee or class of employees to purchase any shares under the
Plan, or create in any employee or class of employees any right with respect to
continuation of employment by the Company or any Subsidiary, and it shall not be
deemed to interfere in any way with the Company's or any Subsidiary's right to
terminate, or otherwise modify, an employee's employment at any time.
SECTION 17
WITHHOLDING
As a condition to receiving shares hereunder, the Company may require
the Participant to make a cash payment to the Company of, or the Company may
withhold from any shares distributable under the Plan, an amount necessary to
satisfy all Federal, state, city or other taxes as may be required to be
withheld in respect of such payments pursuant to any law or governmental
regulation or ruling.
<PAGE>
17
SECTION 18
OFFSETS
To the extent permitted by law, the Company shall have the absolute
right to withhold any amounts payable to any Participant under the terms of the
Plan to the extent of any amount owed for any reason by such Participant to the
Company or any Subsidiary and to set off and apply the amounts so withheld to
payment of any such amount owed to the Company or any Subsidiary, whether or not
such amount shall then be immediately due and payable and in such order or
priority as among such amounts owed as the Committee, in its sole discretion,
shall determine.
SECTION 19
NOTICES, ETC.
All elections, designations, requests, notices, instructions and other
communications from a Participant to the Committee or the Company required or
permitted under the Plan shall be in such form as is prescribed from time to
time by the Committee, shall be mailed by first-class mail or delivered to such
location as shall be specified by the Committee, and shall be deemed to have
been given and delivered only upon actual receipt thereof at such location.
SECTION 20
CAPTIONS, ETC.
The captions of the sections and paragraphs of this Plan have been
inserted solely as a matter of convenience and in no way define or limit the
scope or
<PAGE>
18
intent of any provision of the Plan. References to sections herein are to the
specified sections of this Plan unless another reference is specifically stated.
Wherever used herein, a singular number shall be deemed to include the plural
unless a different meaning is required by the context.
SECTION 21
EFFECT OF PLAN
The provisions of the Plan shall be binding upon, and inure to the
benefit of, all successors of the Company and each Participant, including,
without limitation, such Participant's estate and the executors, administrators
or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such Participant.
SECTION 22
GOVERNING LAW
The laws of the State of New York shall govern all matters relating to
this Plan except to the extent it is superseded by the laws of the United
States.
<PAGE>
THE NORTH FACE, INC.
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The North Face, Inc., a Delaware corporation (the "Company"), hereby
formulates and adopts the following Stock Option Plan (the "Plan") for non-
employee directors of the Company.
1. PURPOSE. The purpose of the Plan is to secure for the Company
the benefits of the additional incentive inherent in the ownership of common
stock, par value $.01 per share, of the Company ("Common Stock") by non-employee
directors of the Company and to help the Company secure and retain the services
of such non-employee directors.
2. ADMINISTRATION. It is intended that non-employee directors of
the Company be eligible to receive options to purchase stock in the Company
without prejudicing the ability of those directors to administer other plans
intended to meet the requirements of Rule 16b-3 adopted under the Securities
Exchange Act of 1934 (the "1934 Act") ("Rule 16b-3"). To this end, during such
period as Rule 16b-3 contains a disinterested administration requirement, it is
intended that non-employee directors will receive options under Section 5
constituting "formula" awards under Rule 16b-3 that would allow the non-employee
directors to be "disinterested persons" as defined in Rule 16b-3, with respect
to the other stock-based plans of the Company. Accordingly, this Plan is
intended to be self-governing with respect to options granted pursuant to
Section 5, to the extent required by Rule 16b-3. To the extent, if any, that
questions of administration arise with respect to awards made under Section 5,
these shall be resolved by the Board of Directors of the Company (the "Board of
Directors"); provided that the Board of Directors may, in its discretion,
delegate to the Chief Executive Officer of the Company all authority and
responsibility to act pursuant to such awards. With respect to any option
granted under Section 5, the "Plan Administrator" shall be the Board of
Directors or the Chief Executive Officer, if the Board of Directors has
delegated its authority pursuant to this Section 2.
If the disinterested administration requirement of Rule 16b-3 ceases
to be applicable to awards made under all equity-based plans of the Company,
awards may be made on a discretionary basis to Outside Directors pursuant to
Section 6 of this Plan. With respect to any options granted pursuant to Section
6, the Plan shall be administered by the a committee appointed by the Board of
Directors and consisting solely of two or more "non-employee directors" as
defined in Rule 16b-3, as in effect on August 15, 1996 (the "Committee");
provided that the Board may at any time resolve to administer the Plan. With
respect to any option granted under Section 6,
<PAGE>
2
the "Plan Administrator" shall be the Committee, unless the Board of Directors
has resolved to administer the Plan, in which case the "Plan Administrator"
shall be the Board of Directors.
Subject to the express provisions of the Plan, the Plan Administrator
shall have plenary authority to interpret the Plan, to prescribe, amend and
rescind the rules and regulations relating to it and to make all other
determinations deemed necessary and advisable for the administration of the
Plan. The determination of the Plan Administrator shall be conclusive and
binding on all persons.
3. COMMON STOCK SUBJECT TO OPTIONS. Subject to the adjustment
provisions of Section 17 below, a maximum of 100,000 shares of Common Stock may
be issued pursuant to options granted under the Plan. If, and to the extent
that, options granted under the Plan shall terminate, expire or be canceled for
any reason without having been exercised, new options may be granted in respect
of the shares covered by such terminated, expired or canceled options. The
granting and terms of such new options shall comply in all respects with the
provisions of the Plan.
Shares sold upon the exercise of any option granted under the Plan may
be shares of authorized and unissued Common Stock, shares of issued Common Stock
held in the Company's treasury or both. There shall be reserved at all times
for sale under the Plan a number of shares, of either authorized and unissued
shares of Common Stock, shares of Common Stock held in the Company's treasury,
or both, equal to the maximum number of shares which may be purchased pursuant
to options granted or that may be granted under the Plan.
4. INDIVIDUALS ELIGIBLE. Only directors of the Company who are not
employees of the Company or any affiliate of the Company ("Outside Directors")
shall participate in the Plan.
5. GRANT OF FORMULA OPTIONS. Each person who is first elected,
appointed or otherwise becomes an Outside Director on or after the Effective
Date shall receive an option to purchase 25,000 shares of Common Stock on the
date such person first becomes an Outside Director. A director receiving an
option pursuant to the Plan is hereinafter referred to as an "Optionee." If the
disinterested administration requirement of Rule 16b-3 ceases to be applicable
to awards granted under all equity-based plans maintained by the Company, no
further awards shall be made under this Section 5.
6. GRANT OF DISCRETIONARY OPTIONS. If the disinterested
administration requirement of Rule 16b-3 ceases to be applicable to awards
granted under all equity-based plans maintained by the Company, the Plan
Administrator may, to the extent legally permitted, issue options to Outside
Directors under this Plan,
<PAGE>
3
with such terms and conditions not inconsistent with the provisions of the Plan
(other than Section 5) as the Plan Administrator may in its sole discretion
determine.
7. TYPE OF OPTIONS. All options granted under the Plan shall be
"nonqualified" stock options subject to the provisions of section 83 of the
Internal Revenue Code of 1986, as amended (the "Code").
8. FORM OF AGREEMENTS WITH OPTIONEES. Each option granted pursuant
to the Plan shall be in writing and shall have such form, terms and provisions,
not inconsistent with the provisions of the Plan, as the Plan Administrator
shall provide for in such option.
9. PRICE. The option price of each share of Common Stock
purchasable under any option granted pursuant to Section 5 shall be the Fair
Market Value (as defined below) of a share of Common Stock on the date the
option is granted. The option price of each share of Common Stock purchasable
under any option granted pursuant to Section 6 shall be determined by the Plan
Administrator in its sole discretion, but shall in no event be less than the
Fair Market Value of a share of Common Stock on the date the option is granted.
For purposes of the Plan, "Fair Market Value" of a share of Common Stock as of
any grant date shall mean:
(a) if the Common Stock is listed for trading on the New York
Stock Exchange, the mean between the high and low sales prices of the Common
Stock on such grant date as reported on the New York Stock Exchange Composite
Tape, or if no such reported sale of the Common Stock shall have occurred on
such grant date, on the next preceding date on which there was such a reported
sale; or
(b) if the Common Stock is not listed for trading on the New
York Stock Exchange but is listed on another national securities exchange or
authorized for quotation on the National Association of Securities Dealers,
Inc.'s Nasdaq National Market ("Nasdaq National Market"), the mean between the
high and low sales prices of the Common Stock on such grant date on such
exchange or Nasdaq National Market, as the case may be, on which the largest
number of shares of Common Stock have been traded in the aggregate on the
preceding 20 trading days or, if no such reported sale of the Common Stock shall
have occurred on such grant date on such exchange or Nasdaq National Market, as
the case may be, on the next preceding date on which there was such a reported
sale on such exchange or Nasdaq National Market, as the case may be; or
(c) if the Common Stock is not listed for trading on a national
securities exchange or authorized for quotation on Nasdaq National Market, the
average of the closing bid and asked prices on such grant date as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
<PAGE>
4
("NASDAQ") or if no such prices shall have been so reported for such grant date,
on the next preceding date for which such prices were so reported.
In no event shall the Fair Market Value of any share be less than its par value.
10. VESTING OF OPTIONS. Each option granted to an Optionee
pursuant to Section 5 shall become cumulatively exercisable with respect to
33-1/3% of the shares of Common Stock subject thereto, rounded down to the
next lower full share, on each of the first and second anniversaries of the
date of grant, and shall become fully (100%) exercisable on the third
anniversary of the date of grant. Each option granted pursuant to Section 6
shall become exercisable at such times, and subject to such conditions as the
Plan Administrator may in its sole discretion determine.
11. DURATION OF OPTIONS.
(a) Notwithstanding any provision of the Plan to the contrary, the
provisions of this Section 11(a) shall apply to any option granted pursuant to
Section 5 and, unless the Plan Administrator provides otherwise at the time of
grant, to any option granted pursuant to Section 6. The unexercised portion of
any option subject to this Section 11 shall automatically and without notice
terminate and become null and void at the time of the earliest to occur of the
following:
(i) The expiration of five years from the date on which such
option was granted;
(ii) The expiration of one year from the date the Optionee's
service as an Outside Director shall terminate by reason of
Disability; provided, however, that if the Optionee shall die
during such one-year period, the provisions of subparagraph (c)
below shall apply;
(iii) The expiration of one year from the date of the
Optionee's death, if such death occurs during service as an
Outside Director or during the one-year or three-month period
described in subparagraph (b) above or (e) below;
(iv) The date the Optionee's service as an Outside Director shall
terminate by reason of "cause", which shall mean termination
(i) on account of fraud, embezzlement or other unlawful or
tortious conduct, whether or not involving or against the Company
or any affiliate, (ii) for violation or a policy of the Company
or any affiliate, or (iii) for serious and
<PAGE>
5
willful acts of misconduct detrimental to the business or
reputation of the Company or any affiliate.
(v) The expiration of three months from the date the Optionee's
service as an Outside Director terminates other than by reason of
death, Disability or termination for cause.
(b) No option granted under the Plan may be exercisable more than 10
years following the date of grant.
12. EXERCISE OF OPTIONS. An option granted under the Plan shall be
deemed exercised when the person entitled to exercise the option (i) delivers
written notice to the Company at its principal business office, directed to the
attention of its Chief Financial Officer, of the decision to exercise and
(ii) concurrently tenders to the Company full payment for the shares to be
purchased pursuant to such exercise. Payment for shares with respect to which
an option is exercised may be made in cash, check or money order or by shares of
Common Stock owned by the Optionee for at least six months prior to exercise.
13. NONTRANSFERABILITY OF OPTIONS. No option or any right evidenced
thereby shall be transferable in any manner other than by will or the laws of
descent and distribution, and, during the lifetime of an Optionee, only the
Optionee (or the Optionee's court-appointed legal representative) may exercise
an option.
14. RIGHTS OF OPTIONEE. Neither the Optionee nor the Optionee's
executor or administrator shall have any of the rights of a stockholder of the
Company with respect to the shares subject to an option until certificates for
such shares shall actually have been issued upon the due exercise of such
option. No adjustment shall be made for any regular cash dividend for which the
record date is prior to the date of such due exercise and full payment for such
shares has been made therefor.
15. RIGHT TO TERMINATE SERVICE. Nothing in the Plan or in any option
shall confer upon any Optionee the right to continue in service as an Outside
Director.
16. NONALIENATION OF BENEFITS. No right or benefit under the Plan
shall be subject to anticipation, alienation, sale, assignment, hypothecation,
pledge, exchange, transfer (except as otherwise permitted pursuant to
Section 13), encumbrance or charge, and any attempt to anticipate, alienate,
sell, assign, hypothecate, pledge, exchange, transfer, encumber or charge the
same shall be void. To the extent permitted by applicable law, no right or
benefit hereunder shall in any manner be liable for or subject to the debts,
contracts, liabilities or torts of the person entitled to such benefits.
<PAGE>
6
17. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event of
any stock split, stock dividend, stock change, reclassification,
recapitalization or combination of shares which changes the character or amount
of Common Stock, prior to exercise of any portion of an option theretofore
granted under the Plan, such option, to the extent that it shall not have been
exercised, shall entitle the Optionee (or the Optionee's executor or
administrator) upon its exercise to receive in substitution therefor such number
and kind of shares as the Optionee would have been entitled to receive if the
Optionee had actually owned the stock subject to such option at the time of the
occurrence of such change; provided, however, that if the change is of such a
nature that the Optionee, upon exercise of the option, would receive property
other than shares of stock, the Board of Directors shall make an appropriate
adjustment in the option to provide that the Optionee (or the Optionee's
executor or administrator) shall acquire upon exercise only shares of stock of
such number and kind as the Board of Directors, in its sole judgment, shall deem
equitable. If any such change or transaction shall occur, the number and kind
of shares for which options may thereafter be granted under the Plan shall be
adjusted to give effect thereto.
18. PURCHASE FOR INVESTMENT. Whether or not the options and shares
covered by the Plan have been registered under the Securities Act of 1933, as
amended, each person exercising an option under the Plan may be required by the
Company to give a representation in writing that such person is acquiring such
shares for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof. The Company will endorse any necessary
legend referring to the foregoing restriction upon the certificate or
certificates representing any shares issued or transferred to the Optionee upon
the exercise of any option granted under the Plan.
19. TERMINATION AND AMENDMENT OF PLAN AND OPTIONS. Unless the Plan
shall theretofore have been terminated as hereinafter provided, options may be
granted under the Plan prior to the tenth anniversary of the Effective Date (as
defined below) on which date the Plan will expire, except as to options then
outstanding under the Plan. Such options shall remain in effect until they have
been exercised, have expired or have been canceled.
The Plan may be amended and terminated at any time by the Board of
Directors, and any option granted pursuant to Section 6 may be amended at any
time by the Plan Administrator; provided, however, that (i) any such amendment
shall comply with all applicable laws and applicable stock exchange or Nasdaq
National Market (as applicable) listing requirements, (ii) no amendment to any
option theretofore granted may be made which would impair the rights of the
grantee without the consent of such grantee, (iii) to the extent required to
comply with Rule 16b-3, the provisions of the Plan shall not be amended more
than once every six months (other than to comport with changes in the Code or
the Employee Retirement Income Security Act of 1974, as amended, or the
regulations thereunder) and (iv) no such
<PAGE>
7
amendment shall be made, without the approval of the shareholders of the
Company, that would increase the total number of shares available for issuance
under the Plan, materially modify the requirements as to eligibility for
participation in the Plan or materially increase the benefits accruing to
participants under the Plan.
20. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon its
adoption by the Board of Directors (the "Effective Date"), subject, however, to
its approval by the Company's shareholders within 12 months of the date of such
adoption.
21. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations and such approvals by any governmental
agency as may be required, including, without limitation, the effectiveness of
any registration statement required under the Securities Act of 1933, as
amended, and the rules and regulations of any securities exchange on which the
Common Stock may be listed.
22. WITHHOLDING. The Company's obligation to deliver shares of
Common Stock in respect of any option granted under the Plan shall be subject to
all applicable federal, state and local tax withholding requirements. Federal,
state and local withholding tax due upon the exercise of any option, may be paid
in shares of Common Stock (including the withholding of shares subject to an
option) valued at their Fair Market Value on the date of the withholding.
23. SEPARABILITY. If any part of the Plan is declared by any court
or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not invalidate any portion of the Plan not declared to be
unlawful or invalid. Any Section or part of a Section so declared to be
unlawful or invalid shall, if possible, be construed in a manner which will give
effect to the terms of such Section or part of a Section to the fullest extent
possible while remaining lawful and valid.
24. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board of Directors nor the submission of the Plan to the shareholders of the
Company for approval shall be construed as creating any limitation on the power
of the Board of Directors to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock options and
the awarding of stock and cash otherwise than under the Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
25. EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION. By
acceptance of an option, each Optionee shall be deemed to have agreed that such
grant is special incentive compensation that will not be taken into account, in
any manner, as salary, compensation or bonus in determining the amount of any
payment under any pension, retirement or other benefit plan of the Company or
any of its
<PAGE>
8
affiliates. In addition, such option will not affect the amount of any life
insurance coverage, if any provided by the Company on the life of the Optionee.
26. GOVERNING LAW. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
27. EXCULPATION. It is understood that the obligations incurred by
the Company under or with respect to this Plan do not constitute personal
obligations of the Directors, officers, employees or shareholders of the
Company, or of any such Directors, officers, employees or shareholders, and
shall not create or involve any claim against, or personal liability on the part
of, them or any of them. The Optionees agree to look solely to the assets of
the Company for satisfaction of any liability of the Company under or with
respect to the Plan and not to seek recourse against any such Directors,
officers, employees or shareholders, or any of them or any their personal assets
for such satisfaction.
<PAGE>
[LETTERHEAD]
PERSONAL & CONFIDENTIAL
June 8, 1994
Roxanna Prahser
129 Glenview Drive
Martinez, CA 94553
Ms. Prahser:
I am pleased to confirm our offer of employment as the Controller at TNF
Holdings Company, Inc. ("the Company"). Your start date will be June 8, 1994.
This offer is contingent upon the successful closing of TNF Holdings Company,
Inc.'s purchase of the assets of The North Face on June 7, 1994.
Compensation:
If you decide to join us, you will receive an annual salary of $115,000 which
will be paid biweekly in the amount of 4,423.08. The following benefits will be
provided by TNF Holdings Company, Inc.
You will be eligible for a merit increase in April, 1995 based upon various
factors including your job performance and the Company's performance.
BENEFITS:
- INSURANCE:
You will be able to continue your medical and dental benefits
immediately if you are currently under The North Face health
plan. There has not been any change in the insurance plans
except in the name from The North Face to TNF Holdings Company,
Inc. You will need to complete and return the Benefits
Enrollment Confirmation and Signature sheet that is contained in
your new hire packet. You may not change plans or add
dependents onto the insurance plan until the next open
enrollment or you have a family status change as defined by the
IRS.
- PAID TIME OFF:
You will be eligible for Paid Time Off (PTO) to be used for
vacation, illness or personal business. Paid Time Off accrual
begins on the first day of hire and is accrued on a daily basis.
Your accrued but unused vacation as of your last day of
employment of The North Face will be transferred to your PTO
balance at TNF Holding Company, Inc., unless you have chosen to
receive pay for your accrued but unused vacation. A complete
PTO policy is contained in your new hire packet.
- FLOATING HOLIDAYS:
The floating holiday schedule will remain the same for the
calendar year. If you have used two (2) floating holidays
already you will not have any floating holidays for the
remainder of the year. If you have used one (1) floating
holiday you will have one (1) floating holiday remaining. If
you have not used your floating holidays you will have two (2)
floating holidays for the remainder of the calendar year.
HIRING DOCUMENTATION:
The items listed below are included in your new hire package and must be
completed and returned with this signed offer letter and confidentiality
agreement.
- EMPLOYMENT APPLICATION:
All TNF Holdings Company, Inc. employees must complete an
Application.
<PAGE>
- FORM I-9:
For purposes of Federal Immigration law, you will be required to
provide to the Company documentary evidence of your identity and
employment eligibility by completing an I-9 form. The
documentation for this form must be provided within three (3)
business days of your date of hire, or your employment
relationship with us may be terminated.
- FORM W-4:
For purposes of withholding state and federal taxes please
complete a W-4.
- EMERGENCY CONTACT:
Please complete the emergency contact form that is contained in
your new hire packet.
- BENEFITS ENROLLMENT CONFIRMATION:
As stated above this form will verify your current insurance
election.
- EMPLOYEE BADGE:
Please sign and return - this will allow you to use the Employee
Discount at the stores.
If you choose to accept this offer, your employment with TNF Holdings Company,
Inc. will be voluntarily entered into and will be for no specified period. As a
result, you will be free to resign at any time, for any reason or for no reason,
as you deem appropriate. TNF Holdings Company, Inc. will have a similar right
and may terminate its employment relationship with you at any time, with or
without cause.
In the event of any dispute or claim relating to or arising out of your
employment relationship ("including but not limited to any claims of wrongful
termination or age, sex, race, or discrimination")you and the Company agree that
all such disputes shall be fully and finally resolved by binding arbitration
conducted by the American Arbitration Association in San Francisco, California.
By signing this letter you and TNF Holdings Company, Inc. waive any right which
you may have to a jury trial with respect to such disputes. HOWEVER, we agree
that this arbitration provision shall not apply to any dispute or claim relating
to or arising out of the misuse of misappropriation of the Company's
Confidential information.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to me no later than close of
business June 9, 1994. This offer will expire June 10, 1994. Please note that
this employment offer is contingent upon your signing of Company's
Confidentiality Agreement (a copy of which is enclosed). This letter, along
with any agreements relating to confidential information between you and TNF
Holdings Company, Inc., set forth the terms of your employment with TNF Holdings
Company, Inc. and supersedes any prior representations or agreements, whether
written or oral. This letter may not be modified or amended except by a written
agreement, signed by TNF Holdings Company, Inc. and by you.
Please contact me if you have any questions regarding this employment offer or
any points covered in this letter. We look forward to receiving your positive
response and look forward to working with you as you join TNF Holdings Company,
Inc. team.
Sincerely,
/s/ William McFarlane
William McFarlane
TNF Holdings Company, Inc.
I hereby agree and/or accept employment with TNF Holdings Company, Inc. and the
terms set forth above. I understand and agree to keep the contents of this
letter confidential.
/s/ Roxanna Prahser 6/8/94
- ---------------------------- ------------
Signature of Roxanna Prahser Date
<PAGE>
[LETTERHEAD]
CODE OF CONDUCT AND
EMPLOYEE AGREEMENT REGARDING
CONFIDENTIALITY
This Agreement is intended to set forth in writing certain responsibilities
which TNF Holdings Company, Inc. (the "Company") and each TNF Holdings Company,
Inc. Employee ("Employee") have during the Employee's employment. Employee
recognizes that the Company is engaged in a continuous program of design,
production, marketing and sales respecting its business, present and future.
Employee understands that he/she has an affirmative duty to avoid situations
where loyalties may be divided between his or her own interests and the Company.
In exchange for his or her employment by the Company, Employee acknowledge and
agrees that:
1. EFFECTIVE DATE. This agreement ("Agreement") shall be effective as of
the date below.
2. CONFIDENTIALITY. Employee will retain in confidence and will not
disclose or use, either during or after the term of his or her employment, any
proprietary or confidential information or know-how belonging to the Company
("Proprietary Information"), whether or not in written form, except to the
extent required to perform duties on behalf of the Company. Proprietary
Information refers to any information not generally known in the relevant trade
or industry, which was obtained from the Company, or which was learned,
discovered, developed, conceived, originated or prepared by me in the scope of
my employment. Proprietary Information includes, but is not limited to business
information relating to the Company's products, finances, marketing, business
relationships with the Company's vendors and suppliers, business information
relating to the Company's inventions, financial projections and results, sales,
marketing and merchandising strategies, manufacturing processes, product design
and development, catalog mailing lists, product assortment and strategy,
pricing, margins, and the Company's future business and marketing plans. Upon
termination of Employee's employment or at the request of the Company before
termination, Employee will deliver to the Company all written and tangible
material in his or her possession incorporation any Proprietary Information or
otherwise relating to the Company's business.
3. DESIGNS
3.1 DEFINITION OF DESIGNED. As used in this Agreement, the term
"Design" means any new or prototype design, whether or not patentable, and all
related know-how. Designs include, but are not limited to all product designs,
processes, product or other related improvements, and ideas.
3.2 DISCLOSURE AND ASSIGNMENT OF INVENTIONS.
(a) Employee will promptly disclose and describe to the
Company all designs which he or she may solely or jointly conceive, develop, or
reduce to practice during the period of his or her employment with the Company
(i) which relate at the time of conception, development, or reduction to
practice of the Design to the Company's business or development, (ii) which were
developed, in whole or in part, on the Company's time or with the use of any of
the Company's equipment, supplies, facilities or trade secret information, or
(iii) which resulted from any work Employee performed for the Company ("Company
Inventions"). Employee assigns to the Company all right, title, and interest
worldwide in Company Inventions and in all intellectual property rights based
upon Company Inventions. However, Employee does not assign or agree to assign
any Designs relating in any way to the Company business or demonstrably
anticipated research and development which were made by Employee prior to his or
her employment with the Company, which inventions, if any are identified on
EXHIBIT A to this Agreement. EXHIBIT A contains no confidential information.
Employee has no rights in to any Designs other than the Designs specified in
EXHIBIT A. If no such list is attached, Employee has no such Designs or
Employee grants an irrevocable, non-exclusive, royalty-free, worldwide license
to the Company to make, use, and sell inventions developed by Employee prior to
his or her employment with the Company.
(b) Employee recognizes that Designs relating to his or her
activities while working for the Company and conceived or made by Employee,
alone or with others, within sixty (60) days after termination of Employee's
employment may have been conceived in significant part while employed by the
Company. Accordingly, Employee agrees that such Designs shall be presumed to
have been conceived during Employees employment with the Company and are to be
assigned to the Company as a Company Design unless and until employee has
established the contrary. Employee agrees to disclose promptly in writing to
the Company all Designs made or conceived within sixty (60) days after
Employee's term of employment, whether or not Employee believe such Designs are
subject to this Agreement, to permit a determination by the Company as to
whether or not the Design should be the property of the Company. Any such
information will be received in confidence by the Company.
4. COMPANY MATERIALS. Upon termination of Employee's employment with the
Company or at any other time upon the Company's request, Employee will promptly
deliver to the Company, without retaining any copies, all documents and other
materials furnished to Employee by the Company or prepared by Employee for the
Company.
5. COMPETITIVE EMPLOYMENT. During the term of Employee's employment with
the Company, Employee will not engage in any employment, consulting, or other
activity in any business competitive with the Company.
6. NON-SOLICITATION. During the term of Employee's employment with the
Company and for a period of one (1) year thereafter, Employee will not solicit
or encourage, or cause others to solicit or encourage, any employees of the
Company to terminate his or her employment with the Company.
7. ACTS TO SECURE PROPRIETARY RIGHTS.
7.1 FURTHER ACTS. Employee agrees to perform, during and after
Employee's employment, all acts deemed necessary or desirable by the Company to
permit and assist it, at its expense, in perfecting and enforcing the full
benefits, enjoyment, rights and title throughout the world in the Company
Designs. Such acts may include, but are not limited to, execution of documents
and assistance or cooperation in the registration and enforcement of applicable
patents and copyrights other legal proceedings.
7.2 APPOINTMENT OF ATTORNEY-IN-FACT. In the event that the Company
is unable for any reason whatsoever to secure Employees signature to any lawful
and necessary document required to apply for or execute any patent, copyright or
other applications with respect to any Company Inventions (including
improvements, renewals, extensions, continuations, divisions or continuations in
part thereof), Employee hereby irrevocable appoints the Company and its duly
authorized officers and agents as his or her agents and attorneys-in-fact to
execute and file any such application and to do all other lawfully permitted
acts to further the prosecution and issuance of patents, copyrights or other
rights thereon with the same legal force and effect as if executed by Employee.
8. NO CONFLICTING OBLIGATIONS. This Agreement and Employee's of the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge ro data acquired by Employee prior to
Employees employment with the Company. Employee will not disclose to the
Company, or induce the Company to use, any confidential or proprietary
information or material belonging to any previous employer or other person or
entity. Employee will not be a party to any other agreement which will
interfere with employees full compliance with this Agreement. Employee will not
enter into any agreement, whether written or oral, in conflict with provisions
of this Agreement.
<PAGE>
8.1 CONFLICT OF INTEREST. TNF Holdings Company, Inc. prohibits any
full time employee form engaging in outside employment or consulting. No
employee may accept employment with or become directly or indirectly involved as
an independent contractor, consultant or otherwise with any Company competitor.
No employee may accept employment with or become directly or indirectly involved
as an independent contractor, consultant or otherwise with any customer or
supplier. No employee may sell his or her services or products, or those of
another person or firm if the Company offers similar services or products; or
engage in activities which enhance the marketability of or otherwise support a
competitor's product or services. The continued success of our company is based
on the full contribution of every employee, and therefore it is not in the best
interest of TNF Holdings Company, Inc. for any employee to engage in outside
employment, consulting, or entrepreneurial endeavors.
A conflict of interest may exist if an employee works in any capacity for
another person or entity offering goods or services that are or may be
competitive with those offered by the Company
If there is any question as to whether any activity constitutes a conflict of
interest, prior approval to engage in that activity must be obtained from
Company management. Similarly, any outside employment must be approved in
advance in writing by Company management. Accepting employment or consulting
work that knowingly jeopardizes proprietary information and/or which might
result in a conflict of interest may result in termination of employment.
No employee may conduct TNF Holdings Company, Inc. business with a member of his
or her family, or an individual with which the employee or the employee's family
has an association.
8.2 QUESTIONABLE PAYMENTS AND GRATUITIES. To assure compliance with
the foreign corrupt practices act and other foreign and domestic bribery laws,
no employee shall, directly or indirectly, offer, pay or authorize any payment
or anything of value or significance to any public official, political party or
official or any candidate for any political party of official thereof or any
candidate for public office, for the purpose of influencing any action, or
decision of a public official, candidate for political office or of government,
to assist the Company in the conduct of its business.
Furthermore, the receipt or giving of any gifts, money, services, entertainment
or other favors of value or of significance which might reasonably be expected
to interfere with the exercise of independent and objective judgment by the
recipient, or which might infer an obligation to either party must be avoided.
These policies are not intended to prohibit normal business expenses, such as
meals or reasonable entertainment for legitimate corporate purposes, provided
such expenses are properly recorded under standard company procedures. TNF
Holdings Company, Inc. employee may not accept any gift, payment, loan or other
favor from a TNF Holdings Company, Inc. customer, supplier, vendor or competitor
worth any more than $25.00.
TNF Holdings Company, Inc. employees may not own a financial interest in any TNF
Holdings Company, Inc. customer, supplier or competitor that might cause divided
loyalty.
8.3 OUTSIDE DIRECTORSHIPS: No employee may accept a position as a
director or officers of a TNF Holdings Company, Inc. competitor, customer or
supplier, or company which enhances the marketability of or otherwise supports a
competitor's products or services. TNF Holdings Company, Inc. employees may not
receive separate compensation for on the board of directors of a company if the
services are rendered at TNF Holdings Company, Inc. request or in connection
with an TNF Holdings Company, Inc. investment, or relationship with that
company.
<PAGE>
8.3 POLITICAL CONTRIBUTIONS AND ACTIVITIES. The company will not
contribute financial support, either directly or indirectly, to any candidate
for political office or to any political party at any level of government,
domestic or foreign. Under no circumstances will the Company request its
employees to support a specific candidate or party.
The detailed policy statements above are illustrative and not exhaustive. The
fact that a particular act is not specifically prohibited does not mean that it
is lawful or permissible. Any questions on your part as to whether any act or
course of conduct would be a conflict of interest or be prohibited by this
policy should be referred immediately to the Board of Directors through the
person to whom you report. It is the duty of every employee to report any
violation of these standards to the Board of Directors.
Any activity of an employee in violation of the antitrust, or foreign payment
laws or of any other standard of conduct shall be cause for immediate
termination. Also, you should be aware that several of the standards are
covered by laws involving criminal and or severe civil sanctions against an
employee guilty of a violation of these particular standards.
To reiterate, the acts of all employees of TNF Holdings Company, Inc. must
remain above question in all of his or her business dealings.
9. SURVIVAL. Notwithstanding the termination of Employee's employment,
Section 3.2 and Articles 2, 6, and 7 shall survive such termination. This
Agreement does not in any way restrict Employee's right or the right of the
Company to terminate Employee's employment at any time, for any reason or for no
reason.
10. SPECIFIC PERFORMANCE. A breach of any of the promises or agreements
contained herein will result in irreparable and continuing damage to the Company
for which there will be no adequate remedy at law, and the Company shall be
entitled to injunction relief and/or a decree for specific performance, and such
other relief as may be proper (including monetary damages if appropriate).
11. WAIVER. A waiver by the Company of a breach of any provision of this
agreement by me will not operate or be construed as a waiver of any other or
subsequent breach by Employee.
12. SEVERABILITY. If any part of this Agreement is found invalid or
unenforceable, that part will be amended to achieve as nearly as possible the
same economic effect as the original provision and the remainder of this
Agreement will remain in full force.
13. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the United States of California as applied to
agreements entered into and to be performed entirely with California between
California residents.
14. ENTIRE AGREEMENT. This Agreement, including all Exhibits to this
Agreement, constitutes the entire agreement between the parties relating to this
subject matter and supersedes all prior or simultaneous representations,
discussions, negotiations, and agreements, whether written or oral. This
Agreement may be amended or modified only with the written consent of both
Employee and the Company. No oral waiver, amendment or modification will be
effective under any circumstances whatsoever.
15. ASSIGNMENT. This agreement may be assigned by the Company. Employee
may not assign or delegate Employee's duties under this Agreement without the
Company's prior written approval. This Agreement shall be binding upon
Employee's heirs, successors, and permitted assignees.
16. TERMINATION: If this Agreement is breached termination up to and
including termination will result.
<PAGE>
EMPLOYEE:
Date: 6/8/94 /s/ Roxanna Prahser
------------------------------ --------------------------------------
Signature
--------------------------------------
Roxanna Prahser
TNF Holdings Company, Inc.
Date: June 7, 1994 By: /s/ William McFarlane
------------------------------ -----------------------------------
William McFarlane
Its:
----------------------------------
<PAGE>
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor
Code that the above Agreement between you and the Company does not require you
to assign or offer to assign to the Company any invention that you developed
entirely on your own time without using the Company's equipment, supplies,
facilities or trade secret information except for those inventions that either
or:
(1) Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company.
(2) Result from any work performed by you for the Company.
To the extent a provision in the above Agreement purports to require you to
assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by a
contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT a copy of this notification.
--------------------------------------
Date: 6/8/94 /s/ Roxanna Prahser Madsen
------------------------------ --------------------------------------
Employee Signature
Roxanna Prahser Madsen
--------------------------------------
Printed Name of Employee
<PAGE>
EXHIBIT A
PRIOR INVENTIONS
NONE
<PAGE>
[LETTERHEAD]
PERSONAL & CONFIDENTIAL
5/3/95
Mr. Roger Kase
187 Divisadero
San Francisco, CA 94117
Dear Roger:
I am pleased to confirm our offer of employment as the Vice President of Product
Development at The North Face, Inc. ("the Company"). In this position you will
report to me in the Product Development Department. Your start date will be
5/22/95.
COMPENSATION:
You will receive an annual salary of $150,000 which will be paid biweekly in the
amount of $5,769.23. The following benefits will be provided by The North
Face, Inc.
BENEFITS:
- INSURANCE:
You will be eligible for medical and dental benefits on your first
date of hire. You will need to complete and return the Benefits
Enrollment Form that is contained in your new hire packet and return
it to HR. You may not change plans or add dependents onto the
insurance plan until the next open enrollment or you have a family
status change as defined by the IRS.
- PAID TIME OFF:
You will be eligible for Paid Time Off (PTO) to be used for vacation,
illness or personal business. Paid Time Off accrual begins on the
first day of hire and is accrued on a daily basis. A complete PTO
policy is contained in your new hire packet. As a member of the
management team you will accrue 160 hours (20) days per year up to a
maximum of 240 hours.
- FLOATING HOLIDAYS:
You will be eligible for two (2) floating holidays for the 1995
calendar year.
- MANAGEMENT INCENTIVE PLAN:
You will be eligible to participate the Management Incentive. Details
of the incentive plan will be provided at a later date.
- 1994 STOCK INCENTIVE PLAN:
You will be eligible to participate in the 1994 Stock Incentive Plan
when the Plan is finalized. This is subject to Board of Directors
approval. Details of this Plan will be provided at a later date.
<PAGE>
HIRING DOCUMENTATION:
The items listed below are included in your new hire package and must be
completed and returned with this signed offer letter and confidentiality
agreement.
- EMPLOYMENT APPLICATION:
All The North Face, Inc. employees must complete an Application.
- FORM I-9:
For purposes of Federal Immigration law, you will be required to
provide to the Company documentary evidence of your identity and
employment eligibility by completing an I-9 form. The documentation
for this form must be provided within three (3) business days of your
date of hire, or your employment relationship with us may be
terminated. However, the Section 1 of the I-9 form must be complete
on your first date of employment.
- FORM W-4:
For purposes of withholding state and federal taxes please complete a
W-4.
- EMERGENCY CONTACT:
Please complete the emergency contact form that is contained in your
new hire packet.
- BENEFITS ENROLLMENT:
As stated above you will need to complete a Benefits Enrollment form
if you meet the eligibility requirements.
Your employment with The North Face, Inc. will be voluntarily entered into and
will be for no specified period. As a result, you will be free to resign at any
time, for any reason or for no reason, as you deem appropriate. The North Face,
Inc. will have a similar right and may terminate its employment relationship
with you at any time, with or without cause.
In the event of any dispute or claim relating to or arising out of your
employment relationship ("including but not limited to any claims of wrongful
termination or age, sex, race, or discrimination")you and the Company agree that
all such disputes shall be fully and finally resolved by binding arbitration
conducted by the American Arbitration Association in San Francisco, California.
By signing this letter you and The North Face, Inc. waive any right which you
may have to a jury trial with respect to such disputes. HOWEVER, we agree that
this arbitration provision shall not apply to any dispute or claim relating to
or arising out of the misuse or misappropriation of the Company's Confidential
Information.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to me no later than close of
business 5/5/95. This offer will expire 5/5/95. Please note that this
employment offer is contingent upon your signing of Company's Confidentiality
Agreement (a copy of which is enclosed). This letter, along with any agreements
relating to confidential information between you and The North Face, Inc., set
forth the terms of your employment with The North Face, Inc. and supersedes any
prior representations or agreements, whether written or oral. This letter may
not be modified or amended except by a written agreement, signed by The North
Face, Inc. and by you.
Please contact me if you have any questions regarding this employment offer or
any points covered in this letter. We look forward to receiving your positive
response and look forward to working with you as you join The North Face, Inc.
team.
Sincerely,
/s/ William Simon
William Simon
Vice Chairman
The North Face, Inc.
2
<PAGE>
I hereby agree and/or accept employment with The North Face, Inc. and the terms
set forth above. I understand and agree to keep the contents of this letter
confidential.
/s/ Roger Kase 5/5/95
- ---------------------------- ------------
Signature of Roger Kase Date
3
<PAGE>
[LETTERHEAD]
CODE OF CONDUCT AND
EMPLOYEE AGREEMENT REGARDING
CONFIDENTIALITY
This Agreement is intended to set forth in writing certain responsibilities
which The North Face, Inc. (the "Company") and Roger Kase (hereafter referred
to as "Employee") have during the Employee's employment. Employee recognizes
that the Company is engaged in a continuous program of design, production,
marketing and sales respecting its business, present and future. Employee
understands that he/she has an affirmative duty to avoid situations where
loyalties may be divided between his or her own interests and the Company. In
exchange for his or her employment by the Company, Employee acknowledge and
agrees that:
1. EFFECTIVE DATE. This agreement ("Agreement") shall be effective as of
the date below.
2. CONFIDENTIALITY. Employee will retain in confidence and will not
disclose or use, either during or after the term of his or her employment, any
proprietary or confidential information or know-how belonging to the Company
("Proprietary Information"), whether or not in written form, except to the
extent required to perform duties on behalf of the Company. Proprietary
Information refers to any information, not generally known in the relevant trade
or industry, which was obtained from the Company, or which was learned,
discovered, developed, conceived, originated or prepared by me in the scope of
my employment. Proprietary Information includes, but is not limited to business
information relating to the Company's products, finances, marketing, business
relationships with the Company's vendors and suppliers, business information
relating to the Company's inventions, financial projections and results, sales,
marketing and merchandising strategies, manufacturing processes, product design
and development, catalog mailing lists, product assortment and strategy,
pricing, margins, and the Company's future business and marketing plans. Upon
termination of Employee's employment or at the request of the Company before
termination, Employee will deliver to the Company all written and tangible
material in his or her possession incorporation any Proprietary Information or
otherwise relating to the Company's business.
3. DESIGNS
3.1 DEFINITION OF DESIGNED. As used in this Agreement, the term
"Design" means any new or prototype design, whether or not patentable, and all
related know-how. Designs include, but are not limited to all product designs,
processes, product or other related improvements, and ideas.
3.2 DISCLOSURE AND ASSIGNMENT OF INVENTIONS.
(a) Employee will promptly disclose and describe to the
Company all designs which he or she may solely or jointly conceive, develop, or
reduce to practice during the period of his or her employment with the Company
(i) which relate at the time of conception, development, or reduction to
practice of the Design to the Company's business or development, (ii) which were
developed, in whole or in part, on the Company's time or with the use of any of
the Company's equipment, supplies, facilities or trade secret information, or
(iii) which resulted from any work Employee performed for the Company ("Company
Inventions"). Employee assigns to the Company all right, title, and interest
worldwide in Company Inventions and in all intellectual property rights based
upon Company Inventions. However, Employee does not assign or agree to assign
any Designs relating in any way to the Company business or demonstrably
anticipated research and development which were made by Employee prior to his or
her employment with the Company, which Inventions, if any are identified on
EXHIBIT A to this Agreement. EXHIBIT A contains no confidential information.
Employee has no rights in to any Designs other than the Designs specified in
EXHIBIT A. If no such list is attached, Employee has no such Designs or
Employee grants an irrevocable, non-exclusive, royalty-free, worldwide license
to the Company to make, use, and sell Inventions developed by Employee prior to
his or her employment with the Company.
4
<PAGE>
(b) Employee recognizes that Designs relating to his or her
activities while working for the Company and conceived or made by Employee,
alone or with others, within sixty (60) days after termination of Employee's
employment may have been conceived in significant part while employed by the
Company. Accordingly, Employee agrees that such Designs shall be presumed to
have been conceived during Employees employment with the Company and are to be
assigned to the Company as a Company Design unless and until employee has
established the contrary. Employee agrees to disclose promptly in writing to
the Company all Designs made or conceived within sixty (60) days after
Employee's term of employment, whether or not Employee believe such Designs are
subject to this Agreement, to permit a determination by the Company as to
whether or not the Design should be the property of the Company. Any such
information will be received in confidence by the Company.
4. COMPANY MATERIALS. Upon termination of Employee's employment with the
Company or at any other time upon the Company's request, Employee will promptly
deliver to the Company, without retaining any copies, all documents and other
materials furnished to Employee by the Company or prepared by Employee for the
Company.
5. COMPETITIVE EMPLOYMENT. During the term of Employee's employment with
the Company, Employee will not engage in any employment, consulting, or other
activity in any business competitive with the Company.
6. NON-SOLICITATION. During the term of Employee's employment with the
Company and for a period of one (1) year thereafter, Employee will not solicit
or encourage, or cause others to solicit or encourage, any employees of the
Company to terminate his or her employment with the Company.
7. ACTS TO SECURE PROPRIETARY RIGHTS.
7.1 FURTHER ACTS. Employee agrees to perform, during and after
Employee's employment, all acts deemed necessary or desirable by the Company to
permit and assist it, at its expense, in perfecting and enforcing the full
benefits, enjoyment, rights and title throughout the world in the Company
Designs. Such acts may include, but are not limited to, execution of documents
and assistance or cooperation in the registration and enforcement of applicable
patents and copyrights other legal proceedings.
7.2 APPOINTMENT OF ATTORNEY-IN-FACT. In the event that the Company
is unable for any reason whatsoever to secure Employees signature to any lawful
and necessary document required to apply for or execute any patent, copyright or
other applications with respect to any Company Inventions (including
improvements, renewals, extensions, continuations, divisions or continuations in
part thereof), Employee hereby irrevocable appoints the Company and its duly
authorized officers and agents as his or her agents and attorneys-in-fact to
execute and file any such application and to do all other lawfully permitted
acts to further the prosecution and issuance of patents, copyrights or other
rights thereon with the same legal force and effect as if executed by Employee.
8. NO CONFLICTING OBLIGATIONS. This Agreement and Employee's of the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by Employee prior to
Employees employment with the Company. Employee will not disclose to the
Company, or induce the Company to use, any confidential or proprietary
information or material belonging to any previous employer or other person or
entity. Employee will not be a party to any other agreement which will
interfere with employees full compliance with this Agreement. Employee will not
enter into any agreement, whether written or oral, in conflict with provisions
of this Agreement.
8.1 CONFLICT OF INTEREST. The North Face, Inc. prohibits any full
time employee from engaging in outside employment or consulting. No employee
may accept employment with or become directly or indirectly involved as an
independent contractor, consultant or otherwise with any Company competitor. No
employee may accept employment with or become directly or indirectly involved as
an independent contractor, consultant or otherwise with any customer or
supplier. No employee may sell his or her services or products, or those of
another person or firm if the Company offers similar services or products; or
engage in activities which enhance the marketability of or otherwise support a
competitor's product or services. The continued success of our company is based
on the full contribution of every employee, and therefore it is not in the best
interest of The North Face, Inc. for any employee to engage in outside
employment, consulting, or entrepreneurial endeavors.
<PAGE>
A conflict of interest may exist if an employee works in any capacity for
another person or entity offering goods or services that are or may be
competitive with those offered by the Company.
If there is any question as to whether any activity constitutes a conflict of
interest, prior approval to engage in that activity must be obtained from
Company management. Similarly, any outside employment must be approved in
advance in writing by Company management. Accepting employment or consulting
work that knowingly jeopardizes proprietary information and/or which might
result in a conflict of interest may result in termination of employment.
No employee may conduct The North Face, Inc. business with a member of his or
her family, or an individual with which the employee or the employee's family
has an association.
8.2 QUESTIONABLE PAYMENTS AND GRATUITIES. To assure compliance with
the foreign corrupt practices act and other foreign and domestic bribery laws,
no employee shall, directly or indirectly, offer, pay or authorize any payment
or anything of value or significance to any public official, political party or
official or any candidate for any political party of official thereof or any
candidate for public office, for the purpose of influencing any action, or
decision of a public official, candidate for political office or of government,
to assist the Company in the conduct of its business.
Furthermore, the receipt or giving of any gifts, money, services, entertainment
or other favors of value or of significance which might reasonably be expected
to interfere with the exercise of independent and objective judgment by the
recipient, or which might infer an obligation to either party must be avoided.
These policies are not intended to prohibit normal business expenses, such as
meals or reasonable entertainment for legitimate corporate purposes, provided
such expenses are properly recorded under standard company procedures. The North
Face, Inc. employee may not accept any gift, payment, loan or other favor from a
The North Face, Inc. customer, supplier, vendor or competitor worth any more
than $25.00.
The North Face, Inc. employees may not own a financial interest in any The North
Face, Inc. customer, supplier or competitor that might cause divided loyalty.
8.3 OUTSIDE DIRECTORSHIPS: No employee may accept a position as a
director or officers of a The North Face, Inc. competitor, customer or supplier,
or company which enhances the marketability of or otherwise supports a
competitor's products or services. The North Face, Inc. employees may not
receive separate compensation for on the board of directors of a company if the
services are rendered at The North Face, Inc. request or in connection with an
The North Face, Inc. investment, or relationship with that company.
8.3 POLITICAL CONTRIBUTIONS AND ACTIVITIES. The company will not
contribute financial support, either directly or indirectly, to any candidate
for political office or to any political party at any level of government,
domestic or foreign. Under no circumstances will the Company request its
employees to support a specific candidate or party.
The detailed policy statements above are illustrative and not exhaustive. The
fact that a particular act is not specifically prohibited does not mean that it
is lawful or permissible. Any questions on your part as to whether any act or
course of conduct would be a conflict of interest or be prohibited by this
policy should be referred immediately to the Board of Directors through the
person to whom you report. It is the duty of every employee to report any
violation of these standards to the Board of Directors.
Any activity of an employee in violation of the antitrust, or foreign payment
laws or of any other standard of conduct shall be cause for immediate
termination. Also, you should be aware that several of the standards are
covered by laws involving criminal and or severe civil sanctions against an
employee guilty of a violation of these particular standards.
To reiterate, the acts of all employees of The North Face, Inc. must remain
above question in all of his or her business dealings.
<PAGE>
9. SURVIVAL. Notwithstanding the termination of Employee's employment,
Section 3.2 and Articles 2, 6, and 7 shall survive such termination. This
Agreement does not in any way restrict Employee's right or the right of the
Company to terminate Employee's employment at any time, for any reason or for no
reason.
10. SPECIFIC PERFORMANCE. A breach of any of the promises or agreements
contained herein will result in irreparable and continuing damage to the Company
for which there will be no adequate remedy at law, and the Company shall be
entitled to injunction relief and/or a decree for specific performance, and such
other relief as may be proper (including monetary damages if appropriate).
11. WAIVER. A waiver by the Company of a breach of any provision of this
Agreement by me will not operate or be construed as a waiver of any other or
subsequent breach by Employee.
12. SEVERABILITY. If any part of this Agreement is found invalid or
unenforceable, that part will be amended to achieve as nearly as possible the
same economic effect as the original provision and the remainder of this
Agreement will remain in full force.
13. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the United States of California as applied to
agreements entered into and to be performed entirely with California between
California residents.
14. ENTIRE AGREEMENT. This Agreement, including all Exhibits to this
Agreement, constitutes the entire agreement between the parties relating to this
subject matter and supersedes all prior or simultaneous representations,
discussions, negotiations, and agreements, whether written or oral. This
Agreement may be amended or modified only with the written consent of both
Employee and the Company. No oral waiver, amendment or modification will be
effective under any circumstances whatsoever.
15. ASSIGNMENT. This Agreement may be assigned by the Company. Employee
may not assign or delegate Employee's duties under this Agreement without the
Company's prior written approval. This Agreement shall be binding upon
Employee's heirs, successors, and permitted assignees.
16. TERMINATION: If this Agreement is breached termination up to and
including termination will result.
2
<PAGE>
EMPLOYEE:
Date: 5/5/95 /s/ Roger Kase
------------------------------ --------------------------------------
Signature
--------------------------------------
Roger Kase
The North Face, Inc.
Date: 5-3-95 By: /s/ William Simon
------------------------------ -----------------------------------
William Simon
Its:
----------------------------------
Vice Chairman
3
<PAGE>
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor
Code that the above Agreement between you and the Company does not require you
to assign or offer to assign to the Company any invention that you developed
entirely on your own time without using the Company's equipment, supplies,
facilities or trade secret information except for those inventions that either
or:
(1) Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company.
(2) Result from any work performed by you for the Company.
To the extent a provision in the above Agreement purports to require you to
assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by a
contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT a copy of this notification.
Date: 5/05/95 /s/ Roger Kase
------------------------------ --------------------------------------
Employee Signature
--------------------------------------
Printed Name of Employee: Roger Kase
4
<PAGE>
[LOGO] THE NORTH FACE, INC.
999 HARRISON STREET, BERKELEY, CA 94710 - 510-527-9700
PERSONAL & CONFIDENTIAL
9/29/94
Mr. Bart Jackson
914 Los Luceros Drive
Eagle, Idaho 83616
Dear Bart:
I am pleased to confirm our offer of employment as Director of Operations &
MIS at The North Face, Inc. ("the Company"). In this position you will report
to me. Your start date will be 10/1/94.
Compensation:
If you decide to join us, you will receive an annual salary of $135,000.00
which will be paid biweekly in the amount of $5,192.31. The following benefits
will be provided by The North Face, Inc.
You will be eligible for a merit increase in April, 1995 based upon various
factors including your job performance and the Company's performance. This
merit increase will be prorated based on your hire date.
BENEFITS:
-- INSURANCE:
You will be eligible for medical and dental benefits on your first
date of hire if you meet the eligibility requirement. You will need
to complete and return the Benefits Enrollment Form that is
contained in your new hire packet and return it to HR. You may not
change plans or add dependents onto the insurance plan until the
next open enrollment or you have a family status change as defined
by the IRS.
-- PAID TIME OFF:
You will be eligible for Paid Time Off (PTO) to be used for vacation,
illness or personal business. Paid Time Off accrual begins on the
first day of hire and is accrued on a daily basis. You will be
eligible for 4 weeks PTO for the first 5 years of employment. A
complete PTO policy is contained in your new hire packet.
-- RELOCATION:
To assist you and your family in your relocation, The Company will
reimburse you for relocation costs up to $10,000 upon proof of
payment. You may submit receipts for your relocation costs to
accounting. Additionally, The North Face, Inc. will pay for a
round-trip coach airline ticket each week for yourself until the
earlier of your relocation to the Bay Area or December 31, 1994.
Finally, The North Face, Inc. will pay for two round-trip coach
airline tickets for your family to facilitate your relocation.
<PAGE>
HIRING DOCUMENTATION:
The items listed below are included in your new hire package and must be
completed and returned with this signed offer letter and confidentiality
agreement.
-- FORM I-9:
For purposes of Federal Immigration law, you will be required to
provide to the Company documentary evidence of your identity and
employment eligibility by completing an I-9 form. The documentation
for this form must be provided within three (3) business days of
your date of hire, or your employment relationship with us may be
terminated.
-- FORM W-4:
For purposes of withholding state and federal taxes please complete
a W-4.
-- EMERGENCY CONTACT:
Please complete the emergency contact form that is contained in your
new hire packet.
-- BENEFITS ENROLLMENT:
As stated above you will need to complete a Benefits Enrollment form
if you meet the eligibility requirements.
If you choose to accept this offer, your employment with The North Face, Inc.
will be voluntarily entered into and will be for no specified period. As a
result, you will be free to resign at any time, upon thirty (30) days written
notice, for any reason or for no reason, as you deem appropriate. The North
Face, Inc. will have a similar right and may terminate its employment
relationship with you at any time, with or without cause upon thirty (30)
days written notice by either party.
In the event of any dispute or claim relating to or arising out of your
employment relationship ("including but not limited to any claims of wrongful
termination or age, sex, race, or discrimination") you and the Company agree
that all such disputes shall be fully and finally resolved by binding
arbitration conducted by the American Arbitration Association in San
Francisco, California. By signing this letter you and The North Face, Inc.
waive any right which you may have to a jury trial with respect to such
disputes. HOWEVER, we agree that this arbitration provision shall not apply
to any dispute or claim relating to or arising out of the misuse or
misappropriation of the Company's Confidential Information.
To indicate your acceptance of the Company's offer, please sign and date
this letter in the space provided below and return it to me no later than
close of business 10/4/94. Please note that this employment offer is
contingent upon your signing of Company's Confidentiality Agreement (a
copy of which is enclosed). This letter may not be modified or amended
except by a written agreement, signed by The North Face, Inc. and by you.
<PAGE>
Please contact me if you have any questions regarding this employment offer
or any points covered in this letter. We look forward to receiving your
positive response and look forward to working with you as you join The
North Face, Inc. team.
Sincerely,
/s/ WILLIAM McFARLANE
William McFarlane
President
The North Face, Inc.
I hereby agree and/or accept employment with The North Face, Inc. and the
terms set forth above. I understand and agree to keep the contents of this
letter confidential.
/s/ BART JACKSON 9/29/94
- ---------------------------------- ------------------------------------
Bart Jackson Date
<PAGE>
CODE OF CONDUCT
EMPLOYEE AGREEMENT REGARDING
CONFIDENTIALITY
This Agreement is intended to set forth in writing certain responsibilities
which The North Face, Inc. (the "Company") and each The North Face, Inc.
Employee ("Employee") have during the Employee's employment. Employee
recognizes that the Company is engaged in a continuous program of design,
production, marketing and sales respecting its business, present and future.
Employee understands that he/she has an affirmative duty to avoid situations
where loyalties may be divided between his or her own interests and the
Company. In exchange for his or her employment by the Company, Employee
acknowledge and agrees that:
1. EFFECTIVE DATE. This agreement ("Agreement") shall be effective as of
the date below.
2. CONFIDENTIALITY. Employee will retain in confidence and will not disclose
or use, either during or after the term of his or her employment, any
proprietary or confidential information or know-how belonging to the Company
("Proprietary Information"), whether or not in written form, except to the
extent required to perform duties on behalf of the Company. Proprietary
Information refers to any information, not generally known in the relevant
trade or industry, which was obtained from the Company, or which was learned,
discovered, developed, conceived, originated or prepared by me in the scope
of my employment. Proprietary Information includes, but is not limited to
business information relating to the Company's products, finances, marketing,
business relationships with the Company's vendors and suppliers, business
information relating to the Company's inventions, financial projections and
results, sales, marketing and merchandising strategies, manufacturing
processes, product design and development, catalog mailing lists, product
assortment and strategy, pricing, margins, and the Company's future business
and marketing plans. Upon termination of Employee's employment or at the
request of the Company before termination, Employee will deliver to the
Company all written and tangible material in his or her possession
incorporation any Proprietary Information or otherwise relating to the
Company's business.
3. DESIGNS
3.1 DEFINITION OF DESIGNED. As used in this Agreement, the term "Design"
means any new or prototype design, whether or not patentable, and all related
know-how. Designs include, but are not limited to all product designs,
processes, product or other related improvements, and ideas.
3.2 DISCLOSURE AND ASSIGNMENT OF INVENTIONS.
(a) Employee will promptly disclose and describe to the Company all
designs which he or she may solely or jointly conceive, develop, or reduce to
practice during the period of his or her employment with the Company (i) which
relate at the time of conception, development, or reduction to practice of
the Design to the Company's business or development, (ii) which were
developed, in whole or in part, on the Company's time or with the use of any
of the Company's equipment, supplies, facilities or trade secret information,
or (iii) which resulted from any work Employee performed for the Company
("Company Inventions"). Employee assigns to the Company all right, title,
and interest worldwide in Company Inventions and in all intellectual property
rights based upon Company Inventions. However, Employee does not assign or
agree to assign any Designs relating in any way to the Company business or
demonstrably anticipated research and development which were made by Employee
prior to his or her employment with the Company, which Inventions, if any
are identified on EXHIBIT A to this Agreement. EXHIBIT A contains no
confidential information. Employee has no rights in to any Designs other than
the Designs specified in EXHIBIT A. If no such list is attached, Employee
has no such Design or Employee grants an irrevocable, non-exclusive,
royalty-free, worldwide license to the Company to make,use, and sell
Inventions developed by Employee prior to his or her employment with the
Company.
<PAGE>
(b) Employee recognizes that Designs relating to his or her
activities while working for the Company and conceived or made by Employee,
alone or with others, within sixty (60) days after termination of Employee's
employment may have been conceived in significant part while employed by
the Company. Accordingly, Employee agrees that such Designs shall be presumed
to have been conceived during Employees employment with the Company and are
to be assigned to the Company as a Company Design unless and until employee
has established the contrary. Employee agree to disclose promptly in writing
to the Company all Designs made or conceived within sixty (60) days after
Employee's term of employment, whether or not Employee believe such Designs
are subject to this Agreement, to permit a determination by the Company as
to whether or not the Design should be the property of the Company. Any
such information will be received in confidence by the Company.
4. COMPANY MATERIALS. Upon termination of Employee's employment with the
Company or at any other time upon the Company's request, Employee will
promptly deliver to the Company, without retaining any copies, all documents
and other materials furnished to Employee by the Company or prepared by
Employee for the Company.
5. COMPETITIVE EMPLOYMENT. During the term of Employee's employment with
the Company, Employee will not engage in any employment, consulting, or other
activity in any business competitive with the Company.
6. NON-SOLICITATION. During the term of Employee's employment with the
Company and for a period of one (1) year thereafter, Employee will not
solicit or encourage, or cause others to solicit or encourage, any employees
of the Company to terminate his or her employment with the Company.
7. ACTS TO SECURE PROPRIETARY RIGHTS.
7.1 FURTHER ACTS. Employee agrees to perform, during and after
Employee's employment, all acts deemed necessary or desirable by the Company
to permit and assist it, at its expense, in perfecting and enforcing the full
benefits, enjoyment, rights and title throughout the world in the Company
Designs. Such acts may include, but are not limited to, execution of
documents and assistance or cooperation in the registration and enforcement
of applicable patents and copyrights other legal proceedings.
7.2 APPOINTMENT OF ATTORNEY-IN-FACT. In the event that the Company is
unable for any reason whatsoever to secure Employees signature to any lawful
and necessary document required to apply for or execute any patent, copyright
or other applications with respect to any Company Inventions (including
improvements, renewals, extensions, continuations, divisions or continuations
in part thereof), Employee hereby irrevocable appoints the Company and its
duly authorized officers and agents as his or her agents and attorneys-in-fact
to execute and file any such application and to do all other lawfully
permitted acts to further the prosecution and issuance of patents, copyrights
or other rights thereon with the same legal force and effect as if executed
by Employee.
8. NO CONFLICTING OBLIGATIONS. This Agreement and Employee's of the Company
does not and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by Employee prior to Employees
employment with the Company. Employee will not disclose to the Company,
or induce the Company to use, any confidential or proprietary information
or material belonging to any previous employer or other person or entity.
Employee will not be a party to any other agreement which will interfere
with employees full compliance with this Agreement. Employee will not
enter into any agreement, whether written or oral, in conflict with provisions
of this Agreement.
<PAGE>
8.1 CONFLICT OF INTEREST. The North Face, Inc. prohibits any full time
employee from engaging in outside employment or consulting. No employee may
accept employment with or become directly or indirectly involved as an
independent contractor, consultant or otherwise with any Company competitor.
No employee may accept employment with or become directly or indirectly
involved as an independent contractor, consultant or otherwise with any
customer or supplier. No employee may sell his or her services or products
or those of another person or firm if the Company offers similar services
or products; or engage in activities which enhance the marketability of or
otherwise support a competitor's product or services. The continued success
of our company is based on the full contribution of every employee, and
therefore it is not in the best interest of The North Face, Inc. for any
employee to engage in outside employment, consulting, or entrepreneurial
endeavors.
A conflict of interest may exist if an employee works in any capacity for
another person or entity offering goods or services that are or may be
competitive with those offered by the Company.
If there is any question as to whether any activity constitutes a conflict of
interest, prior approval to engage in that activity must be obtained from
Company management. Similarly, any outside employment must be approved in
advance in writing by Company management. Accepting employment or consulting
work that knowingly jeopardizes proprietary information and/or which might
result in a conflict of interest may result in termination of employment.
No employee may conduct The North Face, Inc. business with a member of his
or her family, or an individual with which the employee or the employee's
family has an association.
8.2 QUESTIONABLE PAYMENTS AND GRATUITIES. To assure compliance with
the foreign corrupt practices act and other foreign and domestic bribery
laws, no employee shall, directly or indirectly, offer, pay or authorize
any payment or anything of value or significance to any public official,
political party or official or any candidate for any political party
of official thereof or any candidate for public office, for the purpose of
influencing any action, or decision of a public official, candidate for
political office or of government, to assist the Company in the conduct
of its business.
Furthermore, the receipt of giving of any gifts, money, services,
entertainment or other favors of value or of significance which might
reasonably be expected to interfere with the exercise of independent and
objective judgment by the recipient, or which might infer an obligation
to either party must be avoided. These policies are not intended to
prohibit normal business expenses, such as meals or reasonable entertainment
for legitimate corporate purposes, provided such expenses are properly
recorded under standard company procedures. The North Face, Inc. employee may
not accept any gift, payment, loan or other favor from a The North Face, Inc.
customer, supplier, vendor or competitor worth any more than $25.00.
TNF Holdings Company Inc. employees may not own a financial interest in any
The North Face, Inc. customer, supplier or competitor that might cause
divided loyalty.
8.3. OUTSIDE DIRECTORSHIPS. No employee may accept a position as a
director or officers of a TNF Holdings Company Inc. competitor, customer
or supplier, or company which enhances the marketability of or otherwise
supports a competitor's products or services. The North Face, Inc. employees
may not receive separate compensation for on the board of directors of a
company if the services are rendered at The North Face, Inc. request or
in connection with an The North Face, Inc. investment, or relationship with
that company.
8.3 POLITICAL CONTRIBUTIONS AND ACTIVITIES. The company will not
contribute financial support, either directly or indirectly, to any candidate
for political office or to any political party at any
<PAGE>
level of government, domestic or foreign. Under no circumstances will the
Company request its employees to support a specific candidate or party.
The detailed policy statements above are illustrative and not exhaustive.
The fact that a particular act is not specifically prohibited does not
mean that it is lawful or permissible. Any questions on your part as to
whether any act or course of conduct would be a conflict of interest or be
prohibited by this policy should be referred immediately to the Board of
Directors through the person to whom you report. It is the duty of every
employee to report any violation of these standards to the Board of Directors.
Any activity of an employee in violation of the antitrust, or foreign
payment laws or of any other standard of conduct shall be cause for immediate
termination. Also, you should be aware that several of the standards are
covered by laws involving criminal and or severe civil sanctions against an
employee guilty of a violation of these particular standards.
To reiterate, the acts of all employees of The North Face, Inc. must remain
above question in all of his or her business dealings.
9. SURVIVAL. Notwithstanding the termination of Employee's employment,
Section 3.2 and Articles 2, 6, and 7 shall survive such termination. This
Agreement does not in any way restrict Employee's right or the right of the
Company to terminate Employee's employment at any time, for any reason or
for no reason.
10. SPECIFIC PERFORMANCE. A breach of any of the promises or agreements
contained herein will result in irreparable and continuing damage to the
Company for which there will be no adequate remedy at law, and the Company
shall be entitled to injunction relief and/or a decree for specific
performance, and such other relief as may be proper (including monetary
damages if appropriate).
11. WAIVER. A waiver by the Company of a breach of any provision of this
Agreement by me will not operate or be construed as a waiver of any other
or subsequent breach by Employee.
12. SEVERABILITY. If any part of this Agreement is found invalid or
unenforceable, that part will be amended to achieve as nearly as possible the
same economic effect as the original provision and the remainder of this
Agreement will remain in full force.
13. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the United States of California as applied to
agreements entered into and to be performed entirely with California
between California residents.
14. ENTIRE AGREEMENT. This Agreement, including all Exhibits to this
Agreement, constitutes the entire agreement between the parties relating
to this subject matter and supersedes all prior or simultaneous
representations, discussions, negotiations, and agreements, whether written
or oral. This Agreement may be amended or modified only with the written
consent of both Employee and the Company. No oral waiver, amendment or
modification will be effective under any circumstances whatsoever.
15. ASSIGNMENT. This Agreement may be assigned by the Company. Employee
may not assign or delegate Employee's duties under this Agreement without
the Company's prior written approval. This Agreement shall be binding upon
Employee's heirs, successors, and permitted assignees.
16. TERMINATION. If this Agreement is breached termination up to and
including termination will result.
<PAGE>
EMPLOYEE:
Date: 9/29/94 /s/ BART JACKSON
----------------------------- ------------------------------------
Signature
/s/ BART JACKSON
------------------------------------
Bart Jackson
The North Face Inc.:
Date: 9/29/94 /s/ WILLIAM A. McFARLANE
----------------------------- ------------------------------------
William A. McFarlane
Its: President
<PAGE>
LIMITED EXCLUSION NOTIFICATION
THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor
Code that the above Agreement between you and the Company does not require you
to assign or offer to assign to the Company any invention that you developed
entirely on your own time without using the Company's equipment, supplies,
facilities or trade secret information except for those inventions that either
or:
(1) Relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company.
(2) Result from any work performed by you for the Company.
To the extent a provision in the above Agreement purports to require you to
assign an invention otherwise excluded from the preceding paragraph, the
provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or invention covered by
a contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.
I ACKNOWLEDGE RECEIPT a copy of this notification.
Date: 9/29/94 /s/ BART JACKSON
---------------------------- ------------------------------------
Bart Jackson Signature
BART JACKSON
------------------------------------
Printed Name of Employee
<PAGE>
EXHIBIT A
PRIOR INVENTIONS
<PAGE>
CONFIDENTIAL CHANGE IN STATUS AND GENERAL RELEASE AGREEMENT
This Confidential Change in Status and General Release Agreement (the
"Agreement") is entered into on April 25, 1996, to be effective on and as of
December 19, 1995 (and December 19, 1995 is referred to below as the "Effective
Date"), by and between William A. McFarlane (the "Employee") and The North Face,
Inc. (the "Company"). Employee has resigned as an officer and director of the
Company effective December 19, 1995, and the parties desire by this Agreement to
set forth certain terms and conditions relating to Employee's continued status
as an employee for a fixed term with limited duties set forth herein, certain
payments to be made by the Company to Employee, and other matters stated below.
Immediately prior to the Effective Date, Employee was a party or otherwise
subject to the following:
Confidentiality and Inventions Agreement dated June 7, 1994
Securityholder's Agreement dated June 7, 1994, as amended by Amendment No.
1 dated June 22, 1995
Registration Rights Agreement dated June 7, 1994, as amended by Amendment
No. 1 dated June 22, 1995
Management Stock Purchase and Non-Competition Agreement dated June 7, 1994,
as amended by Amendment No. 1 dated June 22, 1995
Restricted Stock Award Agreement dated June 7, 1994 (with 4 year vesting
schedule applicable to 59,169 shares)
Restricted Stock Award Agreement dated June 7, 1994 (with vesting at 2 year
target now applicable to 11,834 shares)
Nonqualified Stock Option Agreement dated June 7, 1994 (applicable to
23,101.5 shares)
Nonrecourse Promissory Note dated June 7, 1994 (the "Note")
Amendment No. 1 dated and effective as of June 22, 1995, to the restricted
stock award agreements, promissory note and option agreement referred
to above 1994 Stock Incentive Plan dated June 7, 1994 (the "1994 Plan")
For purposes of this Agreement, the 1994 Plan and the agreements described
above are referred to below as the "Surviving Agreements." All figures used for
shares of Common Stock refer to the number of shares of the Company's capital
stock prior to the 4 for 1 stock split effected on March 26, 1996. In
consideration of the rights and obligations set forth below, and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. EMPLOYMENT TERMS.
(a) The Company hereby employs Employee, and Employee hereby accepts
employment by the Company, pursuant to this Agreement for a fixed term only (the
"Term") commencing on the Effective Date and ending automatically at 12:01 a.m.,
California time, on July 2, 1996. During the Term and for a limited period
thereafter as set forth in the "Schedule of Payments" attached to this
Agreement, the Company shall deliver payments to Employee on a biweekly
1
<PAGE>
basis, on the dates and in the amounts set forth in the "Schedule of Payments"
attached to this Agreement, subject to reduction by withholding and other
requirements of applicable state and federal law, and provided further that the
Company shall pay to Employee all amounts then unpaid set forth in the Schedule
of Payments upon the closing of an acquisition of the Company in a transaction
or series of related transactions consisting of a merger, purchase of
outstanding stock, sale of all or substantially all of the assets of the
Company, or other form of business combination, and which results in a change in
control of the Company. The Company and Employee hereby agree that Employee's
status and duties as an officer and director of the Company ceased on December
19, 1995.
(b) The Company shall pay the cost of continuation of all employee
benefits coverage for the Employee from the Effective Date through December 31,
1996. Thereafter, the Employee shall have the right to elect further
continuation of such coverage to the extent available (including medical
coverage under COBRA), provided that the Company shall not have any obligation
to pay for the cost of such continued coverage. Except as otherwise provided
for herein, the Company shall have no obligation to continue to pay for life,
disability, medical or other insurance benefits for Employee. Employee agrees
that he shall not be entitled to and shall not receive or accrue any paid
"vacation" or "personal time" during the Term. Employee shall be reimbursed for
reasonable expenses incurred in connection with services requested by the
Company if the expenses are approved in advance, in writing, by the Company's
chief executive officer or chief financial officer.
(c) The Company acknowledges that Employee is the holder of a Nonqualified
Stock Option Agreement dated June 7, 1994, as amended, covering 23,101.5 shares
of the Company's Common Stock and is the registered holder of certificate number
C-3 representing 63,937.5 shares, certificate number C-14 representing 59,169
shares and certificate number C-16 representing 11,834 shares of the Company's
Common Stock. The Company acknowledges that under the existing provisions of
the applicable Surviving Agreements, the cessation of Employee's status as an
officer and director as of December 19, 1995, is not, and shall not be construed
by the Company to be, a termination of employment for purposes of the Restricted
Stock Award Agreements and Nonqualified Stock Option Agreement referred to below
in light of his continued employment under this Agreement, and the applicable
existing provisions of the Surviving Agreements shall continue to govern the
effect of termination of employment on the vesting or forfeiture of the stock
awarded to Employee under the 1994 Plan. The option agreement and shares
described in this subparagraph shall continue to be subject to the applicable
provisions of the Surviving Agreements, each of the Surviving Agreements shall
continue in full force and effect, and the Company and Employee shall
respectively continue to be bound by and comply with the Surviving Agreements,
EXCEPT THAT the Company and Employee hereby:
(i) agree that the provisions of Section 5 of the Security Holders
Agreement and the provisions of Sections 5 and 8 of the Code of Conduct and
Employee Agreement Regarding Confidentiality shall no longer be applicable to
Employee;
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<PAGE>
(ii) agree that Section 6 of the Management, Stock Purchase and Non-
Competition Agreement shall be modified in the following respects:
(a) the words "or proposed to be conducted by the Companies at
any time during a Stockholder's employment by the Company or within the period
of six months thereafter" in Section 6(a)(i) shall be deleted and "prior to
December 19, 1995" shall be substituted therefor.
(b) the period of noncompetition provided for in Section 6(b)(i)
shall expire on December 19, 1998.
(c) the definition of "Competitive Business" in Section 6(b)(i)
shall be changed to "any business whose principal business competes, directly or
indirectly, with the "Business";
(iii) agree that no "Liquidity Event" as defined in any Surviving
Agreement occurring after December 19, 1995, shall accelerate the vesting of any
restricted stock or exercisability of any option;
(iv) amend each of the Restricted Stock Award Agreements and
Nonqualified Stock Option Agreement between the Company and Employee, each dated
as of June 7, 1994 and previously amended as of June 22, 1995, by deleting each
portion of each Schedule I thereto entitled "Alternative Accelerated Vesting"
and definitions related thereto; and
(v) acknowledge that 14,792.25 shares of Employee's stock held under
the Restricted Stock Award Agreement having the 4 year vesting schedule and
5,775.375 shares of stock subject to the Nonqualified Stock Option Agreement are
now vested under the applicable vesting schedules attached thereto, and further
acknowledge that, so long as Employee does not terminate his employment under
this Agreement prior to June 7, 1996 (and July 1, 1996 in the case of the 11,834
restricted shares held under the 2 year vesting schedule), an additional
26,626.25 shares held under the two Restricted Stock Award Agreements and an
additional 5,775.375 shares of stock subject to the Nonqualified Stock Option
Agreement will become vested as of such dates.
(d) Employee acknowledges that he has received a copy of the Company's
directors and officers liability insurance policy, that he has reviewed the
terms of coverage with his own advisers to the extent he desired to do so, and
that the Company makes no representations concerning the coverage afforded by
the policy. The Company acknowledges that Employee is entitled to
indemnification as provided in the Company's Bylaws and applicable Delaware law
in respect of acts, suits or proceedings against him (of which there are none
now pending) by reason of the fact that he is or was a director or officer of
the Company and/or its subsidiaries. In addition to such indemnity (but without
any duplicate payment of expenses or otherwise), in the event that Employee is
or becomes a defendant in any action, suit, cross claim, counterclaim,
arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any
3
<PAGE>
other proceeding (whether civil, criminal, administrative, or investigative) by
reason of the fact that he is or was a director, officer or other agent of the
Company or its subsidiaries (collectively, a "Proceeding"), and the Proceeding
does not relate to or arise out of Employee's willful misconduct or gross
negligence, then the Company agrees to advance all reasonable attorneys' fees
and other costs and expenses reasonably incurred in connection with the
investigation and defense of any such Proceeding by Employee. Employee shall
provide the Company with invoices or other documentation reasonably itemizing
all requested payments hereunder. If required by law at the time of any such
advance, Employee hereby agrees to repay the amounts advanced if it shall be
ultimately determined that Employee is not entitled to be indemnified pursuant
the Company's Bylaws and applicable Delaware law. Notwithstanding the
foregoing, the Company shall not be obligated to advance (i) any sums in
connection with any action or other form of proceeding arising directly or
primarily between Employee and the Company under or in connection with this
Agreement or any of the Surviving Agreements, or (ii) any sums which are in fact
advanced or paid pursuant to any coverage available under the Company's
directors and officers liability insurance policy.
(e) The Company agrees to reimburse Employee up to $10,000 for
professional legal, tax and accounting advice incurred by Employee in connection
with his review of this Agreement and the Surviving Agreements, payable promptly
following delivery to the Company of copies of invoices reasonably identifying
the professional charges incurred.
(f) Except as expressly set forth in this Section 1, Employee acknowledges
and agrees that he is not entitled to any cash or noncash compensation, stock,
options, distributions or other benefits or interests from or in the Company as
of the Effective Date or during, or after the end of, the Term.
2. MUTUAL RELEASES.
(a) By this Agreement, Employee (who shall be deemed to have executed this
release for himself and his heirs, successors and assignees) releases, forever
discharges and promises not to sue the Company and its past, present and future
predecessors, successors, assignees, officers, directors, shareholders,
employees, attorneys, agents, and other affiliates, from and for any and all
claims, demands, causes of action, actions, lawsuits, liabilities, indemnities,
costs, damages, obligations, and expenses (including, without limitation,
attorneys' fees) whatsoever which (i) Employee may now have or hereafter acquire
in law or in equity, past, present and future, known and unknown, suspected and
unsuspected, which in whole or in part, arise out of or in any manner relate to
the Company's employment of Employee and/or any agreements, acts, omissions,
opportunities or conduct at any time prior to the date of this Agreement,
including without limitation any and all such claims or other matters based on
alleged tortious or other misconduct, misrepresentation, active or passive
negligence, bad faith, breach of any alleged contractual, fiduciary or other
duties by the Company or the other released parties described above, salary,
bonuses, stock, vacation pay, benefits, expense reimbursement, defamation,
stress, emotional distress, or breach of implied covenant of good faith and fair
dealing, and/or (ii) Employee now has or any time had based upon wrongful
discharge, the California Fair
4
<PAGE>
Employment Practices Act, national origin, age, sex, or other discrimination
under the federal Civil Rights Act of 1964, federal Age Discrimination in
Employment Act, the Americans with Disabilities Act, the Fair Employment and
Housing Act, or any other applicable law.
(b) In addition to the above, Employee expressly waives the provisions of
Section 1542 of the Civil Code of the State of California, which provides
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
(c) However, the provisions of this Section 2(a) and (b) shall not release
or otherwise diminish the obligations of the Company to perform its obligations
under the Surviving Agreements and to pay and perform the other obligations of
the Company expressly described in any other provisions of this Agreement.
(d) By this Agreement, the Company (which shall be deemed to have executed
this release for itself and its affiliate companies, directors, officers,
successors and assignees) releases, forever discharges and promises not to sue
Employee and his relatives, heirs, successors, assignees, attorneys and agents
from and for any and all claims, demands, causes of action, actions, lawsuits,
liabilities, indemnities, costs, damages, obligations, and expenses (including,
without limitation, attorneys' fees) whatsoever which the Company may now have
or hereafter acquire in law or in equity, past, present and future, known and
unknown, suspected and unsuspected, which in whole or in part, arise out of or
in any manner relate to the Company's employment of Employee and/or any
agreements, acts, omissions, opportunities or conduct at any time prior to the
date of this Agreement, except that the foregoing release and related provisions
of this subparagraph (d) shall not apply to any act or omission of Employee at
any time before or after the date of this Agreement which constituted fraud,
dishonesty, or willful misconduct. The Company acknowledges that it is aware of
no act or omission of the Employee as of the date of this Agreement that would
be excluded under the provisions of the preceding sentence.
(e) In addition to the above, the Company expressly waives the provisions
of Section 1542 of the Civil Code of the State of California, which provides
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
(f) However, the provisions of this Section 2(d) and (e) shall not release
or otherwise diminish the obligations of Employee to perform his obligations
under the Surviving Agreements
5
<PAGE>
and to perform the other obligations of Employee expressly described in any
other provisions of this Agreement.
3. ADDITIONAL PROMISES OF EMPLOYEE.
(a) Employee agrees that during the Term he shall provide such services
and assistance to the Company relating to pending legal actions, transition of
personnel to assume his former duties as an officer, and other matters as the
Company may from time to time reasonably request, provided that (i) Employee and
the Company shall mutually agree upon reasonable periods of time for such
duties, and (ii) Employee shall have no authority or rights to sign contracts or
otherwise bind the Company, to have access to Company records or premises, or to
supervise or direct any other employees.
(b) Employee agrees that during the Term and thereafter he shall not make
any disparaging remarks to any other person or entity about the Company, its
business or any of its employees. The Company agrees that during the Term and
thereafter, no officer or director of the Company shall make any disparaging
remarks to any other person or entity about Employee.
(c) Employee agrees that during the Term and thereafter he shall not, at
any time in the future, voluntarily testify, provide evidence, or otherwise
assist any person or entity to pursue any legal claim or claims against the
Company or any of its employees, officers and/or directors, except as may
otherwise be required by law or in connection with enforcing his rights under
this Agreement. Employee also agrees during the Term and thereafter to
cooperate with the Company by making himself reasonably available to testify on
behalf of the Company or any of its affiliates in any action, suit or proceeding
relating to events occurring during Employee's employment with the Company and
to assist the Company or any of its affiliates in any such action, suit or
proceeding by providing information and meeting and consulting with the
Company's board of directors or its representatives or counsel, as reasonably
requested by the board or such representatives or counsel; provided that
Employee shall receive reimbursement for any expenses reasonably incurred by him
in connection with any such matters and provided further that Employee shall
receive reasonable compensation for any services rendered by him after the Term
in connection with any such matters subject to prior written approval by the
Company's Chief Executive Officer or Chief Financial Officer.
(d) Employee and the Company respectively agree not to disclose either
the existence of this Agreement or any of the terms of this Agreement, directly
or indirectly, to anyone other than the immediate family of Employee or the
parties' counsel, accountants and/or financial advisers, or except as such
disclosure may be required for accounting or tax reporting purposes or as
otherwise may be required by law.
(e) Employee agrees to return to the Company promptly upon signing this
Agreement, and again on July 1, 1996, all files, documents (including copies
thereof) and any other property
6
<PAGE>
of the Company that he may have in his possession (other than copies for his
records of the agreements to which he is a party described in this Agreement).
(f) Employee will not at any time during the Term or thereafter disclose
or use for his own benefit or for purposes of any other person or entity, other
than the Company or its affiliates, any trade secrets, information, data, or
other confidential information relating to customers, development programs,
costs, marketing trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans, or the
business and affairs of the Company or its affiliates generally; provided that
the foregoing shall not apply to (i) information which is generally known to the
industry or the public other than as a result of Employee's breach of this
covenant, or (ii) disclosures to the extent required by law, provided that
Employee shall afford the Company reasonable notice and opportunity at its
expense to obtain protective orders in connection with any such disclosure.
(g) Employee acknowledges that he has consulted his own legal or tax
advisers to the extent he desired to do so in connection with this Agreement,
and is not relying upon the Company or its attorneys or other agents, concerning
any tax, legal or financial issues relating to this Agreement and/or the
Surviving Agreements. Specifically, Employee agrees that no law firm or
attorney retained by the Company has undertaken to represent him personally in
connection with any matter.
(h) Employee agrees that the Company's obligations hereunder, including
without limitation the Company's agreement to make payments of money under
Section 1, are contingent upon Employee's timely performance of and compliance
with his obligations under this Agreement and the Surviving Agreements. In the
event Employee materially breaches any of his obligations under this Agreement
and/or the Surviving Agreements and fails to cure the same within thirty (30)
days after written notice of the breach given by the Company to Employee, and in
addition to and without prejudice to any remedies available to the Company at
law or under the Surviving Agreements, the Company shall have no further
obligations to Employee under this Agreement.
4. GENERAL PROVISIONS.
(a) This Agreement together with the Plan and the Surviving Agreements
constitutes the entire agreement and understanding between the parties with
respect to the subject matter hereof and supersedes all prior negotiations,
correspondence, memoranda, agreements and understandings, whether written or
oral. This Agreement may be amended only by a writing signed by Employee and an
officer of the Company, and no other act or omission of any person and no course
of conduct during the Term shall be considered any waiver or amendment hereof or
of the Surviving Agreements. If any covenant, agreement, term or provision of
this Agreement or the application thereof to any situation or circumstance shall
be invalid or unenforceable, the remainder of this Agreement or the application
of such covenant, agreement, term or provision to situations or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected; and each covenant, agreement, term or provision of this Agreement
shall be valid and
7
<PAGE>
enforceable to the fullest extent permitted by applicable law. In such event,
the parties shall negotiate in good faith to substitute for any such invalid or
unenforceable provision a valid and enforceable provision which most nearly
effects the parties' original intent in entering into this Agreement. Without
limiting the foregoing, if any provision concerning arbitration violates any
mandatory provision of any applicable federal statute, such provision shall be
conformed or deleted to the minimum extent necessary for the provision to comply
with such federal law. Except as otherwise specifically stated herein, nothing
herein is intended to constitute an amendment to or change in the provisions of
any of the Surviving Agreements. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of each party, except that Employee
shall not voluntarily assign or transfer any of his rights or duties under this
Agreement (and provided that assignability of rights and obligations under the
Surviving Agreements shall be governed by the respective provisions thereof).
(b) Notices under this Agreement shall be sufficient only if mailed by
certified or registered United States mail, return receipt requested, delivered
by facsimile transmission with machine generated confirmation, or personally
delivered, to the parties at their addresses set forth below or as amended by
notice pursuant to this subsection. Notice by mail shall be deemed received two
(2) days after deposit.
(c) This Agreement shall be governed by the internal laws of the State of
Delaware without regard to principles of conflicts of law.
(d) EMPLOYEE REPRESENTS TO THE COMPANY THAT HE HAS READ THE PROVISIONS OF
THIS AGREEMENT, UNDERSTANDS THE MEANING THEREOF, AND IS ENTERING INTO THIS
AGREEMENT KNOWINGLY, VOLUNTARILY AND IN FULL SETTLEMENT OF ALL CLAIMS THAT HE
MAY HAVE AS A RESULT OF HIS EMPLOYMENT WITH THE COMPANY.
(e) The failure of a party to insist upon strict adherence to any
provision of this Agreement on any occasion shall not be considered a waiver of
such party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(f) This Agreement may be signed in counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument.
(g) Each dispute, controversy, or claim arising out of or relating to
this Agreement or the employment relationship between Employee and the Company
(whether based on contract, tort, law, equity or otherwise, and including,
without limitation, any and all rights under state or federal statutes relating
to employment, wrongful discharge, age, disability, or other matters) shall be
settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association (the "AAA"), which shall apply except as
modified below. Judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction, and the arbitrator's award shall be final and
binding on the parties. There shall be a single arbitrator agreed upon mutually
by the parties; but if they cannot agree upon the selection
8
<PAGE>
within 30 days after demand for arbitration is given by one party to the other,
the selection shall occur in accordance with the then applicable commercial
rules of the AAA. The arbitration shall be conducted in the city in which the
Company's principal executive office is located, and neither party shall be
required to submit to arbitration proceedings elsewhere. Each party shall pay
an equal share of the fees and expenses of any person serving as an arbitrator,
and each party shall pay its own attorneys, witnesses and other costs incurred
by the party. The arbitrator shall not have the power to order reinstatement of
the Employee's employment under any circumstance. The arbitrator shall have the
power only to grant remedies or relief that would be available under Delaware
law in a Delaware state court otherwise having jurisdiction of the matter,
except that the arbitrator shall not have the power to vary the provisions of
this Agreement, and each party hereby irrevocably waives, and the arbitrator
shall have no power to award, any damages for pain and suffering, punitive
damages, consequential damages, or any other special damages in any arbitration
proceeding subject to this subparagraph (g). Subject to the foregoing, the
arbitrator shall have the power to determine if any issue is arbitrable under
this Agreement.
EMPLOYEE UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING
THIS AGREEMENT, AND THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST THE
COMPANY WHETHER ARISING PRIOR TO, DURING OR AFTER THE TERM BY SIGNING THIS
AGREEMENT EXCEPT FOR THE COMPANY'S OBLIGATIONS DESCRIBED IN SECTION 1 HEREOF.
EMPLOYEE ACKNOWLEDGES THAT HE HAS BEEN GIVEN THE OPPORTUNITY, IF HE SO DESIRED,
TO CONSIDER THIS AGREEMENT FOR TWENTY-ONE (21) DAYS BEFORE EXECUTING IT. IN THE
EVENT THAT EMPLOYEE HAS EXECUTED THIS AGREEMENT WITHIN LESS THAN TWENTY-ONE (21)
DAYS OF THE DATE OF DELIVERY TO HIM, EMPLOYEE ACKNOWLEDGES THAT SUCH DECISION
WAS ENTIRELY VOLUNTARY AND THAT HE HAD THE OPPORTUNITY TO CONSIDER THIS
AGREEMENT FOR THE ENTIRE TWENTY-ONE (21) DAY PERIOD. THE COMPANY ACKNOWLEDGES
THAT FOR A PERIOD OF SEVEN (7) DAYS FROM THE DATE OF EXECUTION OF THIS
AGREEMENT, EMPLOYEE SHALL RETAIN THE RIGHT TO REVOKE THIS AGREEMENT BY WRITTEN
NOTICE THAT IS RECEIVED BY THE COMPANY BEFORE THE END OF SUCH 7 DAY PERIOD, AND
THAT THIS AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE
EXPIRATION OF SUCH REVOCATION PERIOD.
The North Face, Inc.,
- ------------------------------- a Delaware corporation
William A. McFarlane
Address: By
----------------------
Marsden S. Cason
Chief Executive Officer
Address: 2013 Farallon Drive
San Leandro, CA 94577
9
<PAGE>
EXHIBIT 10.18
[LETTERHEAD]
TRADEMARK LICENSE
PARTIES:
The North Face
999 Harrison Street
Berkeley, CA 94710 ("Licensee")
and
W. L. Gore & Associates, Inc.
555 Paper Mill Road
P.O. Box 9329
Newark, DE 19714-9329 ("Gore")
WHEREAS:
Licensee has the ability to produce and market high quality products
incorporating advanced fabric and construction technologies, resulting in
products uniquely suited to their intended uses successfully placed into the
hands of satisfied consumers. Licensee desires to produce high quality products
incorporating high technology fabrics, related items, and advanced design and
construction techniques supplied by Gore, and to make use of trademarks owned by
Gore to promote and sell these products. Gore desires to license its
trademark(s) listed on Schedule B (the "Mark") to customers who will supply the
market with high quality products which will produce consumer satisfaction and
enhance the value of the Mark as a brand, producing mutually beneficial results
and growth in the respective businesses of Licensee and Gore.
1. Subject to the remaining terms of this Agreement, including all
Schedules to it, Gore grants to Licensee a non-exclusive, non-transferable
License to use the Mark under the terms and conditions set forth below. The
Mark may be used only on products that are of styles and constructions which
have been approved in advance by Gore, and meet the quality standards contained
in Schedule A. These items are hereinafter referred to as "Products." In
consideration for this License, Licensee agrees to honor the conditions hereof,
and shall pay Gore a one-time royalty of U.S. $1.00.
2. Licensee recognizes Gore's ownership of the Mark and the validity of
this License. Licensee agrees to do nothing inconsistent with such ownership or
to challenge the validity of this License. Licensee agrees not to use the Mark
in any way not specifically permitted by this License.
3. Licensee agrees that Gore may take all reasonable steps necessary to
continuously monitor the quality of the Products. Such steps may include, but
are not limited to, inspection of manufacturing operations for Products,
inspection and approval of designs, and testing prototypes or samples of
Products submitted to or otherwise obtained by Gore. Gore will maintain such
designs, prototypes and samples in confidence. It is Licensee's responsibility
to obtain Gore's prior written approval of Products under Gore's quality
standards prior to the
<PAGE>
production of Products in commercial quantities. Gore will exert its best
efforts to ensure it does not impede the regular design or production schedule
for Products. Licensee agrees to give Gore reasonable advance notice of any
change in design, materials, or manufacturing process or location for an
approved style. Licensee agrees that it will have all Products manufactured
only by a manufacturer certified by Gore for the manufacture of Products.
4. Licensee represents and warrants to Gore that all Products produced
hereunder shall conform to all applicable specifications and standards,
including those set forth in Schedule A; shall be free from defects in materials
and workmanship; and shall be merchantable and fit for the purpose for which
they are intended.
5. If for any reason Licensee, or any certified manufacturer acting on
Licensee's behalf, produces Products which do not meet Gore's quality standards,
those Products shall be disposed of only in a manner approved in writing and in
advance by Gore, and all labels and tags identifying Gore or the Mark will be
removed under Gore's supervision.
6. This License expressly includes the right to use the Mark in
advertising and promotional materials. Licensee agrees to use the Mark only in
the manner set forth in the guide for the proper use of the Mark which is
attached hereto as Schedule B, and, if the Mark is to be used in any manner
instructions for which are not contained in Schedule B, Licensee shall seek
Gore's prior written approval and advice regarding the intended usage.
7. Licensee understands and agrees that approval to use the Mark in
conjunction with a particular brand or label owned by Licensee is limited to
that brand or label, and use of the Mark with a different brand or label owned
by Licensee requires Gore's prior written approval even if the Product design
and construction is not modified. Where this is the case, such brands will be
listed in Schedule C. Any change in design, materials, or manufacturing process
or location for an approved style or brand must be approved in writing by Gore
before the Mark may be applied to Products incorporating such change.
8. Any material change in the record or beneficial ownership of
Licensee shall constitute an attempted transfer of this License which Gore may
or may not, in its sole and absolute discretion, approve.
9. The failure of either party to insist upon strict adherence to any
term of this Agreement on any occasion or for any period of time shall not be
considered a waiver, nor shall such failure deprive that party or limit its
exercise of the right thereafter to insist upon strict adherence to that term or
any other terms of this Agreement.
10. (a) This Agreement shall take effect on the date indicated below
and shall continue in force for one (1) year from that date. This Agreement may
be terminated by either party at any time thereafter by giving ninety (90) days'
advance written notice. If this Agreement is not so terminated, then it shall
automatically be renewed for successive one (1) year periods, subject to earlier
termination as provided herein.
(b) This Agreement may be terminated at any time by an agreement
in writing signed by both Parties.
(c) In the event of a breach of this Agreement by either Party at
any time, this Agreement may be terminated by the other Party by giving thirty
(30) days' written notice specifying the breach, provided, however, that the
breaching Party shall have the opportunity to cure the specified breach within
that thirty (30) day period to the satisfaction of the other Party, in which
case this Agreement shall remain in effect.
<PAGE>
11. Upon termination of this Agreement, Licensee undertakes to
discontinue immediately any further use of the Mark when Licensee's
then-existing stock of Products which comply with Gore's quality standards is
exhausted; to destroy all labels, labelling and printed material bearing the
Mark; and not use any trademarks similar to the Mark; Licensee further promises
that after termination of this Agreement, Licensee will not claim that the use
of the Mark by Licensee has created any right, title or interest in or to the
Mark on Licensee's part and shall take whatever steps are necessary to ensure
that the Mark and all goodwill connected with the Mark remain Gore's property.
12. All materials, documents, information and equipment which Gore
supplies or discloses to Licensee, whether in writing or orally, shall be
considered proprietary trade secrets of Gore. Licensee agrees not to disclose
any such matters to any third party without Gore's advance written consent or to
use it in any way detrimental to Gore's interests. Licensee further agrees to
make sure that the dissemination of such information among its employees is
restricted to those persons who have a demonstrated need to have access to it
to design, make, promote and sell Products, and then only after securing a
pledge of confidentiality from them. However, confidential information subject
to the restrictions of this paragraph shall not include
(a) information currently in the public domain;
(b) information which becomes public through no fault of Licensee;
(c) information previously known to Licensee prior to its disclosure to
Licensee by Gore, as shown by Licensee's contemporaneous written records; or
(d) information disclosed to Licensee by a third party not in breach of
any agreement.
Gore agrees to give comparable treatment to any of Licensee's proprietary
information which is specifically identified as such in writing at the time of
disclosure. The obligations of each party under this paragraph will remain in
full force and effect for three (3) years following any termination of this
Agreement.
13. This agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, U.S.A., not including its choice of law
provisions.
14. This Agreement may be amended only in a written document dated after
the date of this Agreement signed by the party sought to be charged, except for
Schedules A, B and C to this Agreement which can be amended by Gore at its
discretion from time to time by sending a copy of the new Schedule to Licensee.
15. This Agreement and the attached Schedules is intended to be the
final written expression of all the terms included herein and the complete and
exclusive statement of the Parties' agreement on the subject governed hereby.
These terms may not be contradicted by evidence of any prior agreement or of a
contemporaneous oral agreement, may be amended only as provided in paragraph 14
above, and may otherwise be explained, supplemented, modified, altered, waived
or suspended only by a writing signed by both Parties. This Agreement and its
Schedules shall for purposes of interpretation, construction and all other
purposes be deemed to have been drafted by both Parties.
<PAGE>
AGREED TO AND ACCEPTED THIS 29 DAY OF OCTOBER, 1993
THE NORTH FACE W. L. GORE & ASSOCIATES, INC.
BY: /s/ William N. Simon /s/ Todd Katz
------------------------ -------------------------------
William N. Simon Todd Katz
- ---------------------------- -------------------------------
(Print Name) (Print Name)
JWB/jes
UNIVTM
1/27/93
Attachments
Schedule A: Quality Standards
Schedule B: Trademark Usage Guide
Schedule C: Customer Brand Name Identification
<PAGE>
Date: 2/23/93
Page 1 of 2
SCHEDULE A
GORE QUALITY STANDARDS
GORE PERFORMANCE STANDARD 1
All garments made of GORE-TEX -Registered Trademark- fabric, including
parkas, jackets, coveralls, pants and the like must meet the following
standards.
End-Use Applications: General Outerwear, Ski
A. Outershell Materials
1. The main body of the garment or insert, including any hood,
cuffs, collar, and flaps must be completely constructed of
GORE-TEX fabric. No partial use of GORE-TEX fabric is allowed.
2. All outer shell materials used in insert products shall have a
minimum spray rating of 80 after 20 wash/dry cycles or 70 after
20 wash cycles.
3. Outer shell materials used in insert products shall have a
maximum moisture vapor resistance (Ret) of 45 (10 to the power
of -3 m to the power of 2 mbar/w). This is the equivalent of a
minimum MVTR of 15,000 gm/m to the power of 2/24 hours (MDM dry
method). If shell exceeds a Ret of 45, a maximum Ret of 90 for
shell and lining combined may be used.
B. Sealed Seams
1. All sealed seams must be sealed with GORE-SEAM -TM- tape or tape
with equivalent performance.
2. The entire width of the GORE-SEAM -TM- tape must be fully
adhered to the fabric when tested by holding the taped seam
horizontally and gently rolling the seam back and forth between
the thumb and forefinger of each hand.
3. Seam tape shall be applied in such fashion that it is centered,
neither the stitch line nor the folded seam allowance being less
than 1/8" (3.2mm) from either edge of the tape.
4. Scorching of knit substrate in three-layer products (including
under the tape) is not allowed.
5. All taped seams must be able to pass a low hydrostatic pressure
test (Suter or equivalent) of 3 psi (0.2 bar) for 2 minutes.
<PAGE>
Date: 2/23/93
Page 2 of 2
SCHEDULE A
GORE QUALITY STANDARDS
GORE PERFORMANCE STANDARD 1
6. Any wrinkles in the GORE-TEX fabric as a result of taped seams
or construction must be repaired so that the resulting seam does
not leak.
7. No threads may extend to the edges of the seam tape.
C. Weather Resistance
1. Leakage through the sealed seams, front closure, pockets or
cuffs to the inside of the garment after exposure to the Gore
Rain Test is not permitted. Insert garments (GORE-TEX -TM- LTD,
GORE-TEX -TM- z-liner, and GORE-TEX -TM- thermodry) which allows
water build up at cuffs and hem shall incorporate drainage
features in these areas.
D. Garment Lining Materials
1. Linings used in garments must have a maximum moisture vapor
resistance (Ret) of 45 (10 to the power of -3 m to the power of
2 mbar/w). This is the equivalent of a minimum MVTR of 15,000
gm/m to the power of 2/24 hours (MDM dry method). For insert
products, if lining exceeds a Ret of 45, a maximum Ret of 90 for
shell and lining combined may be used.
GORE-TEX AND GORE-SEAM are trademarks of W. L. Gore & Associates Inc.
<PAGE>
Date: 2/23/93
Page 1 of 2
SCHEDULE A
GORE QUALITY STANDARDS
GORE PERFORMANCE STANDARDS 2
All garments made of GORE-TEX -Registered Trademark- fabric, including
parkas, jackets, coveralls, pants and the like must meet the following
standards.
End-Use Applications: Backcountry
A. Outershell Materials
1. The main body of the garment or insert, including any hood,
cuffs, collar, and flaps must be completely constructed of
GORE-TEX fabric. No partial use of GORE-TEX fabric is allowed.
2. All outer shell materials used in insert products shall have a
minimum spray rating of 80 after 20 wash/dry cycles or 70 after
20 wash cycles.
3. Outer shell materials used in insert products shall have a
maximum moisture vapor resistance (Ret) of 45 (10 to the power
of -3 m to the power of 2 mbar/w). This is the equivalent of a
minimum MVTR of 15,000 gm/m to the power of 2/24 hours (MDM dry
method). If shell exceeds a Ret of 45, a maximum Ret of 90 for
shell and lining combined may be used.
B. Sealed Seams
1. All sealed seams must be sealed with GORE-SEAM -TM- tape or tape
with equivalent performance.
2. The entire width of the GORE-SEAM -TM- tape must be fully
adhered to the fabric when tested by holding the taped seam
horizontally and gently rolling the seam back and forth between
the thumb and forefinger of each hand.
3. Seam tape shall be applied in such a fashion that it is centered,
neither the stitch line nor the folded seam allowance being less
than 1/8" (3.2mm) from either edge of the tape.
4. Scorching of knit substrate in three-layer products (including
under the tape) is not allowed.
5. All taped seams must be able to pass a low hydrostatic pressure
test (Suter or equivalent) of 3 psi (0.2 bar) for 2 minutes.
<PAGE>
Date: 2/23/93
Page 2 of 2
SCHEDULE A CONT'D
GORE QUALITY STANDARDS
GORE PERFORMANCE STANDARDS 2
6. Any wrinkles in the GORE-TEX fabric as a result of taped seams
or construction must be repaired so that the resulting seam does
not leak.
7. No threads may extend to the edges of the seam tape.
C. Weather Resistance
1. Leakage through the sealed seams, front closure, pockets or
cuffs to the inside of the garment after exposure to the Storm
Test is not permitted. Insert garments (GORE-TEX -TM- LTD,
GORE-TEX -TM- z-liner, and GORE-TEX -TM- thermodry) which allow
water build up at cuffs and hem shall incorporate drainage
features in these areas.
D. Garment Lining Materials
1. Linings used in garments must have a maximum moisture vapor
resistance (Ret) of 45 (10 to the power of -3 m to the power of
2 mbar/w). This is the equivalent of a minimum MVTR of 15,000
gm/m to the power of 2/24 hours (MDM dry method). For insert
products, if lining exceeds a Ret of 45, a maximum Ret of 90 for
shell and lining combined may be used.
GORE-TEX AND GORE-SEAM are trademarks of W. L. Gore & Associates, Inc.
<PAGE>
GORE-TEX -Registered Trademark- GLOVE PROGRAM
SCHEDULE A
GORE QUALITY STANDARDS
SPECIFICATIONS FOR GLOVES INCORPORATING
GORE-TEX -Registered Trademark- GLOVE INSERTS
End-Use Applications: Ski
A. Materials
1. All layers, including liner, insulation, and outer shell must be
moisture vapor permeable unless approved by Gore.
2. Foam cannot be the major source of insulation.
B. Construction
1. The GORE-TEX -TM- insert must be permanently attached at the
cuff area.
2. The sealed portion of the GORE-TEX insert in the finished glove
must be intact, not broken, torn, or punctured.
3. There must be sufficient adherence of layers to avoid liner
inversion in use.
4. The appropriate insert type and size must be used for each
style.
C. Finished Gloves
1. Must be able to pass the Whole Glove Integrity Test (2 psi) and
a five minute dunk test with flexing.
2. Label(s) should clearly indicate the presence of GORE-TEX
inserts and/or laminate and the licensee trademark.
D. Administrative
1. A Gore representative will be allowed access to appropriate
manufacturing site(s) at mutually agreed time intervals.
2. Samples of raw material such as insulation, shell, and lining as
well as representative finished gloves will be submitted to Gore
for testing as needed. This would normally occur when new
styles are developed or as mutually agreed.
<PAGE>
SCHEDULE B
TRADEMARK LICENSE
BETWEEN
THE NORTH FACE
AND
W. L. GORE & ASSOCIATES, INC.
LICENSED TRADEMARK(S)
"GORE-TEX"
"Guaranteed To Keep You Dry"
Attachments
<PAGE>
SCHEDULE B
GUIDE FOR THE PROPER USE OF THE "GORE-TEX" TRADEMARK
When a trademark is used directly on an article, such as a parka,
jacket, shoes, golf suit, etc., manufactured under license to the trademark
owner's specifications, then the article itself supplies the noun and the
trademark can stand alone.
Right: GORE-TEX -TM- alone on a label incrporated in a parka,
jacket, rainsuit, etc.
When a trademark is used in print such as in advertising, catalogues,
hangtags, promotions, brochures, radio, etc., in reference to a licensed
product, it must be followed by its generic or common name.
Right: GORE-TEX -Registered Trademark- parka, GORE-TEX
-Registered Trademark- gloves
4. Trademarks should never be used in the possessive sense.
Right: The popularity of GORE-TEX -Registered Trademark-
products.
Wrong: GORE-TEX's popularity
5. Do not coin new words or terms for a trademark.
Wrong: This fabric has been GORE-TEXED
Wrong: GORE-TEXABLE fabric
6. Trademarks identify and distinguish our products from those of other
companies, therefore, our trademarks must not be combined or
intermingled with the trademarks of other companies.
Right: GORE-TEX -Registered Trademark- golf shoes from ETONIC
-Registered Trademark-
GORE-TEX -Registered Trademark- shoes, the ULTRALIGHT
-TM- collection from TIMBERLAND -TM-
GORE-TEX -Registered Trademark- parka - EXTREME GEAR
-TM- from THE NORTH FACE -Registered Trademark-
Wrong: ETONIC GORE-TEX golf shoes
TIMBERLAND'S GORE-TEX ULTRALIGHTS
THE NORTH FACE GORE-TEX EXTREME GEAR
<PAGE>
SCHEDULE B
Guide To The Proper Use Of The Trademark
"GUARANTEED TO KEEP YOU DRY"
"GUARANTEED TO KEEP YOU DRY" is a slogan trademark to be used in
connection with outerwear manufactured under the auspices of W. L. Gore &
Associates, Inc. It shall only be used on garment styles approved by W. L. Gore
& Associates, Inc.
The trademark should be used either in all caps or initial caps with the
registered mark following:
GUARANTEED TO KEEP YOU DRY -Registered Trademark-
Guaranteed to Keep You Dry -Registered Trademark-
Since slogans do not require the use of a noun, it may be used alone as
above. However, it may also be used in the following manner:
GUARANTEED TO KEEP YOU DRY -Registered Trademark- program
GUARANTEED TO KEEP YOU DRY -Registered Trademark- label
The slogan "GUARANTEED TO KEEP YOU DRY -Registered Trademark-" should
never be used in a non-trademark manner such as:
This parka is guaranteed to keep you dry.
Alternative wording shall be used, for example:
This parka is engineered so you stay comfortable and dry.
<PAGE>
SCHEDULE C
CUSTOMER BRAND NAME IDENTIFICATION
This section identifies Licensee's brand names which may be used on
Products which carry the Gore Trademarks listed in Schedule B.
LICENSED BRAND NAMES:
The North Face
<PAGE>
[LETTERHEAD]
May 20, 1994
Mr. William A. McFarlane
Executive Vice President
The North Face By Fax: (510) 527-5769
999 Harrison Street
Berkeley, California 94710
Dear Mr. McFarlane:
I write to respond to your letters of May 17th to our Mr. Andy Warrender of
our wholly-owned subsidiary, W. L. Gore & Associates UK, Ltd. and Mr. Todd Katz
of our parent corporation, W. L. Gore & Associates, Inc. here in the U.S.
I am pleased to confirm that we are in general agreement with the contents
of your letters, and specifically agree as follows. In the event your group's
bid for the assets of The North Face is successful on or about May 25th, we will
not assert our right to terminate the trademark license agreement between Gore
UK and TNF Scotland dated February 6, 1989, under Clause 8(d) of that agreement.
In addition, in the event all or substantially all of the assets of TNF are sold
on or about May 25th, Gore US will not assert its right to terminate the
trademark license dated October 29, 1993 between Gore US and TNF under Clause 8
thereof. We do, of course, reserve all other rights and benefits of these
trademark licenses, including our rights to require performance of the other
party's obligations in strict accordance with the terms of each contract, and
expressly disclaim any contractual or other obligation with any new party which
is not expressly mentioned in the licenses.
I trust this letter will be satisfactory for your purposes; if not, please
let me know.
Sincerely yours,
/s/ David Clayton Carrad
David Clayton Carrad,
Attorney
cc: Chuck Carroll, APC
Tom Erickson, APC
Todd Katz, Seattle
Andy Warrender, Livingston
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-04107 of The North Face, Inc. of our report dated February 9, 1996 (June 20,
1996 as to Note 16) on the financial statements of The North Face, Inc. and The
North Face ("Predecessor") appearing in the Prospectus, which is a part of this
Registration Statement and to the reference to us under the heading "Experts" in
such Prospectus.
DELOITTE & TOUCHE LLP
San Francisco, California
June 20, 1996
